<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 25, 1997
REGISTRATION NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
K & F INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3728 34-1614845
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
(212) 297-0900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KENNETH M. SCHWARTZ
EXECUTIVE VICE PRESIDENT
K & F INDUSTRIES, INC.
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
(212) 297-0900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH A COPY TO:
GEORGE P. O'SULLIVAN, ESQ.
O'SULLIVAN GRAEV & KARABELL, LLP
30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10112
(212) 408-2400
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
- ------------------------
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 1/4% Senior Subordinated Notes due
2007 $185,000,000 100% $185,000,000 $56,061
===========================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE
AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
Subject to Completion, dated November 25, 1997
PROSPECTUS
K & F INDUSTRIES, INC.
OFFER TO EXCHANGE UP TO $185,000,000 OF ITS
9 1/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
FOR ANY AND ALL OF ITS OUTSTANDING
9 1/4% SENIOR SUBORDINATED NOTES DUE 2007
---------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED.
---------------------------
K & F Industries, Inc. (the "Company") hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus and the accompanying
Letter of Transmittal (which together constitute the "Exchange Offer"), to
exchange $1,000 principal amount of 9 1/4% Series B Senior Subordinated Notes
due 2007 (the "New Notes") of the Company for each $1,000 principal amount of
the issued and outstanding 9 1/4% Senior Subordinated Notes due 2007 (the "Old
Notes," and the Old Notes and the New Notes, collectively, the "Notes") of the
Company from the Holders (as defined) thereof. As of the date of this
Prospectus, there is $185,000,000 aggregate principal amount of the Old Notes
outstanding. The terms of the New Notes are identical in all material respects
to the Old Notes, except that the New Notes have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and therefore will
not bear legends restricting their transfer and will not contain certain
provisions providing for the payment of liquidated damages to the holders of the
Old Notes under certain circumstances relating to the Registration Rights
Agreement (as defined), which provisions will terminate as to all of the Notes
upon the consummation of the Exchange Offer.
Interest on the New Notes will accrue from October 15, 1997 and will be
payable in cash semi-annually in arrears on April 15 and October 15 of each
year, commencing April 15, 1998. No interest will be payable on the Old Notes
accepted for exchange.
The New Notes will be general unsecured obligations of the Company and will
be subordinated in right of payment to all existing and future Senior
Indebtedness (as defined) of the Company. The Company conducts its operations
solely through its subsidiaries and, accordingly, the New Notes will be
effectively subordinated to indebtedness and other liabilities of its
subsidiaries, including borrowings under the New Credit Facility (as defined).
As of September 30, 1997, after giving pro forma effect to the offering of the
Old Notes (the "Offering"), application of the net proceeds therefrom,
borrowings under the New Credit Facility and the other transactions comprising
the recapitalization (the "Recapitalization") of the Company, the Company would
have had approximately $345.0 million of Senior Indebtedness outstanding and the
Company's subsidiaries would have had other liabilities of approximately $81.0
million outstanding. See "Capitalization" and "Description of the
Notes -- Subordination."
The Old Notes were not registered under the Securities Act in reliance upon
an exemption from the registration requirements thereof. In general, the Old
Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act. The New Notes are being offered hereby in order to satisfy
certain obligations of the Company contained in the Registration Rights
Agreement. Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by any holder thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 promulgated under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holder's business, such holder has no arrangement
with any person to participate in the distribution of such New Notes and neither
such holder nor any such other person is engaging in or intends to engage in a
distribution of such New Notes. Notwithstanding the foregoing, each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with any resale of New Notes received in
exchange for such Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Company). The
Company has agreed that, for a period of one year after the date of this
Prospectus, it will make this Prospectus available to any broker-dealer for use
in connection with any such resale.
The Old Notes are designated for trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") market. There is no
established trading market for the New Notes. The Company does not currently
intend to list the New Notes on any securities exchange or to seek approval for
quotation through any automated quotation system. Accordingly, there can be no
assurance as to the development or liquidity of any market for the New Notes.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all of the expenses incident to the Exchange Offer. Tenders of
Old Notes pursuant to the Exchange Offer may be withdrawn as provided herein at
any time prior to the Expiration Date (as defined). The Exchange Offer is
subject to certain customary conditions.
---------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING OLD NOTES IN THE
EXCHANGE OFFER.
---------------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3
K & F INDUSTRIES, INC.
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(b),
SHOWING LOCATION OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 LOCATION OR
ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS
------------------------------------------- -------------------------------------------
<C> <S> <C>
(1) Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Facing Page of Registration Statement;
Cross-Reference Sheet; Outside Front Cover
Page of Prospectus
(2) Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front and Outside Back Cover Pages
of Prospectus; Available Information
(3) Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............ Prospectus Summary; Risk Factors; Selected
Historical Consolidated Financial
Information
(4) Terms of the Transaction................... Prospectus Summary; The Exchange Offer;
Description of the Notes
(5) Pro Forma Financial Information............ Prospectus Summary; Capitalization;
Unaudited Pro Forma Consolidated Financial
Information; Management's Discussion and
Analysis of Financial Condition and
Results of Operations
(6) Material Contacts With the Company Being
Acquired................................. *
(7) Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters....................... Plan of Distribution
(8) Interests of Named Experts and Counsel..... *
(9) Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
(10) Information With Respect to S-3
Registrants.............................. *
(11) Incorporation of Certain Information by
Reference................................ *
(12) Information With Respect to S-2 or S-3
Registrants.............................. *
(13) Incorporation of Certain Information by
Reference................................ *
(14) Information With Respect to Registrants
Other Than S-3 or S-2 Registrants........ Prospectus Summary; Risk Factors; Selected
Historical Consolidated Financial
Information; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Description of Certain Indebtedness
(15) Information With Respect to S-3
Companies................................ *
(16) Information With Respect to S-2 or S-3
Companies................................ *
(17) Information With Respect to Companies Other
Than S-3 or S-2 Companies................ *
(18) Information if Proxies, Consents or
Authorizations Are to be Solicited....... *
(19) Information if Proxies, Consents or
Authorizations Are Not to be Solicited or
in an Exchange Offer..................... Management; Security Ownership; Certain
Transactions
</TABLE>
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Prospective investors should carefully consider the information set forth under
the heading "Risk Factors." References to worldwide markets and market share
information contained herein have been derived from information compiled by the
Company due to the lack of independently compiled information. Such references
exclude markets formerly controlled by the U.S.S.R. about which accurate
information is not readily available. Effective December 31, 1996, the Company
changed its fiscal year-end from March 31 to December 31.
THE COMPANY
K & F Industries, Inc. (the "Company") is, through its wholly owned
subsidiary, Aircraft Braking Systems Corporation ("Aircraft Braking Systems"),
one of the world's leading manufacturers of aircraft wheels, brakes and
anti-skid systems for commercial, general aviation and military aircraft,
supplying approximately 22% of the worldwide market for these products. Aircraft
Braking Systems' products are marketed internationally through 10 sales offices
located in four countries and are used on over 30,000 commercial, general
aviation and military aircraft. The Company is, through its other wholly owned
subsidiary, Engineered Fabrics Corporation ("Engineered Fabrics"), the leading
worldwide manufacturer of aircraft fuel tanks, supplying approximately 90% of
the worldwide commercial transport and general aviation market and over half of
the domestic military market for such products. During the twelve months ended
September 30, 1997 (the "LTM Period"), the Company reported revenues of $294.5
million, of which 89.3% were derived from sales made by Aircraft Braking
Systems, and EBITDA (as defined) of $81.3 million.
Aircraft Braking Systems
Aircraft Braking Systems is a leading manufacturer of integrated braking
systems for aircraft and replacement parts for those systems. As is customary in
the industry, Aircraft Braking Systems supplies original wheels and brakes for
commercial aircraft to aircraft manufacturers at or substantially below the
production cost of such equipment. Once a manufacturer's wheels and brakes have
been certified and installed on an aircraft, Federal Aviation Administration
("FAA") regulations and similar requirements in foreign countries generally
require that all replacement parts for such systems be provided by such
manufacturer. The FAA also requires the replacement of such parts at regular
intervals, which for medium- and short-range commercial aircraft generally
averages once or twice a year. Since most modern aircraft have a useful life of
25 years or longer and require scheduled replacement of certain components of
the braking system, the Company typically recoups its initial investment in
original equipment and generates significant profits from sales of replacement
parts over the life of the aircraft. From April 1, 1994 through December 31,
1996, the Company spent and expensed an aggregate of approximately $101.0
million for research, development and design and the supply of original wheel
and brake equipment to aircraft manufacturers. During the LTM Period,
approximately 75% of Aircraft Braking Systems' total revenues were derived from
the sale of replacement parts for braking systems previously sold by Aircraft
Braking Systems.
Aircraft Braking Systems also manufactures anti-skid systems for use on a
variety of commercial, military and general aviation aircraft. These systems,
which are integrated into a braking system, are designed to minimize the
distance required to stop an aircraft by utilizing sensors, mounted in the axle
and driven by the wheel, to maximize the braking force while also preventing the
wheels from locking and skidding. Of the three principal competitors in the
wheel and brake industry, Aircraft Braking Systems is the only significant
manufacturer of anti-skid systems. Because of the sensitivity of anti-skid
systems to variations in brake performance, the Company believes that the
ability to integrate the design and performance characteristics of wheels,
brakes and integrated anti-skid systems provides Aircraft Braking Systems with a
competitive advantage over its two principal competitors. Other products
manufactured by Aircraft Braking Systems include helicopter rotor brakes and
brake temperature monitoring equipment for various types of aircraft.
Aircraft Braking Systems currently sells its products to virtually all
major airframe manufacturers and commercial airlines and to the United States
and certain foreign governments. Since 1989, Aircraft Braking
1
<PAGE> 5
Systems has carefully directed its efforts toward expanding its presence in the
commercial and general aviation segments of the aircraft industry, focusing
particularly on medium- and short-range commercial aircraft. As a result of
these efforts, during this period, Aircraft Braking Systems has added
approximately 1,200 medium-and short-range commercial aircraft to the portfolio
of aircraft using its products. These aircraft typically make more frequent
landings than long-range commercial aircraft and correspondingly require more
frequent replacement of brake parts. Aircraft Braking Systems has been
successful in having its wheels and brakes selected for use on a number of
recent airframe designs that serve this market, including the Airbus Industries
("Airbus") A-321, the McDonnell Douglas Corp. ("McDonnell Douglas," recently
acquired by The Boeing Company) MD-80 and MD-90 programs, the Canadair Regional
Jet, the Canadair RJ-700, the Saab-Scania AB ("Saab") S340 and S2000, the Lear
60 and the Fokker Aircraft ("Fokker") Fo-70 and Fo-100. Aircraft Braking Systems
has also been successful in having its brakes selected for use on certain
long-range commercial aircraft produced by Airbus, specifically the A-330 and
A-340. These long-range aircraft programs enhance the competitive position of
Aircraft Braking Systems with Airbus and commercial airlines utilizing Airbus
aircraft. The Company believes that these new airframes will expand the
portfolio of aircraft using Aircraft Braking Systems' products and that the
revenues generated from such aircraft will eventually replace and exceed the
revenues generated by the aircraft programs in Aircraft Braking Systems' current
portfolio as the aircraft in those programs reach the end of their useful lives.
Engineered Fabrics
With its proprietary technology, Engineered Fabrics is the only
FAA-certified supplier of polyurethane manufactured fuel tanks in the United
States. Certain fuel tanks produced by Engineered Fabrics feature "selfsealing"
technology that significantly reduces the potential for fires, leaks and spilled
fuel following a crash. Recent programs awarded to Engineered Fabrics in which
this technology is being used include production or replacement parts programs
for the U.S. Navy's F-18 C/D and E/F aircraft and F-15, F-16 and C-130 aircraft.
Engineered Fabrics also competes in the nitrile-designed aircraft fuel tank
market and won a three-year requirements contract in 1996 to supply nitrile fuel
tanks to the U.S. Navy for its F-14 aircraft. Engineered Fabrics has been
selected by the U.S. Army to equip its new stealth RAH-66 Comanche helicopter
with fuel tanks and by McDonnell Douglas to supply fuel tanks for the MD-600
Program. Engineered Fabrics has also been awarded the Bell/Boeing V-22 Osprey
Program. In addition to producing and supplying fuel tanks, Engineered Fabrics
manufactures and sells iceguards, inflatable oil booms and various other
products made from coated fabrics for commercial and military uses.
The Company is a Delaware corporation formed on March 13, 1989. The Company
is the successor to the businesses of Aircraft Braking Systems and Engineered
Fabrics formed by Goodyear Tire & Rubber Company, Inc. ("Goodyear") in 1929. The
principal executive offices of the Company are located at 600 Third Avenue, New
York, New York 10016 and its telephone number is (212) 297-0900.
RECENT DEVELOPMENTS
Over the last several years, the Company has introduced a number of new
programs at Aircraft Braking Systems to enhance manufacturing efficiency and
reduce raw material costs. In April 1997, the Company completed an $18.0 million
expansion of its carbon disk manufacturing facility in Akron, Ohio, which has
increased annual carbon production capacity sixfold to 200,000 pounds and has
enabled the Company to control the source of material for its carbon brakes. The
Company believes that if operated at or near full capacity and at expected
operating efficiencies, the expanded facility will significantly reduce the
Company's cost of carbon, previously purchased from third parties. While there
can be no assurance that such cost savings will be achieved, management of the
Company estimates that approximately $13.2 million of annualized savings in the
cost of carbon could be achieved by the 1998 fiscal year end. During the LTM
Period, after giving pro forma effect to the Recapitalization, and assuming the
full realization of such estimated cost savings, the Company's adjusted EBITDA
would have been $93.5 million. See "Risk Factors -- Ability to Achieve
Anticipated Cost Savings." The Company has also implemented cell based
manufacturing, which has improved productivity, reduced costs and enhanced the
quality of Aircraft Braking Systems' products.
2
<PAGE> 6
THE RECAPITALIZATION
On October 15, 1997, concurrently with the closing of the Offering, the
Company consummated the Recapitalization, consisting of the following
transactions:
1. Pursuant to a Stock Purchase Agreement entered into on September
15, 1997 (the "Stock Purchase Agreement"), the Company repurchased
approximately 64% of its outstanding capital stock for a total purchase
price, paid in cash, of $230.2 million. Upon giving effect to the
repurchase, Bernard L. Schwartz ("BLS") and certain merchant banking
partnerships (collectively, the "Lehman Investors") affiliated with Lehman
Brothers Holdings Inc.("LBH") each became the owner of 50% of the capital
stock of the Company. The implied aggregate value of such retained capital
stock is $130.0 million (the "Retained Equity Interest").
2. The Company repaid all of its outstanding indebtedness ($54.5
million) under the Amended and Restated Credit Agreement dated as of August
14, 1996, among Aircraft Braking Systems, Engineered Fabrics, The Chase
Manhattan Bank, as agent, and the Lenders signatory thereto (the "Existing
Credit Agreement").
3. The Company made provision for the redemption of the remaining
$70.0 million outstanding principal amount of its 11 7/8% Senior Secured
Notes Due 2003 (the "Senior Notes") by irrevocably depositing $77.5 million
(representing a price of 105.28% of the principal amount of the Senior
Notes, plus accrued interest through the expected redemption date) with the
trustee (the "Senior Notes Trustee") under the indenture governing the
Senior Notes. Concurrently with such deposit, the Company caused the Senior
Notes Trustee to send a notice to the holders of the Senior Notes to the
effect that such Senior Notes will be redeemed 30 days from the date of
such notice.
4. In addition to the repayment of its outstanding indebtedness under
the Existing Credit Agreement and provision for the redemption of the
Senior Notes, the Company purchased, for cash, all of the $140 million
aggregate principal amount of its 10 3/8% Senior Subordinated Notes due
2004 (the "Existing Notes") pursuant to a tender offer and consent
solicitation (collectively, the "Tender Offer"). The aggregate price paid
for the Existing Notes (including accrued interest and Tender Offer
premiums and related fees and expenses) was $160.9 million.
5. The Company entered into a new credit facility (the "New Credit
Facility") that provides for a term loan facility in an aggregate principal
amount of $322.0 million (the "Term Loan") and a revolving credit facility
in an aggregate principal amount of up to $50.0 million (the "Revolving
Loan"), of which $23.0 million was drawn at the time of the
Recapitalization. The Term Loan consists of a Tranche A term loan ("Term
Loan A") in the principal amount of $50.0 million and a Tranche B term loan
("Term Loan B") in the principal amount of $272.0 million. See "Description
of Certain Indebtedness -- New Credit Facility."
The Company issued the Old Notes for net proceeds of approximately $178.4
million (after deducting expenses payable by the Company in connection with the
Offering). The Company used such proceeds, together with borrowings under the
New Credit Facility, to effect the Recapitalization.
3
<PAGE> 7
The following table illustrates the sources and uses of funds for the
Recapitalization.
($ in millions)
<TABLE>
<CAPTION>
SOURCES OF FUNDS AMOUNT
- ------------------------------------ ------
<S> <C>
Cash Sources:
New Credit Facility............... $345.0
The Offering...................... 185.0
Cash on Hand...................... 5.0
------
Total Cash Sources........ $535.0
------
Other Sources:
Retained Equity Interest.......... 130.0
------
Total Sources............. $665.0
======
USES OF FUNDS AMOUNT
- ------------------------------------ ------
Cash Uses:
Repayment of Borrowings under
Existing Credit Agreement(a)... $ 54.8
Redemption of Senior Notes(a)..... 73.1
Purchase of Existing Notes(a)..... 141.8
Purchase of Equity Interests...... 230.2
Estimated Fees and Expenses(b).... 35.1
------
Total Cash Uses........... $535.0
------
Other Uses:
Retained Equity Interest.......... 130.0
------
Total Uses................ $665.0
======
</TABLE>
- ---------------
(a) Includes accrued interest.
(b) Includes the redemption premium on the Senior Notes in the amount of $3.7
million and the Tender Offer premium and related fees and expenses in the
amount of $19.1 million.
The Offering and each of the transactions described in paragraphs 1 through
5 above are collectively referred to herein as the "Recapitalization."
4
<PAGE> 8
THE EXCHANGE OFFER
REGISTRATION RIGHTS
AGREEMENT.................. The Old Notes were sold by the Company on October
15, 1997 to Lehman Brothers Inc. and Unterberg
Harris (the "Initial Purchasers"), who placed the
Old Notes with institutional investors, a limited
number of accredited investors and a limited number
of foreign purchasers in offshore transactions. In
connection therewith, the Company and the Initial
Purchasers executed and delivered for the benefit
of the holders of the Old Notes a registration
rights agreement (the "Registration Rights
Agreement") providing, among other things, for the
Exchange Offer.
THE EXCHANGE OFFER......... New Notes are being offered in exchange for a like
principal amount of Old Notes. As of the date
hereof, $185,000,000 aggregate principal amount of
Old Notes are outstanding. The Company will issue
the New Notes to Holders promptly following the
Expiration Date. See "Risk Factors -- Consequences
of Failure to Exchange."
EXPIRATION DATE............ 5:00 p.m., New York City time, on
, unless the Exchange Offer is
extended as provided herein, in which case the term
"Expiration Date" means the latest date and time to
which the Exchange Offer is extended.
INTEREST................... Each New Note will bear interest from October 15,
1997, the date of original issuance of the Old
Notes. No interest will be paid on the Old Notes
accepted for exchange.
CONDITIONS TO THE EXCHANGE
OFFER.................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. The
Company reserves the right to amend, terminate or
extend the Exchange Offer at any time prior to the
Expiration Date upon the occurrence of any such
condition. See "The Exchange Offer -- Conditions."
PROCEDURES FOR TENDERING
OLD NOTES.................. Each Holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, or
an Agent's Message (as defined) in accordance with
the instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the
Old Notes and any other required documentation to
the exchange agent (the "Exchange Agent") at the
address set forth herein. By executing the Letter
of Transmittal or delivering an Agent's message,
each Holder will represent to the Company, among
other things, that (i) the New Notes acquired
pursuant to the Exchange Offer by the Holder and
any beneficial owners of Old Notes are being
obtained in the ordinary course of business of the
person receiving such New Notes, (ii) neither the
Holder nor such beneficial owner has an arrangement
with any person to participate in the distribution
of such New Notes, (iii) neither the Holder nor
such beneficial owner nor any such other person is
engaging in or intends to engage in a distribution
of such New Notes and (iv) neither the Holder nor
such beneficial owner is an "affiliate," as defined
under Rule 405 promulgated under the Securities
Act, of the Company. Each broker-dealer that
receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired
by such broker-dealer as a result of marketmaking
activities or other trading activities (other than
Old Notes acquired directly from the Company), may
participate in the
5
<PAGE> 9
Exchange Offer but may be deemed an "underwriter"
under the Securities Act and, therefore, must
acknowledge in the Letter of Transmittal that it
will deliver a prospectus in connection with any
resale of such New Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. See "The Exchange
Offer -- Procedures for Tendering" and "Plan of
Distribution."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered Holder
promptly and instruct such registered Holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such
beneficial owner's own behalf, such beneficial
owner must, prior to completing and executing the
Letter of Transmittal or delivering an Agent's
Message and delivering such beneficial owner's Old
Notes, either make appropriate arrangements to
register ownership of the Old Notes in such
beneficial owner's name or obtain a properly
completed bond power from the registered Holder.
The transfer of registered ownership may take
considerable time. See "The Exchange
Offer -- Procedures for Tendering."
GUARANTEED DELIVERY
PROCEDURES................. Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or an Agent's Message or
any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Old Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery
Procedures."
WITHDRAWAL RIGHTS.......... Tenders may be withdrawn as provided herein at any
time prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange
Offer -- Withdrawal of Tenders."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES.... The Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange Offer."
EXCHANGE AGENT............. State Street Bank and Trust Company is serving as
Exchange Agent in connection with the Exchange
Offer. See "The Exchange Offer -- Exchange Agent."
USE OF PROCEEDS............ There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
CONSEQUENCES OF FAILURE TO
EXCHANGE................. Holders of Old Notes who do not exchange their Old
Notes for New Notes pursuant to the Exchange Offer
will continue to be subject to the restrictions on
transfer of such Old Notes as set forth in the
legend thereon as a consequence of the issuance of
the Old Notes pursuant to
6
<PAGE> 10
exemptions from, or in transactions not subject to,
the registration requirements of the Securities Act
and applicable state securities laws. In general,
Old Notes may not be offered or sold unless
registered under the Securities Act, except
pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable
state securities laws.
SUMMARY DESCRIPTION OF THE NEW NOTES
The Exchange Offer applies to $185,000,000 aggregate principal amount of
Old Notes. The terms of the New Notes are identical in all material respects to
the Old Notes, except that the New Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting their transfer
and will not contain certain provisions providing for the payment of liquidated
damages to the holders of the Old Notes under certain circumstances relating to
the Registration Rights Agreement, which provisions will terminate as to all of
the Notes upon the consummation of the Exchange Offer. The New Notes will
evidence the same debt as the Old Notes and, except as set forth in the
immediately preceding sentence, will be entitled to the benefits of the
Indenture, under which both the Old Notes were, and the New Notes will be,
issued. See "Description of the Notes."
The New Notes.............. $185,000,000 aggregate principal amount of 9 1/4%
Senior Subordinated Notes Due 2007 (the "New
Notes").
MATURITY DATE.............. October 15, 2007.
INTEREST PAYMENT DATES..... April 15 and October 15, commencing April 15, 1998.
MANDATORY REDEMPTION....... None.
OPTIONAL REDEMPTION........ The New Notes will be redeemable at the option of
the Company, in whole or in part, at any time on or
after October 15, 2002, at the redemption prices
set forth herein, plus accrued and unpaid interest
to the date of redemption. In addition, on or
before October 15, 2000, the Company may, at its
option, redeem up to an aggregate of $65.0 million
in aggregate principal amount of the Notes at a
redemption price of 109.25% of the principal amount
thereof, in each case plus accrued and unpaid
interest through the redemption date, with the net
proceeds of one or more underwritten public
offerings of common stock of the Company, provided
at least $120.0 million in aggregate principal
amount of the Notes shall remain outstanding after
the occurrence of such redemption. See "Description
of the Notes -- Optional Redemption."
CHANGE OF CONTROL.......... In the event of a Change of Control (as defined),
each holder of the Notes will have the right, at
the holder's option, to require the Company to
purchase such holder's Notes, in whole or in part,
at a purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest
thereon to the date of purchase. See "Description
of the Notes -- Repurchase at the Option of
Holders."
RANKING.................... The New Notes will be general unsecured obligations
of the Company and will be subordinated in right of
payment to all existing and future Senior
Indebtedness (as defined), including all
obligations of the Company and its subsidiaries
under the New Credit Facility (as defined), and
will be senior in right of payment to or pari passu
with all other indebtedness of the Company. The
Company conducts its operations solely through its
subsidiaries and, accordingly, the New Notes will
be effectively subordinated to indebtedness and
other liabilities of its subsid-
7
<PAGE> 11
iaries. As of September 30, 1997, after giving pro
forma effect to the Recapitalization, the Company
would have had approximately $345.0 million of
Senior Indebtedness outstanding and the Company's
subsidiaries would have had other liabilities of
approximately $81.0 million outstanding. See
"Capitalization" and "Description of the Notes --
Subordination."
CERTAIN COVENANTS.......... The Indenture pursuant to which the Old Notes were,
and the New Notes will be, issued (the "Indenture")
contains certain covenants that, among other
things, limit the ability of the Company and its
subsidiaries to (i) incur additional indebtedness,
(ii) pay dividends or make certain other restricted
payments, (iii) enter into transactions with
affiliates, (iv) create certain liens, (v) make
certain asset dispositions and (vi) merge or
consolidate with, or transfer substantially all
assets to, another person. The Indenture also
limits the ability of the Company's subsidiaries to
issue preferred stock and to create restrictions on
the ability of such subsidiaries to pay dividends
or make any other distributions. In addition, the
Company is obligated, under certain circumstances,
to offer to purchase the Notes with the net cash
proceeds of certain sales and other dispositions of
assets at a purchase price of 100% of the principal
amount of the Notes, plus accrued and unpaid
interest to the date of purchase. See "Description
of the Notes -- Repurchase at the Option of
Holders" and "-- Certain Covenants."
8
<PAGE> 12
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following table presents summary unaudited pro forma consolidated
financial information for the LTM Period, giving effect to the Recapitalization.
The pro forma income statement and other data give effect to the
Recapitalization as if it had been consummated as of the first day of the period
indicated. The pro forma balance sheet information gives effect to the
Recapitalization as if it had been consummated as of September 30, 1997. The pro
forma income statement and other data do not reflect certain non-recurring
charges related to the Recapitalization, including a $12.0 million charge
relating to the exercise of stock options and other fees, and is not necessarily
indicative of the results that actually would have been achieved had the
Recapitalization been consummated as of the dates indicated or that might be
achieved in current or future periods. The financial information set forth below
should be read in conjunction with the historical consolidated financial
statements of the Company and the related notes thereto, "Unaudited Pro Forma
Consolidated Financial Information," "Selected Historical Consolidated Financial
Information" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," all included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
SEPTEMBER 30, 1997
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
INCOME STATEMENT DATA:
Net Sales............................................................................................. $ 294,496
Cost of sales......................................................................................... 186,697
---------
Gross margin........................................................................................ 107,799
Independent research and development.................................................................. 10,452
Selling, general and administrative expenses.......................................................... 25,462
Amortization.......................................................................................... 10,341
---------
Operating income.................................................................................... 61,544
Interest expense(a)................................................................................... 46,688
---------
Income before income taxes and extraordinary charge................................................... 14,856
Income tax provision.................................................................................. (5,466)
---------
Income before extraordinary charge.................................................................... 9,390
Extraordinary charge.................................................................................. (1,713)
---------
Net income.......................................................................................... $ 7,677
=========
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital....................................................................................... $ 39,059
Total assets.......................................................................................... 414,715
Long-term debt (including current portion)............................................................ 530,000
Stockholders' deficiency.............................................................................. (272,077)
OTHER DATA (FOR THE PERIOD):
EBITDA(b)............................................................................................. $ 81,270
Cash Interest Expense(c).............................................................................. 45,188
Capital expenditures.................................................................................. 11,600
Depreciation and amortization......................................................................... 19,726
</TABLE>
- ---------------
(a) Interest expense includes an adjustment (at an assumed rate of 8.1% for the
New Credit Facility and the actual rate of 9.25% for the Notes) associated
with the borrowings under the New Credit Facility and the Notes, the
amortization of deferred financing costs and the elimination of historical
interest expense related to the Recapitalization.
(b) EBITDA represents operating income plus depreciation and amortization. While
EBITDA should not be construed as a substitute for operating income or as a
better indicator of liquidity than cash flows from operating activities,
which are determined in accordance with generally accepted accounting
principles, EBITDA is included herein to provide additional information with
respect to the ability of the Company to meet its future debt service,
capital expenditures and working capital requirements. EBITDA is not
necessarily a measure of the Company's ability to fund its cash needs.
EBITDA is included herein because the Company believes that certain
investors find it to be a useful tool for measuring the ability to service
debt.
(c) Excludes amortization of deferred financing costs related to the
Recapitalization of $1.5 million.
9
<PAGE> 13
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table presents summary historical consolidated financial
information for the Company for the nine months ended September 30, 1997 and
September 30, 1996, the three months ended March 31, 1996, the nine months ended
December 31, 1996 and December 31, 1995 and the years ended March 31, 1996,
1995, 1994 and 1993. Effective December 31, 1996, the Company changed its fiscal
year-end from March 31 to December 31. The historical financial information of
the Company for the nine months ended December 31, 1996 and for each of the
years ended March 31, 1996, 1995, 1994 and 1993 is derived from the audited
financial statements of the Company. The historical financial information of the
Company for the three months ended March 31, 1996, the nine months ended
September 30, 1997 and September 30, 1996 and the nine months ended December 31,
1995 is derived from the Company's unaudited financial statements which, in the
opinion of management of the Company, contain all adjustments necessary for a
fair presentation of this information. The historical financial information for
the nine months ended September 30, 1997 is not necessarily indicative of the
results expected for the full year. The financial information set forth below
should be read in conjunction with the historical consolidated financial
statements of the Company and the related notes thereto, "Selected Historical
Consolidated Financial Information" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," all included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE
MONTHS
NINE MONTHS ENDED ENDED NINE MONTHS ENDED
SEPTEMBER 30, MARCH 31, DECEMBER 31,
--------------------- --------- ----------------------
1997 1996 1996 1996 1995
-------- -------- --------- -------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales............................. $224,296 $207,455 $64,952 $212,703 $199,784
Cost of sales......................... 140,707 134,981 44,158 136,813 136,277
-------- -------- -------- -------- --------
Gross margin........................ 83,589 72,474 20,794 75,890 63,507
Independent research and
development......................... 7,909 9,237 3,157 8,623 6,610
Selling, general and administrative
expenses............................ 19,318 18,339 7,186 17,297 15,378
Amortization.......................... 7,734 7,805 2,602 7,810 7,813
-------- -------- -------- -------- --------
Operating income.................... 48,628 37,093 7,849 42,160 33,706
Interest expense, net(a).............. 22,778 29,064 9,760 27,197 31,288
-------- -------- -------- -------- --------
Income (loss) before income taxes,
extraordinary charge and cumulative
effect of accounting changes........ 25,850 8,029 (1,911) 14,963 2,418
Income tax (provision) benefit........ (5,767) (220) -- 81 --
-------- -------- -------- -------- --------
Income (loss) before extraordinary
charge and cumulative effect of
accounting changes.................. 20,083 7,809 (1,911) 15,044 2,418
Extraordinary charge.................. (1,713)(b) (9,142)(c) -- (9,142)(c) (1,913)(d)
Cumulative effect of accounting
changes............................. -- -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)................... $ 18,370 $ (1,333) $(1,911) $ 5,902 $ 505
======== ======== ======== ======== ========
BALANCE SHEET DATA
(AT END OF PERIOD):
Working capital....................... $ 35,528 $ 41,669 $36,327 $ 34,189 $ 38,938
Total assets.......................... 410,352 423,515 416,037 419,115 412,028
Long-term debt(h)..................... 263,000 300,000 294,000 287,000 293,000
Stockholders' deficiency(g),(h)....... (15,221) (38,994) (39,701) (33,306) (34,327)
OTHER DATA (FOR THE PERIOD):
EBITDA(i)............................. $ 63,307 $ 51,351 $12,510 $ 56,804 $ 47,966
Capital expenditures.................. 6,026 15,592 7,075 14,091 3,343
Depreciation and amortization......... 14,679 14,258 4,661 14,644 14,260
Ratio of earnings to fixed
charges(j).......................... 2.06x 1.25x 1.49x 1.07x
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------
1996 1995 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales............................. $264,736 $238,756 $226,131 $277,107
Cost of sales......................... 180,435 164,697 159,751 199,002
-------- -------- -------- --------
Gross margin........................ 84,301 74,059 66,380 78,105
Independent research and
development......................... 9,767 8,363 12,858 11,417
Selling, general and administrative
expenses............................ 22,564 19,208 22,421 24,154
Amortization.......................... 10,415 10,411 10,884 10,258
-------- -------- -------- --------
Operating income.................... 41,555 36,077 20,217 32,276
Interest expense, net(a).............. 41,048 46,250 51,953 53,486
-------- -------- -------- --------
Income (loss) before income taxes,
extraordinary charge and cumulative
effect of accounting changes........ 507 (10,173) (31,736) (21,210)
Income tax (provision) benefit........ -- -- -- --
-------- -------- -------- --------
Income (loss) before extraordinary
charge and cumulative effect of
accounting changes.................. 507 (10,173) (31,736) (21,210)
Extraordinary charge.................. (1,913)(d) -- -- (2,477)(e)
Cumulative effect of accounting
changes............................. -- -- (2,305)(f) (73,540)(g)
-------- -------- -------- --------
Net income (loss)................... $ (1,406) $(10,173) $(34,041) $(97,227)
======== ======== ======== ========
BALANCE SHEET DATA
(AT END OF PERIOD):
Working capital....................... $ 36,327 $ 48,025 $ 53,091 $ 70,028
Total assets.......................... 416,037 429,074 446,880 489,968
Long-term debt(h)..................... 294,000 310,000 381,421 379,478
Stockholders' deficiency(g),(h)....... (39,701) (34,748) (90,355) (51,868)
OTHER DATA (FOR THE PERIOD):
EBITDA(i)............................. $ 60,476 $ 54,920 $ 40,744 $ 52,138
Capital expenditures.................. 10,418 2,824 3,127 4,670
Depreciation and amortization......... 18,921 18,843 20,527 19,862
Ratio of earnings to fixed
charges(j).......................... 1.01x
</TABLE>
Footnotes appear on following page.
10
<PAGE> 14
(a) Interest expense, net includes for the nine months ended September 30, 1997
and 1996, for the three months ended March 31, 1996, for the nine months
ended December 31, 1996 and 1995 and for the years ended March 31, 1996,
1995, 1994 and 1993, non-cash interest expense (including amortization of
deferred financing costs and interest associated with the Company's 14 3/4%
Subordinated Convertible Debentures (the "Convertible Debentures")) of
$1,072,000, $1,130,000, $410,000, $1,101,000, $1,151,000, $1,561,000,
$5,432,000, $9,923,000 and $8,789,000, respectively.
(b) On June 1, 1997, the Company redeemed $30,000,000 principal amount of the
Senior Notes. In connection therewith, the Company recorded an
extraordinary charge of $1,713,000 (net of income tax benefit of $553,000).
See Note 2 to the interim consolidated financial statements included
elsewhere in this Prospectus.
(c) During the nine months ended December 31, 1996, the Company redeemed
$180,000,000 principal amount of the Company's 13 3/4% Senior Subordinated
Debentures (the "13 3/4% Debentures"). In connection therewith, the Company
recorded an extraordinary charge of $9,142,000. See Note 7 to the audited
consolidated financial statements included elsewhere in this Prospectus.
(d) On December 28, 1995, the Company redeemed $30,000,000 principal amount of
the 13 3/4% Debentures. In connection therewith, the Company recorded an
extraordinary charge of $1,913,000. See Note 7 to the audited consolidated
financial statements included elsewhere in this Prospectus.
(e) The extraordinary charge of $2,477,000 relates to the accelerated
amortization of unamortized financing costs associated with the prepayment
of a senior term loan in fiscal year 1993.
(f) Represents the cumulative effect of the change in method of accounting for
the discounting of liabilities for workers' compensation losses.
(g) Includes a charge for the cumulative effect of accounting change for
Statement of Financial Accounting Standards ("SFAS") No. 106 ($77,902,000)
and a benefit for the change in method of accounting for certain overhead
costs in inventory ($4,362,000).
(h) On September 2, 1994, the Company retired the $65,400,000 principal amount
of the Convertible Debentures held by Loral Corporation in exchange for
$12,760,000 in cash and 22.5% of the Company's outstanding capital stock. As
a result, the Company's stockholders' equity was increased by $65,400,000
and long-term debt was reduced by an equal amount. See Note 9 to the audited
consolidated financial statements included elsewhere in this Prospectus.
(i) EBITDA represents operating income plus depreciation and amortization. While
EBITDA should not be construed as a substitute for operating income or as a
better indicator of liquidity than cash flows from operating activities,
which are determined in accordance with generally accepted accounting
principles, EBITDA is included herein to provide additional information with
respect to the ability of the Company to meet its future debt service,
capital expenditures and working capital requirements. EBITDA is not
necessarily a measure of the Company's ability to fund its cash needs.
EBITDA is included herein because the Company believes that certain
investors find it to be a useful tool for measuring the ability to service
debt.
(j) For purposes of this computation, earnings consist of income (loss) before
income taxes plus fixed charges (excluding capitalized interest). Fixed
charges consist of interest on indebtedness (including capitalized interest
and amortization of deferred financing costs) plus that portion of lease
rental expense representative of the interest factor (deemed to be one-third
of lease rental expense). The Company's earnings were insufficient to cover
fixed charges by $2,016,000, $10,173,000, $31,736,000 and $21,210,000 for
the three months ended March 31, 1996 and for the years ended March 31,
1995, 1994 and 1993, respectively. Non-cash charges included in the ratio of
earnings to fixed charges and deficiency of earnings available to cover
fixed charges for the nine months ended September 30, 1997 and 1996, for the
three months ended March 31, 1996, for the nine months ended December 31,
1996 and 1995 and the fiscal years ended March 31, 1996, 1995, 1994, 1993
were $15,751,000, $15,388,000, $5,071,000, $15,745,000, $15,411,000,
$20,482,000, $24,275,000, $30,450,000 and $28,651,000, respectively.
Non-cash charges consist of depreciation, amortization, non-cash interest on
the Convertible Debentures and amortization of deferred financing costs.
11
<PAGE> 15
RISK FACTORS
Prospective purchasers of the New Notes should consider carefully the
following matters, as well as the other information contained in this
Prospectus, before making a decision to tender their Old Notes in the Exchange
Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange the Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legends thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. Based on
interpretations by the staff of the Commission set forth in no-action letters
issued to third parties, the Company believes that the New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold or otherwise transferred by any holder thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
promulgated under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business, such holder
has no arrangement with any person to participate in the distribution of such
New Notes and neither such holder nor any such other person is engaging in or
intends to engage in a distribution of such New Notes. Notwithstanding the
foregoing, each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with any resale of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from the Company). The Company has agreed that, for a period of one year from
the date of this Prospectus, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution." However, the ability of any Holder to resell the New Notes is
subject to applicable state securities laws as described in "-- Blue Sky
Restrictions on Resale of New Notes" below.
NECESSITY TO COMPLY WITH EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer, and to avoid the restrictions on
transfer of the Old Notes, Holders of Old Notes must transmit a properly
completed Letter of Transmittal, including all other documents required by such
Letter of Transmittal, to the Exchange Agent at the address set forth below
under "The Exchange Offer -- Exchange Agent" on or prior to the Expiration Date.
In addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
("DTC") pursuant to the procedure for book-entry transfer described herein, must
be received by the Exchange Agent prior to the Expiration Date or (iii) the
Holder must comply with the guaranteed delivery procedures described herein. See
"The Exchange Offer."
BLUE SKY RESTRICTIONS ON RESALE OF NEW NOTES
In order to comply with the securities laws of certain jurisdictions, the
New Notes may not be offered or resold by any Holder unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and the requirements of such
exemption have been satisfied. The Company does not currently intend to register
or qualify the resale of the New Notes in any such
12
<PAGE> 16
jurisdictions. However, an exemption is generally available for sales to
registered broker-dealers and certain institutional buyers. Other exemptions
under applicable state securities laws may also be available.
HIGHLY LEVERAGED POSITION
Debt to Equity Ratio. The Company is highly leveraged. As of September 30,
1997, after giving pro forma effect to the Recapitalization, the Company would
have had approximately $530.0 million of total indebtedness outstanding, the
Company's subsidiaries would have had other liabilities of approximately $81.0
million outstanding, and the Company would have had a stockholders' deficiency
of approximately $272.1 million. See "Capitalization," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Selected
Historical Consolidated Financial Information."
Dependence on Future Performance to Make Debt Payments. The Company's
ability to make required principal and interest payments on its indebtedness is
dependent on the future performance of the Company and its subsidiaries. The
Company's performance is subject to a number of factors beyond its control,
including the performance of the global economy and financial markets, worldwide
demand for air travel, legislative pronouncements, performance of the commercial
and military aircraft industries and other factors affecting the Company and its
subsidiaries.
Operating and Financial Restrictions. The Company's level of indebtedness
and the restrictive covenants contained in its debt instruments could
significantly limit the Company's ability to withstand competitive pressures or
adverse economic consequences, including the ability of the Company to make
investments in aircraft programs and capital expenditures. In addition,
borrowings under the New Credit Facility will be floating rate obligations of
the Company's subsidiaries, causing the Company and its subsidiaries to be
sensitive to changes in prevailing interest rates. The Company currently
believes that, based on current levels of operations and anticipated growth, its
cash flow from operations, together with borrowings from time to time under the
New Credit Facility, will be adequate to allow for anticipated capital
expenditures and investments in original equipment for aircraft programs, to
fund working capital requirements and to make required payments of principal and
interest on its debt. However, if the Company is unable to generate sufficient
cash flow from operations in the future, it may be required to refinance all or
a portion of its debt or to obtain additional financing. There can be no
assurance that any such refinancing would be possible or that any additional
financing could be obtained.
Restrictive Covenants. The Indenture imposes certain operating and
financial restrictions on the Company and its subsidiaries. Such restrictions
affect, and in many respects limit or prohibit, among other things, the ability
of the Company and its subsidiaries to incur additional indebtedness, pay
dividends, permit subsidiaries to issue preferred stock, repay certain
indebtedness prior to its stated maturity, create liens, sell assets or engage
in mergers or acquisitions and make certain capital expenditures. These
restrictions, in combination with the leveraged nature of the Company, could
limit the ability of the Company to effect future financings or otherwise
restrict corporate activity. In addition, the New Credit Facility imposes
certain restrictions on the Company's subsidiaries, including limitations on
additional indebtedness, dividend payments and other distributions from Aircraft
Braking Systems and Engineered Fabrics to the Company.
HISTORY OF NET LOSSES; DEFICIENCY OF EARNINGS TO FIXED CHARGES
The Company had net income of approximately $18.4 million and $5.9 million
for the nine months ended September 30, 1997 and for the nine months ended
December 31, 1996, respectively. However, for the nine months ended September
30, 1996, and for the fiscal years ended March 31, 1996 and 1995, the Company
incurred net losses of approximately $1.3 million, $1.4 million and $10.2
million, respectively. For the nine months ended September 30, 1997 and 1996,
for the nine months ended December 31, 1996, and for the fiscal year ended March
31, 1996, the Company's ratio of earnings to fixed charges was 2.06, 1.25, 1.49
and 1.01, respectively. For the fiscal year ended March 31, 1995, and the three
months ended March 31, 1996, the Company's deficiency of earnings available to
cover fixed charges was approximately $10.2 million and $2.0 million,
respectively. The Company's pro forma ratio of earnings to fixed charges after
giving effect to the Recapitalization would have been 1.37, 1.18 and 1.30 for
the nine months ended September 30, 1997, the nine months ended December 31,
1996, and the LTM Period, respectively. See "Selected Historical Consolidated
Financial Information" and "Management's Discussion and Analysis of Financial
Condition and Results of
13
<PAGE> 17
Operations." The Company's cash flow from operations has been sufficient to meet
its debt service obligations for interest and required principal payments. There
can be no assurance that the Company will not have a deficiency of earnings to
cover fixed charges in the future. The Company expects that, based upon current
operations, it will nonetheless be able to meet required principal and interest
payments on the New Notes. However, no assurance can be given that the Company's
operating results will provide sufficient cash flow to meet its financial
obligations, including payment of principal and interest on the New Notes.
SUBORDINATION
The New Notes will be subordinate to all Senior Indebtedness, which
includes borrowings under the New Credit Facility. In the event of a bankruptcy,
liquidation or reorganization of the Company, the assets of the Company will be
available to pay obligations on the New Notes only after all Senior Indebtedness
has been paid in full, and there may not be sufficient assets remaining to pay
amounts due on any or all of the New Notes. In addition, the Company may not pay
principal or premium, if any, or interest on the New Notes if certain Senior
Indebtedness is not paid when due or any other default on such Senior
Indebtedness occurs and the maturity of such Senior Indebtedness is accelerated
in accordance with its terms, unless in either case such amount has been paid in
full or the default has been cured or waived and such acceleration has been
rescinded. In addition, if any default occurs with respect to certain Senior
Indebtedness and certain other conditions are satisfied, the Company may not
make any payments on the New Notes for a designated period of time. As of
September 30, 1997, after giving pro forma effect to the Recapitalization, the
Company would have had approximately $345.0 million of Senior Indebtedness
outstanding. See "-- Holding Company Structure" and "Description of the
Notes -- Subordination."
HOLDING COMPANY STRUCTURE
The Company will be the sole obligor on the New Notes. The Company's
operations are conducted through, and substantially all of the Company's assets
are owned by, its directly owned operating subsidiaries, Aircraft Braking
Systems and Engineered Fabrics. As a result, the Company will be dependent on
the earnings and cash flow from Aircraft Braking Systems and Engineered Fabrics
to meet its obligations under the New Notes and to pay its general expenses.
Aircraft Braking Systems and Engineered Fabrics provide funds to the Company
through payments on intercompany indebtedness and dividends. Because the assets
of the Company are held by and will continue to be held by these subsidiaries,
the claims of holders of the New Notes will be subject to the prior claims of
creditors of Aircraft Braking Systems and Engineered Fabrics, including the
claims of the lenders (collectively, the "Lenders") under the New Credit
Facility and the claims of trade creditors. As of September 30, 1997, after
giving pro forma effect to the Recapitalization, the Company's subsidiaries
would have had liabilities (including $345.0 million of Senior Indebtedness) of
approximately $426.0 million outstanding. See "Description of Certain
Indebtedness," "Description of the Notes -- Subordination" and "Capitalization."
Aircraft Braking Systems and Engineered Fabrics are the borrowers under the
New Credit Facility. Aircraft Braking Systems and Engineered Fabrics have
secured their obligations under the New Credit Facility by pledging
substantially all of their assets. In addition, the obligations of the
subsidiaries under the New Credit Facility are guaranteed by the Company and
such guarantee is secured by a pledge of all the issued and outstanding stock of
such subsidiaries and intercompany notes held by the Company. The New Notes will
not be secured.
CERTAIN COLLECTIVE BARGAINING MATTERS
All of Aircraft Braking Systems' hourly employees are represented by the
United Auto Workers' Union. In 1991, Aircraft Braking Systems' collective
bargaining agreement with the United Auto Workers' Union expired and a new
collective bargaining agreement was not ratified by the employees of Aircraft
Braking Systems but was implemented by Aircraft Braking Systems unilaterally. As
a result, all employees that would have otherwise been covered by such agreement
have been employed by Aircraft Braking Systems without any
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collective bargaining agreement. The Company believes that Aircraft Braking
Systems will be able to negotiate, without material disruptions to its business,
a satisfactory new collective bargaining agreement with its employees and there
have been, from time to time, discussions regarding this matter with union
representatives. However, there can be no assurance that a satisfactory
agreement will be reached with any of its employees or that discussions
regarding such agreement will not be accompanied by material disruptions to its
business.
INTERESTS OF BLS AND THE LEHMAN INVESTORS
BLS owns 50% of the capital stock of the Company and is entitled to
designate a majority of the Board of Directors. In addition, he serves as
Chairman of the Board of Directors and Chief Executive Officer of the Company.
In his capacity as Chairman and Chief Executive Officer, BLS participates in the
material business decisions relating to the Company and its operations. Pursuant
to a Director Advisory Agreement (the "Advisory Agreement"), BLS provides
certain services to the Company, including acting as director and providing
advisory services to the Company and its subsidiaries. Pursuant to the Advisory
Agreement, the Company pays BLS and persons designated at his discretion an
aggregate of $200,000 per month for such services. BLS and certain other
advisors to the Company participate in certain other incentive compensation
plans. See "Management," "Security Ownership" and "Certain Transactions."
The remaining 50% of the capital stock of the Company is owned by the
Lehman Investors. The Lehman Investors are entitled to designate three members
(in addition to one independent director to be designated jointly with BLS) of
the Company's Board of Directors and have veto rights with respect to certain
corporate actions. See "Security Ownership -- Stockholders' Agreement". In
addition, in the event BLS dies or is permanently disabled, the Lehman Investors
are entitled to designate 50% of the members of the Board of Directors. An
affiliate of the Lehman Investors has from time to time provided investment
banking, financial advisory and other services to the Company, for which
services such affiliate has received fees. In connection with the
Recapitalization, the Company paid several affiliates of the Lehman Investors
certain transaction fees. LCPI (as defined), an affiliate of the Lehman
Investors, is the Syndication Agent under the New Credit Facility and, in such
capacity, is entitled to receive fees in connection therewith. In addition,
Lehman Brothers received fees for acting as Dealer Manager and Solicitation
Agent in connection with the Tender Offer. See "The Recapitalization," "Security
Ownership," "Certain Transactions," "Description of Certain Indebtedness -- New
Credit Facility" and "Plan of Distribution."
IMPACT OF AIR TRANSPORT ACTIVITY; DELIVERY OF NEW AIRCRAFT
During the LTM Period, sales of replacement parts for braking systems
previously installed on aircraft accounted for approximately 75% of Aircraft
Braking Systems' total revenues. The demand for replacement parts for the
Company's wheels and braking systems varies depending upon the number of
aircraft equipped with the Company's products and the number of landings made by
such aircraft. A reduction in airline travel will usually result in reduced
utilization of commercial aircraft, fewer landings, and a corresponding decrease
in the Company's sales of replacement parts and related income and cash flow.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
Since original equipment in new commercial aircraft is supplied at or
substantially below the Company's cost of production, delivery of new aircraft
equipped with the Company's products negatively affects cash flow. The Company's
business plan budgets cash needs based on current delivery schedules of new
aircraft and also accommodates certain increases in aircraft deliveries.
However, significant, unanticipated increases in commercial aircraft deliveries
in a given year could have a material adverse impact on the Company's cash flow
in such year.
SIGNIFICANT CUSTOMER
Sales to the United States government (the "Government") or to prime
contractors or subcontractors of the Government were approximately 12%, 16% and
14% of the Company's total sales for the nine months ended December 31, 1996 and
for the fiscal years ended March 31, 1996 and 1995, respectively. The loss of
all
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or a substantial portion of such sales could have an adverse effect on the
Company's income and cash flow. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Government
Contracts."
ABILITY TO ACHIEVE ANTICIPATED COST SAVINGS
Management of the Company estimates that approximately $13.2 million of
annualized savings in the cost of carbon could be achieved by the 1998 fiscal
year-end from the operation at or near full capacity of the Company's new carbon
manufacturing facility. These cost savings estimates were prepared solely by
members of the management of the Company and are necessarily based on a number
of assumptions as to the future operating efficiencies of the facility and
capacity utilizations, as well as other matters, including general industry,
business and economic conditions, many of which are beyond the control of the
Company. All of such forward-looking statements are based on estimates and
assumptions made by management of the Company that, although believed to be
reasonable, are inherently uncertain and difficult to predict. There can be no
assurance that the cost savings anticipated in these forward-looking statements
will be achieved, nor can there be any assurance that unforeseen costs and
expenses or other factors will not offset any estimated or actual cost savings.
LITIGATION
The Company is involved in a contract dispute with Hitco Technologies, Inc.
("Hitco"), a former supplier of the carbon used by Aircraft Braking Systems to
manufacture carbon brakes. The basis of Hitco's claim in the litigation is that
Aircraft Braking Systems breached the supply arrangements by electing to expand
its own carbon manufacturing facility. Because of the amounts of general damages
alleged, a determination adverse to the Company could be material. While
management does not expect the outcome of the litigation to be unfavorable to
the Company, there can be no assurance as to the outcome of this litigation or
that a judgment against the Company would not materially adversely affect the
Company. Trial of the matters in dispute, in which Aircraft Braking Systems
seeks to defend against the claims against it as well as to recover damages, is
scheduled for January 1998. See "Business -- Supplies and Materials" and
"-- Legal Proceedings."
INDUSTRY CONSOLIDATION
The aircraft industry is experiencing a general trend of consolidation. In
August 1997, two customers of the Company, McDonnell Douglas and The Boeing
Company ("Boeing"), merged. References in this Prospectus to McDonnell Douglas
now refer to Boeing. There can be no assurance as to whether or how such
consolidation in the industry might affect the Company.
POTENTIAL INABILITY TO FUND CHANGE OF CONTROL OFFER
Upon a Change of Control (as defined), each holder of New Notes will have
the right to require the Company to repurchase all or any part of such holder's
New Notes at 101% of the principal amount thereof, plus accrued and unpaid
interest thereon to the date of repurchase. However, there can be no assurance
that sufficient funds will be available to the Company at the time of any Change
of Control to make any required repurchases of New Notes tendered. Moreover,
restrictions in the New Credit Facility prohibit the Company from making such
required repurchases. Therefore, any such repurchases would constitute an event
of default under the New Credit Facility. See "Description of Certain
Indebtedness -- New Credit Facility."
FRAUDULENT CONVEYANCE STATUTES
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court of competent jurisdiction to
subordinate or void the New Notes in favor of existing or future creditors of
the Company.
The proceeds from the sale of the Old Notes were used to effect the
Recapitalization. If a court in a lawsuit on behalf of an unpaid creditor of the
Company or a representative of the Company's creditors, such as
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a trustee in bankruptcy of the Company as a debtor-in-possession, were to
conclude that, at the time the Company paid the net proceeds of the sale of the
Old Notes to the Company's stockholders, the Company (x) intended to hinder,
delay or defraud any present or future creditor or contemplated insolvency with
a design to prefer one or more creditors to the exclusion in whole or in part of
others or (y) did not receive fair consideration or reasonably equivalent value
for issuing the Old Notes (for example, because the stockholders of the Company
and not the Company received the benefits of the issuance of the Old Notes) and
the Company (i) was insolvent, (ii) was rendered insolvent by reason of such
distribution, (iii) was engaged or about to engage in a business or transaction
for which its remaining assets constituted unreasonably small capital to carry
on its business or (iv) intended to incur, or believed that it would incur,
debts beyond its ability to pay such debts as they matured, such court could
void the Notes. Alternatively, in such event, claims of the holders of the Notes
could be subordinated to claims of the other creditors of the Company.
Based upon financial and other information currently available to it,
management of the Company believes that the Old Notes were, and the New Notes
are being, incurred for proper purposes and in good faith and that the Company
is solvent and will continue to be solvent after issuing the New Notes, will
have sufficient capital for carrying on its business after such issuance and
will be able to pay its debts as they mature.
LACK OF PUBLIC MARKET FOR THE NEW NOTES
The New Notes will constitute a new class of securities with no established
trading market. The Company does not intend to list the New Notes on any
national securities exchange or to seek the admission thereof to trading in the
Nasdaq National Market. The Old Notes are designated for trading in the Private
Offerings, Resale and Trading through Automatic Linkages ("PORTAL") market. The
Company has been advised by the Initial Purchasers that the Initial Purchasers
currently intend to make a market in the New Notes. The Initial Purchasers are
not obligated to do so, however, and any market-making activities with respect
to the New Notes may be discontinued at any time without notice. In addition,
such market-making activity will be subject to the limits imposed by the
Securities Act and the Exchange Act, and may be limited during the Exchange
Offer and the pendency of any Shelf Registration Statement. Accordingly, no
assurance can be given that an active public or other market will develop for
the New Notes or as to the liquidity of the trading market for the New Notes. If
a trading market does not develop or is not maintained, holders of the New Notes
may experience difficulty in reselling the New Notes or may be unable to sell
them at all. If a market for the New Notes develops, any such market may be
discontinued at any time. If a public trading market develops for the New Notes,
future trading prices of the New Notes will depend on many factors, including
among other things, prevailing interest rates, the Company's financial condition
and results of operations, and the market for similar notes. Depending on those
and other factors, the New Notes may trade at a discount from their principal
amount.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on October 15, 1997 to the Initial
Purchasers, who placed the Old Notes with institutional investors, a limited
number of accredited investors and a limited number of foreign purchasers in
offshore transactions. In connection therewith, the Company and the Initial
Purchasers entered into the Registration Rights Agreement, which provides that
(i) the Company will file an Exchange Offer Registration Statement with the
Commission on or prior to 45 days after the Closing Date, (ii) the Company will
use its best efforts to have the Exchange Offer Registration Statement declared
effective by the Commission on or prior to 120 days after the Closing Date,
(iii) unless the Exchange Offer would not be permitted by applicable law or
Commission policy, the Company will commence the Exchange Offer and use its best
efforts to issue on or prior to 30 business days after the date on which the
Exchange Offer Registration Statement was declared effective by the Commission,
New Notes in exchange for all Old Notes tendered prior thereto in the Exchange
Offer and (iv) if obligated to file the Shelf Registration Statement, the
Company will use its best efforts to file the Shelf Registration Statement with
the Commission on or prior to 60 days after such filing obligation arises (and
in any event within 120 days after the Closing Date) and to cause the Shelf
Registration to be declared effective by the Commission on or prior to 60 days
after such obligation arises. Promptly after the effectiveness of the
Registration Statement, the Company will offer, pursuant to this Prospectus, to
the Holders of the Old Notes the opportunity to exchange their Old Notes for a
like principal amount of New Notes, to be issued without a restrictive legend
and which may, generally, be reoffered and resold by the holder without
restrictions or limitations under the Securities Act. The term "Holder" with
respect to the Exchange Offer means any person in whose name Old Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Instead, based on interpretations by the staff of the Commission
set forth in no-action letters issued to third parties, the Company believes
that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by any holder of
such New Notes (other than any such holder that is an "affiliate" of the Company
within the meaning of Rule 405 promulgated under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such Holder's business, such Holder has no arrangement or understanding with
any person to participate in the distribution of such New Notes and neither such
Holder nor any other such person is engaging in or intends to engage in a
distribution of such New Notes. Because the Commission has not considered the
Exchange Offer in the context of a no-action letter, there can be no assurance
that the staff of the Commission would make a similar determination with respect
to the Exchange Offer. Any Holder who is an affiliate of the Company or who
tenders in the Exchange Offer for the purpose of participating in a distribution
of the New Notes cannot rely on such interpretations by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a resale transaction.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Company). The
Company has agreed that, for a period of one year after the date of this
Prospectus, it will make this Prospectus available to any broker-dealer for use
in connection with any such resale. See "Plan of Distribution."
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If (i) the Company is not required to file the Exchange Offer Registration
Statement or permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy or (ii) any Holder
of Transfer Restricted Securities notifies the Company within the specified time
period that (A) it is prohibited by law or Commission policy from participating
in the Exchange Offer or (B) that it may not resell the New Notes acquired by it
in the Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (C) that it is a broker-dealer and
owns Old Notes acquired directly from the Company or an affiliate of the
Company, the Company will file with the Commission a Shelf Registration
Statement to cover resales of the Old Notes by the Holders thereof who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement. The Company will use its best efforts to cause
the applicable registration statement to be declared effective as promptly as
possible by the Commission. For purposes of the foregoing, "Transfer Restricted
Securities" means each Old Note until (i) the date on which such Old Note has
been exchanged by a person other than a broker-dealer for a New Note in the
Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange
Offer of an Old Note for a New Note, the date on which such New Note is sold to
a purchaser who receives from such broker-dealer on or prior to the date of such
sale a copy of the prospectus contained in the Exchange Offer Registration
Statement, (iii) the date on which such Old Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iv) the date on which such Old Note is distributed to
the public pursuant to Rule 144 under the Act.
If (a) the Company fails to file any of the Registration Statements
required by the Registration Rights Agreement on or before the date specified
for such filing, (b) any of such Registration Statements is not declared
effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), (c) the Company fails to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement, or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods specified in
the Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will pay
Liquidated Damages to each Holder of Old Notes, with respect to the first 90-day
period immediately following the occurrence of such Registration Default in an
amount equal to $0.05 per week per $1,000 principal amount of Old Notes held by
such Holder. The amount of the Liquidated Damages will increase by an additional
$0.05 per week per $1,000 principal amount of Old Notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $0.50 per week per $1,000 principal
amount of Old Notes. All accrued Liquidated Damages will be paid by the Company
on each Damages Payment Date to the Global Note Holder by wire transfer of
immediately available funds or by federal funds check and to Holders of
Certificated Securities by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of Old Notes will be required to make certain representations to
the Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all of the provisions of the Registration Rights Agreement, a
copy of which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. Defined terms used in this section and not
otherwise defined shall have the meanings ascribed thereto in the Registration
Rights Agreement.
The Old Notes are designated for trading in the PORTAL market. To the
extent Old Notes are tendered and accepted in the Exchange Offer, the principal
amount of outstanding Old Notes will decrease with a
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resulting decrease in the liquidity in the market therefor. Following the
consummation of the Exchange Offer, Holders of Old Notes who were eligible to
participate in the Exchange Offer but who did not tender their Old Notes will
not be entitled to certain rights under the Registration Rights Agreement and
such Old Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the Old Notes could be adversely
affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of New Notes
in exchange for each $1,000 principal amount of outstanding Old Notes accepted
in the Exchange Offer. Holders may tender some or all of their Old Notes
pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the New Notes have
been registered under the Securities Act and therefore will not bear legends
restricting their transfer and will not contain certain provisions providing for
the payment of liquidated damages to the holders of the Old Notes under certain
circumstances relating to the Registration Rights Agreement, which provisions
will terminate upon the consummation of the Exchange Offer. The New Notes will
evidence the same debt as the Old Notes and will be entitled to the benefits of
the Indenture under which the Old Notes were, and the New Notes will be, issued.
As of the date of this Prospectus, $185,000,000 aggregate principal amount
of the Old Notes are outstanding. The Company has fixed the close of business on
as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus, together with the Letter of
Transmittal, will initially be sent. As of such date, there were
registered Holders of the Old Notes.
Holders of the Old Notes do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law (the "DGCL") or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the Commission promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral notice (confirmed in writing) or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering Holders for the purpose of the exchange of Old Notes.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Old Notes will be returned, without expense, to
the tendering Holder thereof as promptly as practicable after the Expiration
Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral notice (confirmed in writing) or written notice
and will make a public announcement thereof prior to 9:00 a.m., New York City
time, on the next business day after each previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or, if any of the
conditions set forth below under "The Exchange Offer -- Conditions" shall
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not have been satisfied, to terminate the Exchange Offer, by giving oral notice
(confirmed in writing) or written notice of such delay, extension or termination
to the Exchange Agent or (ii) to amend the terms of the Exchange Offer in any
manner. Any such delay in acceptance, extension, termination or amendment will
be followed as promptly as practicable by a public announcement thereof. If the
Exchange Offer is amended in a manner determined by the Company to constitute a
material change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered Holders, and
the Company will extend the Exchange Offer for a period of five to 10 business
days, depending upon the significance of the amendment and the manner of
disclosure to the registered Holders, if the Exchange Offer would otherwise
expire during such five- to 10-business-day period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from October 15, 1997, the date of
original issuance of the Old Notes. No interest will be paid on the Old Notes
accepted for exchange.
PROCEDURES FOR TENDERING
The tender of Old Notes by a Holder thereof pursuant to one of the
procedures set forth below and the acceptance thereof by the Company will
constitute a binding agreement between such Holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal. This Prospectus, together with the Letter of Transmittal, will
first be sent on or about , to all Holders of Old Notes known to the
Company and the Exchange Agent.
Only a Holder of the Old Notes may tender such Old Notes in the Exchange
Offer. A Holder who wishes to tender any Old Notes for exchange pursuant to the
Exchange Offer must transmit a properly completed and duly executed Letter of
Transmittal, or a facsimile thereof, including any other required documents, to
the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date. In addition, either (i) certificates for such Old Notes must be received
by the Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if such procedure is available, into the Exchange Agent's account at DTC
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date or (iii) the Holder
must comply with the guaranteed delivery procedures described below. To be
tendered effectively, the Old Notes, Letter of Transmittal (or an Agent's
Message) and other required documents must be received by the Exchange Agent at
the address set forth below under "Exchange Agent" prior to 5:00 p.m., New York
City time, on the Expiration Date.
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming a part of a Book-Entry Confirmation,
which states that DTC has received an express acknowledgement from the
participant in DTC's book-entry transfer facility tendering Old Notes which are
subject to Book-Entry Confirmation that such party has received and agrees to be
bound by the terms of the Letter of Transmittal and that the Company may enforce
such agreement against the participant.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED AND PROPER INSURANCE BE
OBTAINED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO
THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD
NOTES SHOULD BE SENT TO THE COMPANY.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and
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instruct such registered Holder to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such beneficial owner's own behalf,
such beneficial owner must, prior to completing and executing the Letter of
Transmittal (or delivering an Agent's Message) and delivering such beneficial
owner's Old Notes, either make appropriate arrangements to register ownership of
the Old Notes in such beneficial owner's name or obtain a properly completed
bond power from the registered Holder. The transfer of registered ownership may
take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined) unless
the Old Notes tendered pursuant thereto are tendered (i) by a registered Holder
who has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 promulgated under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered Holder as such registered Holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify Holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that the Company
determines are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
By tendering, each Holder will represent to the Company, among other
things, that (i) the New Notes acquired by the Holder and any beneficial owners
of Old Notes pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such New Notes, (ii) neither the
Holder nor such beneficial owner has an arrangement with any person to
participate in the distribution of such New Notes, (iii) neither the Holder nor
such beneficial owner nor any such other person is engaging in or intends to
engage in a distribution of such New Notes and (iv) neither the Holder nor any
such other person is an "affiliate," as defined under Rule 405 promulgated under
the Securities Act, of the Company. Each broker-dealer that receives New Notes
for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities (other than Old Notes acquired directly from the Company),
may participate in the Exchange Offer but may be deemed an "underwriter" under
the Securities Act and, therefore, must acknowledge in the Letter of Transmittal
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states
22
<PAGE> 26
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in DTC's system may make
book-entry delivery of Old Notes by causing DTC to transfer such Old Notes into
the Exchange Agent's account at DTC in accordance with DTC's procedures for
transfer. However, although delivery of Old Notes may be effected through
book-entry transfer at DTC, the Letter of Transmittal or facsimile thereof, with
any required signature guarantees or an Agent's Message and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at the address set forth below under "-- Exchange Agent" on or prior to
the Expiration Date or the guaranteed delivery procedures described below must
be complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or an Agent's Message or any other required documents to the
Exchange Agent prior to the Expiration Date may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) or an Agent's Message together with
the certificate(s) representing the Old Notes, or a Book-Entry
Confirmation, and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof)or an Agent's Message, as well as the certificate(s)
representing all tendered Old Notes in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents
required by the Letter of Transmittal are received by the Exchange Agent
within five New York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the Holder
in the same manner as the original signature on the Letter of Transmittal by
which such Old Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes into the name
of the persons withdrawing the tender and (iv) specify the name in which any
such Old Notes are to be registered, if different from that of the Depositor. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the withdrawing
Holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice
23
<PAGE> 27
of withdrawal with signatures guaranteed by an Eligible Institution unless such
Holder is an Eligible Institution. If Old Notes have been tendered pursuant to
the procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at DTC to be credited with the
withdrawn Old Notes and otherwise comply with the procedures of DTC. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company in its sole discretion, which
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no New Notes will be issued with respect thereto unless the
Old Notes so withdrawn are validly retendered. Properly withdrawn Old Notes may
be retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the Expiration Date.
Any Old Notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the Exchange
Offer will be returned as soon as practicable to the Holder thereof without cost
to such Holder (or, in the case of Old Notes tendered by book-entry transfer
into the Exchange Agent's account at DTC pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with DTC for the Old Notes).
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate the Exchange Offer as provided herein before the acceptance of
such Old Notes, if:
(a) the Exchange Offer shall violate applicable law or any applicable
interpretation of the staff of the Commission; or
(b) any action or proceeding is instituted or threatened in any court
or by any governmental agency that might materially impair the ability of
the Company to proceed with the Exchange Offer or any material adverse
development has occurred in any existing action or proceeding with respect
to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall deem necessary for the consummation of the Exchange
Offer.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and return
all tendered Old Notes to the tendering Holders (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at DTC
pursuant to the book-entry transfer procedures described above, such Old Notes
will be credited to an account maintained with DTC), (ii) extend the Exchange
Offer and retain all Old Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of Holders to withdraw such Old Notes
(see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Old Notes which
have not been withdrawn. If such waiver constitutes a material change to the
Exchange Offer, the Company will promptly disclose such waiver by means of a
prospectus supplement that will be distributed to the registered Holders, and
the Company will extend the Exchange Offer for a period of five to 10 business
days, depending upon the significance of the waiver and the manner of disclosure
to the registered Holders, if the Exchange Offer would otherwise expire during
such five- to 10-business-day period.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of
24
<PAGE> 28
Transmittal and requests for Notices of Guaranteed Delivery should be directed
to the Exchange Agent addressed as follows:
State Street Bank and Trust Company
Corporate Trust Administration
777 Main Street CTM0238
Hartford, Connecticut 06115
Attention: Jacqueline Connor
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal or delivering an Agent's Message, or if
a transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or any other persons) will be payable
by the tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value, as reflected in the Company's accounting records on the
date of the exchange. Accordingly, no gain or loss for accounting purposes will
be recognized. The expenses of the Exchange Offer and the unamortized expenses
related to the issuance of the Old Notes will be amortized over the term of the
New Notes.
25
<PAGE> 29
THE RECAPITALIZATION
On October 15, 1997, concurrently with the closing of the Offering, the
Company consummated the Recapitalization, consisting of the following
transactions:
1. Pursuant to the Stock Purchase Agreement, the Company repurchased
approximately 64% of its outstanding capital stock for a total purchase
price, paid in cash, of $230.2 million. Upon giving effect to the
repurchase, BLS and the Lehman Investors each became the owner of 50% of
the capital stock of the Company. The implied aggregate value of the
Retained Equity Interest is $130.0 million.
2. The Company repaid all of its outstanding indebtedness ($54.5
million) under the Existing Credit Agreement.
3. The Company made provision for redemption of the Senior Notes by
irrevocably depositing $77.5 million (representing a price of 105.28% of
the principal amount of the Senior Notes, plus accrued interest through the
expected redemption date) with the Senior Notes Trustee. Concurrently with
such deposit, the Company caused the Senior Notes Trustee to send a notice
to the holders of the Senior Notes to the effect that such Senior Notes
will be redeemed 30 days from the date of such notice.
4. In addition to the repayment of its outstanding indebtedness under
the Existing Credit Agreement and provision for the redemption of the
Senior Notes, the Company purchased, for cash, all of the Existing Notes
pursuant to the Tender Offer. The aggregate price paid for the Existing
Notes (including accrued interest and Tender Offer premiums and related
fees and expenses) was $160.9 million.
5. The Company entered into the New Credit Facility that provides for
a $322.0 million Term Loan and a $50.0 million Revolving Loan, of which
$23.0 million was drawn at the time of the Recapitalization. The Term Loan
consists of Term Loan A in the principal amount of $50.0 million and Term
Loan B in the principal amount of $272.0 million. See "Description of
Certain Indebtedness -- New Credit Facility."
The Company issued the Old Notes for net proceeds of approximately $178.4
million (after deducting expenses payable by the Company in connection with the
Offering). The Company used such proceeds, together with borrowings under the
New Credit Facility, to effect the Recapitalization.
26
<PAGE> 30
SOURCES AND USES OF FUNDS
The following table illustrates the sources and uses of funds for the
Recapitalization. The Company will not receive any proceeds from the Exchange
Offer.
($ in millions)
<TABLE>
<CAPTION>
SOURCES OF FUNDS AMOUNT
- ------------------------------------ ------
<S> <C>
Cash Sources:
New Credit Facility............... $345.0
The Offering...................... 185.0
Cash on Hand...................... 5.0
------
Total Cash Sources........ $535.0
------
Other Sources:
Retained Equity Interest.......... 130.0
------
Total Sources............. $665.0
======
<CAPTION>
USES OF FUNDS AMOUNT
- ------------------------------------ ------
<S> <C>
Cash Uses:
Repayment of Borrowings under
Existing Credit Agreement(a)... $54.8
Redemption of Senior Notes(a)..... 73.1
Purchase of Existing Notes(a)..... 141.8
Purchase of Equity Interests...... 230.2
Estimated Fees and Expenses(b).... 35.1
------
Total Cash Uses........... $535.0
------
Other Uses:
Retained Equity Interest.......... 130.0
------
Total Uses................ $665.0
======
</TABLE>
- ---------------
(a) Includes accrued interest.
(b) Includes the redemption premium on the Senior Notes in the amount of $3.7
million and the Tender Offer premium and related fees and expenses in the
amount of $19.1 million.
REPURCHASE OF CAPITAL STOCK AND POST-RECAPITALIZATION EQUITY OWNERSHIP
The following table sets forth (i) the ownership of the shares of capital
stock repurchased as part of the Recapitalization, (ii) the aggregate purchase
price paid therefor and (iii) the ownership of the retained shares of capital
stock. All retained shares of capital stock were, in connection with
consummation of the Recapitalization, reclassified as shares of new common stock
of the Company.
<TABLE>
<CAPTION>
PURCHASED SHARES RETAINED SHARES
--------------------------- ------------------------------------
NAME NUMBER PRICE NUMBER IMPLIED VALUE(a)
- ------------------------------------- --------- --------------- --------------- ------------------
<S> <C> <C> <C> <C>
BLS.................................. 112,644 $ 19,778,159.81 370,199 $ 65,000,000
The Lehman Investors................. 612,437 107,532,421.20 370,199 65,000,000
CBC Capital Partners, Inc. .......... 45,000 7,901,154.60 0 0
Loral Space & Communications Ltd..... 458,994 80,590,723.46 0 0
Optionholders(b)
BLS Options(c)..................... 70,500 12,378,475.54 0 0
Company Options.................... 11,250 1,975,288.65 0 0
--------- --------------- ------- -------------
Total...................... 1,310,825 $230,156,223.26 740,398 $130,000,000
========= =============== ======= =============
</TABLE>
- ---------------
(a) The implied value of the retained capital stock is based solely on the price
per share paid for the capital stock repurchased in the Recapitalization.
(b) All issued and outstanding options were exercised prior to giving effect to
the Recapitalization.
(c) Certain individuals held options to purchase shares of the Company's capital
stock owned by BLS at a per share exercise price of $40.
27
<PAGE> 31
CAPITALIZATION
The following table sets forth as of September 30, 1997 the actual
capitalization of the Company and the pro forma capitalization of the Company as
adjusted to give effect to the Recapitalization. The table should be read in
conjunction with the "Unaudited Pro Forma Consolidated Financial Information"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1997
----------------------
ACTUAL PRO FORMA
-------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt (including current portion):
Existing Credit Agreement............................................ $ 54,500 $ --
Revolving Loan....................................................... -- 23,000(a)
Term Loan A.......................................................... -- 50,000
Term Loan B.......................................................... -- 272,000
11 7/8% Senior Secured Notes due 2003................................ 70,000 --
9 1/4% Senior Subordinated Notes Due 2007............................ -- 185,000
10 3/8% Senior Subordinated Notes due 2004........................... 140,000 --
-------- ---------
Total long-term debt................................................. 264,500 530,000
Stockholders' deficiency............................................. (15,221) (272,077)(b)
-------- ---------
Total capitalization......................................... $249,279 $ 257,923
======== =========
</TABLE>
- ---------------
(a) The $50.0 million Revolving Loan will have remaining borrowing availability
of approximately $18.8 million, net of outstanding letters of credit of $8.2
million.
(b) Gives effect to (i) the write-off of unamortized financing costs and the
redemption premium relating to the redemption of the Senior Notes, (ii) the
write-off of unamortized financing costs, the Tender Offer premium and
related expenses with respect to the Existing Notes and (iii) the repurchase
of equity interests pursuant to the Stock Purchase Agreement.
28
<PAGE> 32
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following tables present selected unaudited pro forma consolidated
financial information for the nine months ended September 30, 1997, the nine
months ended December 31, 1996 and the LTM Period, in each case giving effect to
the Recapitalization. The pro forma income statement and other data give effect
to the Recapitalization as if it had been consummated as of the first day of the
period indicated. The pro forma balance sheet information gives effect to the
Recapitalization as if it had been consummated as of September 30, 1997. The pro
forma income statement and other data do not reflect certain non-recurring
charges related to the Recapitalization, including a $12.0 million charge
relating to the exercise of stock options and other fees, and is not necessarily
indicative of the results that actually would have been achieved had the
Recapitalization been consummated as of the dates indicated or that might be
achieved in current or future periods. The financial information set forth below
should be read in conjunction with the historical consolidated financial
statements of the Company and the related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," all
included elsewhere in this Prospectus.
29
<PAGE> 33
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT AND OTHER DATA
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales............................................... $224,296 $ 224,296
Cost of sales........................................... 140,707 140,707
-------- --------
Gross margin......................................... 83,589 83,589
Independent research and development.................... 7,909 7,909
Selling, general and administrative expenses............ 19,318 19,318
Amortization............................................ 7,734 7,734
-------- --------
Operating income..................................... 48,628 48,628
Interest expense, net................................... 22,778 12,238(a) 35,016
-------- --------
Income before income taxes and extraordinary charge..... 25,850 13,612
Income tax provision.................................... (5,767) (5,767)
-------- --------
Income before extraordinary charge...................... 20,083 7,845
Extraordinary charge.................................... (1,713) (1,713)
-------- --------
Net Income........................................... $ 18,370 $ 6,132
======== ========
OTHER DATA (FOR THE PERIOD):
EBITDA(b)............................................... $ 63,307 $ 63,307
Capital expenditures.................................... 6,026 6,026
Depreciation and amortization........................... 14,679 14,679
Ratio of Earnings to Fixed Charges(c)................... 2.06x 1.37x
</TABLE>
- ---------------
(a) Reflects interest expense (at assumed rates as indicated below) associated
with the borrowings under the New Credit Facility and the Notes, the
amortization of deferred financing costs and the elimination of historical
interest expense related to the Recapitalization.
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
Revolving Loan at 8.0%.............................. $ 1,380
Term Loan A at 8.0%................................. 3,000
Term Loan B at 8.125%............................... 16,575
Notes at 9.25%...................................... 12,835
Amortization of deferred financing costs............ 1,125
Other fees.......................................... 101
Elimination of historical interest expense.......... (22,778)
-------
$ 12,238
=======
</TABLE>
(b) EBITDA represents operating income plus depreciation and amortization. While
EBITDA should not be construed as a substitute for operating income or as a
better indicator of liquidity than cash flows from operating activities,
which are determined in accordance with generally accepted accounting
principles, EBITDA is included herein to provide additional information with
respect to the ability of the Company to meet its future debt service,
capital expenditures and working capital requirements. EBITDA is not
necessarily a measure of the Company's ability to fund its cash needs.
EBITDA is included herein because the Company believes that certain
investors find it to be a useful tool for measuring the ability to service
debt.
(c) For purposes of this computation, earnings consist of income (loss) before
income taxes plus fixed charges (excluding capitalized interest). Fixed
charges consist of interest on indebtedness (including capitalized interest
and amortization of deferred financing costs) plus that portion of lease
rental expense representative of the interest factor (deemed to be one-third
of lease rental expense).
30
<PAGE> 34
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT AND OTHER DATA
NINE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales............................................... $212,703 $ 212,703
Cost of sales........................................... 136,813 136,813
-------- --------
Gross margin......................................... 75,890 75,890
Independent research and development.................... 8,623 8,623
Selling, general and administrative expenses............ 17,297 17,297
Amortization............................................ 7,810 7,810
-------- --------
Operating income..................................... 42,160 42,160
Interest expense, net................................... 27,197 7,819(a) 35,016
-------- --------
Income before income taxes and extraordinary charge..... 14,963 7,144
Income tax benefit...................................... 81 81
-------- --------
Income before extraordinary charge...................... 15,044 7,225
Extraordinary charge.................................... (9,142) (9,142)
-------- --------
Net Income (loss).................................... $ 5,902 $ (1,917)
======== ========
OTHER DATA (FOR THE PERIOD):
EBITDA(b)............................................... $ 56,804 $ 56,804
Capital expenditures.................................... 14,091 14,091
Depreciation and amortization........................... 14,644 14,644
Ratio of Earnings to Fixed Charges(c)................... 1.49x 1.18x
</TABLE>
- ---------------
(a) Reflects interest expense (at assumed rates as indicated below) associated
with the borrowings under the New Credit Facility and the Notes, the
amortization of deferred financing costs and the elimination of historical
interest expense related to the Recapitalization.
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
Revolving Loan at 8.0%...................... $ 1,380
Term Loan A at 8.0%......................... 3,000
Term Loan B at 8.125%....................... 16,575
Notes at 9.25%.............................. 12,835
Amortization of deferred financing costs.... 1,125
Other fees.................................. 101
Elimination of historical interest
expense................................... (27,197)
-------
$ 7,819
=======
</TABLE>
(b) EBITDA represents operating income plus depreciation and amortization. While
EBITDA should not be construed as a substitute for operating income or as a
better indicator of liquidity than cash flows from operating activities,
which are determined in accordance with generally accepted accounting
principles, EBITDA is included herein to provide additional information with
respect to the ability of the Company to meet its future debt service,
capital expenditures and working capital requirements. EBITDA is not
necessarily a measure of the Company's ability to fund its cash needs.
EBITDA is included herein because the Company believes that certain
investors find it to be a useful tool for measuring the ability to service
debt.
(c) For purposes of this computation, earnings consist of income (loss) before
income taxes plus fixed charges (excluding capitalized interest). Fixed
charges consist of interest on indebtedness (including capitalized interest
and amortization of deferred financing costs) plus that portion of lease
rental expense representative of the interest factor (deemed to be one-third
of lease rental expense).
31
<PAGE> 35
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT AND OTHER DATA
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales............................................... $294,496 $ 294,496
Cost of sales........................................... 186,697 186,697
-------- --------
Gross margin......................................... 107,799 107,799
Independent research and development.................... 10,452 10,452
Selling, general and administrative expenses............ 25,462 25,462
Amortization............................................ 10,341 10,341
-------- --------
Operating income..................................... 61,544 61,544
Interest expense, net................................... 30,671 16,017(a) 46,688
-------- --------
Income before income taxes and extraordinary charge..... 30,873 14,856
Income tax provision.................................... (5,466) (5,466)
-------- --------
Income before extraordinary charge...................... 25,407 9,390
Extraordinary charge.................................... (1,713) (1,713)
-------- --------
Net income........................................... $ 23,694 $ 7,677
======== ========
OTHER DATA (FOR THE PERIOD):
EBITDA(b)............................................... $ 81,270 $ 81,270
Capital expenditures.................................... 11,600 11,600
Depreciation and amortization........................... 19,726 19,726
Ratio of Earnings to Fixed Charges(c)................... 1.93x 1.30x
</TABLE>
- ---------------
(a) Reflects interest expense (at assumed rates as indicated below) associated
with the borrowings under the New Credit Facility and the Notes, the
amortization of deferred financing costs and the elimination of historical
interest expense related to the Recapitalization.
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
Revolving Loan at 8.0%...................... $ 1,840
Term Loan A at 8.0%......................... 4,000
Term Loan B at 8.125%....................... 22,100
Notes at 9.25%.............................. 17,113
Amortization of deferred financing costs.... 1,500
Other fees.................................. 135
Elimination of historical interest
expense................................... (30,671)
-------
$ 16,017
=======
</TABLE>
(b) EBITDA represents operating income plus depreciation and amortization. While
EBITDA should not be construed as a substitute for operating income or as a
better indicator of liquidity than cash flows from operating activities,
which are determined in accordance with generally accepted accounting
principles, EBITDA is included herein to provide additional information with
respect to the ability of the Company to meet its future debt service,
capital expenditures and working capital requirements. EBITDA is not
necessarily a measure of the Company's ability to fund its cash needs.
EBITDA is included herein because the Company believes that certain
investors find it to be a useful tool for measuring the ability to service
debt.
(c) For purposes of this computation, earnings consist of income (loss) before
income taxes plus fixed charges (excluding capitalized interest). Fixed
charges consist of interest on indebtedness (including capitalized interest
and amortization of deferred financing costs) plus that portion of lease
rental expense representative of the interest factor (deemed to be one-third
of lease rental expense).
32
<PAGE> 36
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................. $ 750 (750)(a) $ --
Accounts receivable, net.................................................. 40,658 40,658
Inventory................................................................. 65,111 65,111
Other current assets...................................................... 662 662
-------- --------
Total current assets.................................................... 107,181 106,431
-------- --------
Property, Plant and Equipment, net.......................................... 69,067 69,067
Deferred Charges............................................................ 23,961 5,113(b) 29,074
Cost in Excess of Net Assets Acquired....................................... 192,426 192,426
Intangible Assets........................................................... 17,717 17,717
-------- --------
Total Assets........................................................ $410,352 $414,715
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable.......................................................... $ 12,133 $ 12,133
Current portion of long-term debt......................................... 1,500 1,500
Interest payable.......................................................... 4,281 (4,281)(c) --
Other current liabilities................................................. 53,739 53,739
-------- --------
Total current liabilities............................................... 71,653 67,372
-------- --------
Postretirement Benefit Obligation Other Than Pensions....................... 76,301 76,301
Other Long-Term Liabilities................................................. 14,619 14,619
Long-Term Debt.............................................................. 263,000 265,500(d) 528,500
Stockholders' Deficiency.................................................... (15,221) (256,856)(e) (272,077)
-------- --------
Total Liabilities and Stockholders' Deficiency...................... $410,352 $414,715
======== ========
</TABLE>
- ---------------
(a) The net decrease in cash of $.75 million reflects the following:
(dollars in thousands)
<TABLE>
<S> <C>
Sources:
New Credit Facility............................................................................. $345,000
The Offering.................................................................................... 185,000
--------
530,000
Uses:
Repayment of Borrowings under Existing Credit Agreement(1)...................................... $ 54,800
Redemption of Senior Notes(1)................................................................... 72,800
Purchase of Existing Notes(1)................................................................... 141,200
Purchase of Equity Interests.................................................................... 226,900
Estimated Fees and Expenses..................................................................... 35,050
--------
530,750
--------
Net Decrease in Cash........................................................................ $ 750
========
---------------
(1) Includes accrued interest.
</TABLE>
(b) Represents the capitalization of deferred financing costs related to the
Recapitalization, net of the elimination of historical deferred financing
costs:
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
Financing costs related to the Recapitalization............... $12,104
Elimination of historical financing charges................... (6,991)
-------
$5,113
=======
</TABLE>
(c) Represents indebtedness incurred under (i) the Revolving Loan of $23.0
million, (ii) Term Loan A of $50.0 million, (iii) Term Loan B of $272.0
million and (iv) the Notes of $185.0 million, less the repayment of existing
indebtedness.
(d) Represents the payment of accrued interest on existing indebtedness.
(e) The adjustment to stockholders' deficiency consists of:
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
Purchase of capital stock..................................... $ (226,900)
Write-off of unamortized financing charges from retirement of
existing debt............................................... (6,991)
Tender Offer premium, redemption premium and other fees....... (22,965)
---------
$ (256,856)
=========
</TABLE>
33
<PAGE> 37
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected historical consolidated financial
information for the Company for the nine months ended September 30, 1997 and
September 30, 1996, the three months ended March 31, 1996, the nine months ended
December 31, 1996 and December 31, 1995 and the years ended March 31, 1996,
1995, 1994 and 1993. Effective December 31, 1996, the Company changed its fiscal
year-end from March 31 to December 31. The historical financial information of
the Company for the nine months ended December 31, 1996 and for each of the
years ended March 31, 1996, 1995, 1994 and 1993 is derived from the audited
financial statements of the Company. The historical financial information of the
Company for the three months ended March 31, 1996, the nine months ended
September 30, 1997 and September 30, 1996 and the nine months ended December 31,
1995 is derived from the Company's unaudited financial statements which, in the
opinion of management of the Company, contain all adjustments necessary for a
fair presentation of this information. The historical financial information for
the nine months ended September 30, 1997 is not necessarily indicative of the
results expected for the full year. The financial information set forth below
should be read in conjunction with the historical consolidated financial
statements of the Company and the related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," all
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
NINE MONTHS ENDED ENDED NINE MONTHS ENDED
SEPTEMBER 30, MARCH 31, DECEMBER 31, YEARS ENDED MARCH 31,
-------------------- ------------ ----------------------- --------------------------------
1997 1996 1996 1996 1995 1996 1995 1994
-------- -------- ------------ -------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales............... $224,296 $207,455 $ 64,952 $212,703 $ 199,784 $264,736 $238,756 $226,131
Cost of sales........... 140,707 134,981 44,158 136,813 136,277 180,435 164,697 159,751
-------- -------- -------- -------- -------- -------- -------- --------
Gross margin.......... 83,589 72,474 20,794 75,890 63,507 84,301 74,059 66,380
Independent research and
development........... 7,909 9,237 3,157 8,623 6,610 9,767 8,363 12,858
Selling, general and
administrative
expenses.............. 19,318 18,339 7,186 17,297 15,378 22,564 19,208 22,421
Amortization............ 7,734 7,805 2,602 7,810 7,813 10,415 10,411 10,884
-------- -------- -------- -------- -------- -------- -------- --------
Operating income...... 48,628 37,093 7,849 42,160 33,706 41,555 36,077 20,217
Interest expense,
net(a)................ 22,778 29,064 9,760 27,197 31,288 41,048 46,250 51,953
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes,
extraordinary charge
and cumulative effect
of accounting
changes............... 25,850 8,029 (1,911) 14,963 2,418 507 (10,173) (31,736)
Income tax (provision)
benefit............... (5,767) (220) -- 81 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary charge
and cumulative effect
of accounting
changes............... 20,083 7,809 (1,911) 15,044 2,418 507 (10,173) (31,736)
Extraordinary charge.... (1,713)(b (9,142)(c) -- (9,142)(c) (1,913)(d) (1,913)(d) -- --
Cumulative effect of
accounting changes.... -- -- -- -- -- -- -- (2,305)(f)
-------- -------- -------- -------- -------- -------- -------- --------
Net Income (loss)..... $ 18,370 $ (1,333) $ (1,911) $ 5,902 $ 505 $ (1,406) $(10,173) $(34,041)
======== ======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital......... $ 35,528 $ 41,669 $ 36,327 $ 34,189 $ 38,938 $ 36,327 $ 48,025 $ 53,091
Total assets............ 410,352 423,515 416,037 419,115 412,028 416,037 429,074 446,880
Long-term debt(h)....... 263,000 300,000 294,000 287,000 293,000 294,000 310,000 381,421
Stockholders'
deficiency(g), (h).... (15,221) (38,994) (39,701) (33,306) (34,327) (39,701) (34,748) (90,355)
OTHER DATA (FOR THE
PERIOD):
EBITDA(i)............... $ 63,307 $ 51,351 $ 12,510 $ 56,804 $ 47,966 $ 60,476 $ 54,920 $ 40,744
Capital expenditures.... 6,026 15,592 7,075 14,091 3,343 10,418 2,824 3,127
Depreciation and
amortization.......... 14,679 14,258 4,661 14,644 14,260 18,921 18,843 20,527
Ratio of earnings to
fixed charges(j)...... 2.06x 1.25x 1.49x 1.07x 1.01x
<CAPTION>
1993
--------
<S> <C>
INCOME STATEMENT DATA:
Net Sales............... $277,107
Cost of sales........... 199,002
--------
Gross margin.......... 78,105
Independent research and
development........... 11,417
Selling, general and
administrative
expenses.............. 24,154
Amortization............ 10,258
--------
Operating income...... 32,276
Interest expense,
net(a)................ 53,486
--------
Income (loss) before
income taxes,
extraordinary charge
and cumulative effect
of accounting
changes............... (21,210)
Income tax (provision)
benefit............... --
--------
Income (loss) before
extraordinary charge
and cumulative effect
of accounting
changes............... (21,210)
Extraordinary charge.... (2,477)(e)
Cumulative effect of
accounting changes.... (73,540)(g)
--------
Net Income (loss)..... $(97,227)
========
BALANCE SHEET DATA (AT END
Working capital......... $ 70,028
Total assets............ 489,968
Long-term debt(h)....... 379,478
Stockholders'
deficiency(g), (h).... (51,868)
OTHER DATA (FOR THE
PERIOD):
EBITDA(i)............... $ 52,138
Capital expenditures.... 4,670
Depreciation and
amortization.......... 19,862
Ratio of earnings to
fixed charges(j)......
</TABLE>
Footnotes appear on following page.
34
<PAGE> 38
(a) Interest expense, net includes for the nine months ended September 30, 1997
and 1996, for the three months ended March 31, 1996, for the nine months
ended December 31, 1996 and 1995 and for the years ended March 31, 1996,
1995, 1994 and 1993, non-cash interest expense (including amortization of
deferred financing costs and interest associated with the Company's
Convertible Debentures of $1,072,000, $1,130,000, $410,000, $1,101,000,
$1,151,000, $1,561,000, $5,432,000, $9,923,000 and $8,789,000, respectively.
(b) On June 1, 1997, the Company redeemed $30,000,000 principal amount of the
Senior Notes. In connection therewith, the Company recorded an extraordinary
charge of $1,713,000 (net of income tax benefit of $553,000). See Note 2 to
the interim consolidated financial statements included elsewhere in this
Prospectus.
(c) During the nine months ended December 31, 1996, the Company redeemed
$180,000,000 principal amount of the Company's 13 3/4% Debentures. In
connection therewith, the Company recorded an extraordinary charge of
$9,142,000. See Note 7 to the audited consolidated financial statements
included elsewhere in this Prospectus.
(d) On December 28, 1995, the Company redeemed $30,000,000 principal amount of
the 13 3/4% Debentures. In connection therewith, the Company recorded an
extraordinary charge of $1,913,000. See Note 7 to the audited consolidated
financial statements included elsewhere in this Prospectus.
(e) The extraordinary charge of $2,477,000 relates to the accelerated
amortization of unamortized financing costs associated with the prepayment
of a senior term loan in fiscal year 1993.
(f) Represents the cumulative effect of the change in method of accounting for
the discounting of liabilities for workers' compensation losses.
(g) Includes a charge for the cumulative effect of accounting change for SFAS
No. 106 ($77,902,000) and a benefit for the change in method of accounting
for certain overhead costs in inventory ($4,362,000).
(h) On September 2, 1994, the Company retired the $65,400,000 principal amount
of the Convertible Debentures held by Loral Corporation in exchange for
$12,760,000 in cash and 22.5% of the Company's outstanding capital stock. As
a result, the Company's stockholders' equity was increased by $65,400,000
and long-term debt was reduced by an equal amount. See Note 9 to the audited
consolidated financial statements included elsewhere in this Prospectus.
(i) EBITDA represents operating income plus depreciation and amortization. While
EBITDA should not be construed as a substitute for operating income or as a
better indicator of liquidity than cash flows from operating activities,
which are determined in accordance with generally accepted accounting
principles, EBITDA is included herein to provide additional information with
respect to the ability of the Company to meet its future debt service,
capital expenditures and working capital requirements. EBITDA is not
necessarily a measure of the Company's ability to fund its cash needs.
EBITDA is included herein because the Company believes that certain
investors find it to be a useful tool for measuring the ability to service
debt.
(j) For purposes of this computation, earnings consist of income (loss) before
income taxes plus fixed charges (excluding capitalized interest). Fixed
charges consist of interest on indebtedness (including capitalized interest
and amortization of deferred financing costs) plus that portion of lease
rental expense representative of the interest factor (deemed to be one-third
of lease rental expense). The Company's earnings were insufficient to cover
fixed charges by $2,016,000, $10,173,000, $31,736,000 and $21,210,000 for
the three months ended March 31, 1996 and for the years ended March 31,
1995, 1994 and 1993, respectively. Non-cash charges included in the ratio of
earnings to fixed charges and deficiency of earnings available to cover
fixed charges for the nine months ended September 30, 1997 and 1996, for the
three months ended March 31, 1996, for the nine months ended December 31,
1996 and 1995 and the fiscal years ended March 31, 1996, 1995, 1994, 1993
were $15,751,000, $15,388,000, $5,071,000, $15,745,000, $15,411,000,
$20,482,000, $24,275,000, $30,450,000 and $28,651,000, respectively.
Non-cash charges consist of depreciation, amortization, non-cash interest on
the Convertible Debentures and amortization of deferred financing costs.
35
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Aircraft Braking Systems generates approximately 75% of its revenues
through the sale of replacement parts for wheels and braking systems previously
manufactured by the Company and its predecessors and installed on over 30,000
commercial, general aviation and military aircraft. As is customary in the
industry, Aircraft Braking Systems incurs substantial expenditures to research,
develop, design and supply original wheel and brake equipment to aircraft
manufacturers at or below the cost of production. Research, development and
design expenditures are charged to operations when incurred. Original wheel and
brake equipment supplied to aircraft manufacturers at or below the cost of
production ("Program Investments") are charged to operations when delivered to
the aircraft manufacturers. Since most modern aircraft have a useful life of 25
years or longer and require periodic replacement of certain components of the
braking system, the Company typically recoups its initial investment in original
equipment and generates significant profits from the sales of replacement parts
over the life of the aircraft. The Company has invested and will continue to
invest significant resources to have its products selected for use on new
commercial airframes, focusing particularly on medium- and short-range aircraft.
From April 1, 1994 through December 31, 1996, the Company spent an aggregate of
approximately $101.0 million for research, development, design and Program
Investments. The Company has been selected as a supplier of wheels and carbon
brakes on the Airbus A-321, the sole supplier of wheels, carbon brakes and
anti-skid systems on the MD-90, the sole supplier of wheels and brakes for the
Saab 2000, the Canadair Regional Jet, the Lear 60 and as a supplier of wheels
and carbon brakes for the Airbus A-330 and A-340. These programs are in the
early stages of their life cycles and represent significant future revenue
opportunities for the Company.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 Compared with the Nine Months Ended
September 30, 1996
Sales. Sales for the nine months ended September 30, 1997 totaled $224.3
million, reflecting an increase of $16.8 million, or 8.1%, compared with $207.5
million for the same period in the prior year. This increase was due to higher
sales of wheels and brakes for commercial transport and general aviation
aircraft of $19.7 million, primarily on the Fokker Fo-100, Canadair Regional
Jet, McDonnell Douglas MD-80, DC-10 and Lear programs. Partially offsetting this
increase were lower military sales of $2.9 million, primarily on the F-16
program.
Operating Income. Operating income increased 31.1%, or $11.5 million, to
$48.6 million or 21.7% of sales for the nine months ended September 30, 1997
compared with $37.1 million or 17.9% of sales for the same period in the prior
year. Operating margins increased primarily due to the overhead absorption
effect relating to the higher sales volume, a favorable sales mix whereby
commercial sales, with higher margins, comprised a greater percentage of total
sales, lower costs relating to litigation and lower independent research and
development costs relating to the MD-90 program and carbon research.
Interest Expense, Net. Interest expense, net decreased $6.3 million for
the nine months ended September 30, 1997 compared with the same period in the
prior year. This decrease was due to lower interest rates on outstanding debt as
a result of the refinancing in August 1996 of the 13 3/4% Debentures with the
Existing Notes and borrowings under the Existing Credit Agreement.
Effective Tax Rate. The Company's effective tax rate of 22.3% for the nine
months ended September 30, 1997, differs from the statutory rate of 35% due to a
net decrease in the valuation allowance and a $.6 million charge for foreign
taxes. For the same period in the prior year, the effective tax rate of 2.7%
differed from the statutory rate of 35% due to a net decrease in the valuation
allowance. The increase in the effective tax rate in 1997 is primarily due to
the charge for foreign taxes and a net change in the valuation allowance.
36
<PAGE> 40
Nine Months Ended December 31, 1996 Compared with the Nine Months Ended
December 31, 1995
Sales. Sales for the nine months ended December 31, 1996 totaled $212.7
million reflecting an increase of $12.9 million, or 6.5%, compared with $199.8
million for the same period in the prior year. This increase was due to higher
commercial sales of wheels and brakes for commercial transport aircraft of $11.8
million, primarily on the DC-9, DC-10, MD-90 and Canadair Regional Jet programs,
and higher general aviation sales of $7.4 million primarily on the Beech, Lear
and Gulfstream aircraft. Partially offsetting this increase were lower military
sales of $6.3 million on various programs.
Gross Margin. The gross margin for the nine months ended December 31, 1996
was 35.7% compared with 31.8% for the same period in the prior year. This
increase was primarily due to the overhead absorption effect relating to the
higher sales volume and lower shipments of original equipment to airframe
manufacturers at or below the cost of production.
Independent Research and Development. Independent research and development
costs were $8.6 million for the nine months ended December 31, 1996 compared
with $6.6 million for the same period in the prior year. This increase was
primarily due to higher costs associated with the A-319 and MD-90 programs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $17.3 million for the nine months ended December
31, 1996 compared with $15.4 million for the same period in the prior year. This
increase was primarily due to higher performance-related incentive compensation
and legal fees incurred in connection with the Hitco litigation.
Interest Expense, Net. Interest expense, net was $27.2 million for the
nine months ended December 31, 1996 compared with $31.3 million for the same
period in the prior year. This decrease was primarily due to a lower average
principal balance on the 13 3/4% Debentures and lower interest rates as a result
of refinancing the 13 3/4% Debentures with $140 million principal amount of
Existing Notes on August 15, 1996, and borrowings under the Existing Credit
Agreement. This decrease was partially offset by the need to keep both the
13 3/4% Debentures and the Existing Notes outstanding during the redemption
notification period of 30 days.
Fiscal Year 1996 Compared with Fiscal Year 1995
Sales. Sales for fiscal year 1996 totaled $264.7 million reflecting an
increase of $26.0 million, or 10.9%, compared with the prior year. This increase
was due to higher commercial sales of wheels and brakes for commercial transport
aircraft of $16.6 million, primarily on the DC-9, DC-10, MD-80, MD-90 and Fo-100
programs, partially offset by lower general aviation sales of $4.7 million on
various aircraft. Military sales increased $14.1 million primarily on the F-16
program.
Gross Margin. The gross margin for fiscal year 1996 was 31.8% compared
with 31.0% for fiscal year 1995. This increase was primarily due to operating
efficiencies and the overhead absorption effect relating to the higher sales
volume, partially offset by higher shipments of original equipment to airframe
manufacturers at or below the cost of production.
Independent Research and Development. Independent research and development
costs were $9.8 million in fiscal year 1996 compared with $8.4 million in fiscal
year 1995, or 3.7% and 3.5% of sales for fiscal years 1996 and 1995,
respectively. This increase was primarily due to higher costs relating to carbon
research and development.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $3.4 million in fiscal year 1996 compared with
fiscal year 1995. This increase was primarily due to a provision made against
accounts receivable during fiscal year 1996, higher performance-related
incentive compensation and foreign tax-related expenses. The provision against
accounts receivable was primarily for two of the Company's customers (Fokker
Aviation and Business Express) who filed for bankruptcy during fiscal year 1996.
Interest Expense, Net. Net interest expense decreased $5.2 million in
fiscal year 1996 compared with the prior year. This decrease was due to the
retirement of the Convertible Debentures on September 2, 1994, and the
redemption of $30 million principal amount of the 13 3/4% Debentures on December
28, 1995.
37
<PAGE> 41
LIQUIDITY AND FINANCIAL CONDITION
The Company expects that its principal use of funds for the next several
years will be to pay interest and principal on indebtedness, fund capital
expenditures and make Program Investments. The Company's primary source of funds
for conducting its business activities and servicing its indebtedness has been
cash generated from operations and borrowings under its prior credit facilities.
The Company's liquidity needs will arise primarily from debt service on the
indebtedness represented by the Notes and the New Credit Facility, and from the
funding of its capital expenditures and Program Investments. Upon completion of
the Recapitalization, the Company had outstanding approximately $530.0 million
of indebtedness, consisting of $185.0 million principal amount of the Notes and
$345.0 million in borrowings under the New Credit Facility. See "Risk
Factors -- Highly Leveraged Position."
The Company's New Credit Facility consists of a $322.0 million senior Term
Loan and a $50.0 million senior Revolving Loan. The Term Loan consists of Term
Loan A in the principal amount of $50.0 million and Term Loan B in the principal
amount of $272.0 million. All borrowings under the Revolving Loan will mature in
2003. Term Loan A is a six-year amortizing facility maturing in 2003. Term Loan
B is an eight-year amortizing facility maturing in 2005. In addition to
scheduled quarterly principal payments on the Term Loan, 75% to 50% of excess
cash flow (as defined) must be used to prepay the principal. The Company's
subsidiaries, Aircraft Braking Systems and Engineered Fabrics, are the borrowers
under the New Credit Facility. The obligations under the New Credit Facility are
secured by a lien on substantially all of the assets of the borrowers and are
guaranteed by the Company. The Company's guarantee is secured by a pledge of all
the issued and outstanding stock of the subsidiaries and intercompany notes held
by the Company.
On June 1, 1997, the Company redeemed $30 million aggregate principal
amount of the Senior Notes at a redemption price of 105.28% of the principal
amount thereof. In connection therewith, the Company recorded an extraordinary
charge of $1.7 million (net of tax of $0.6 million) for the write-off of
unamortized financing costs and redemption premiums. In connection with the
Recapitalization, the Company redeemed the remaining $70.0 million aggregate
principal amount of the Senior Notes, purchased all the $140.0 million aggregate
principal amount of the Existing Notes pursuant to the Tender Offer and will
record an extraordinary charge of approximately $29.8 million for the write-off
of unamortized financing costs, redemption premiums and Tender Offer payments.
In addition, the Company will directly increase its stockholders' deficiency by
approximately $218.6 million for the repurchase of a portion of its capital
stock and record a charge to operations of approximately $12.0 million relating
to the exercise of stock options and other fees. All charges will be reflected
in the fourth quarter of 1997.
During the nine months ended December 31, 1996, the Company redeemed the
remaining $180 million of the 13 3/4% Debentures. The Company used the net
proceeds from the $140 million principal amount of Existing Notes, together with
bank borrowings, to redeem the remaining 13 3/4% Debentures at a price of 102.5%
of the principal amount thereof. In connection therewith, the Company recorded
an extraordinary charge of $9.1 million consisting of redemption premiums and
the write-off of unamortized financing costs.
Based upon the current level of operations and anticipated improvements,
management believes that the Company's cash flow from operations, together with
available borrowings under the New Credit Facility, will be adequate to meet its
anticipated requirements for working capital, capital expenditures, research and
development expenditures, program and other discretionary investments, interest
payments and scheduled principal payments. There can be no assurance, however,
that the Company's business will continue to generate cash flow at or above
current levels or that currently anticipated improvements will be achieved. If
the Company is unable to generate sufficient cash flow from operations in the
future to service its debt, it may be required to sell assets, reduce capital
expenditures, refinance all or a portion of its existing debt (including the
Notes) or obtain additional financing. The Company's ability to make scheduled
principal payments of, to pay interest on or to refinance its indebtedness
(including the New Notes) depends on its future performance and financial
results, which, to a certain extent, are subject to general economic, financial,
competitive, legislative, regulatory and other factors beyond its control. There
can be no assurance that sufficient funds will be available to enable the
Company to service its indebtedness, including the New Notes, or make necessary
capital expenditures and program and other discretionary investments.
38
<PAGE> 42
CAPITAL EXPENDITURES
The Company had additions to fixed assets of $14.1 million, $10.4 million
and $2.8 million for the nine months ended December 31, 1996 and for the fiscal
years ended March 31, 1996 and 1995, respectively. The increase during the nine
months ended December 31, 1996 as compared with the fiscal year ended March 31,
1996 was primarily due to the completion of construction of a 21,000 square foot
expansion to the carbon manufacturing building at the Company's Akron, Ohio
facility that was started in the beginning of fiscal year 1996. The expansion of
the Akron manufacturing building was completed in April 1997 and, as a result,
the Company anticipates that capital expenditures related to such expansion for
the fiscal year ending December 31, 1997 will not exceed the approximately $1.0
million in expenditures incurred prior to completion of the expansion. Capital
spending for the year ending December 31, 1997 is expected to be approximately
$8.0 million.
INFLATION
A majority of the Company's sales are conducted through annually
established price lists and long-term contracts. The effect of inflation on the
Company's sales and earnings is minimal because the selling prices of such price
lists and contracts, established for deliveries in the future, generally reflect
estimated costs to be incurred in these future periods. In addition, some
contracts provide for price adjustments through escalation clauses.
39
<PAGE> 43
BUSINESS
GENERAL
The Company is, through its wholly owned subsidiary, Aircraft Braking
Systems, one of the world's leading manufacturers of aircraft wheels, brakes and
anti-skid systems for commercial, general aviation and military aircraft. The
Company sells its products to virtually all major airframe manufacturers and
most commercial airlines and to the United States and certain foreign
governments. In addition, the Company is, through its other wholly owned
subsidiary, Engineered Fabrics, the leading worldwide manufacturer of aircraft
fuel tanks, supplying approximately 90% of the worldwide general aviation and
commercial transport market and over one-half of the domestic military market
for such products. Engineered Fabrics also manufactures and sells iceguards and
specialty coated fabrics used for storage, shipping, environmental and rescue
applications for commercial and military uses. During the LTM Period, the
Company reported revenues of $294.5 million, of which 89.3% were derived from
sales made by Aircraft Braking Systems, and EBITDA of $81.3 million.
Aircraft Braking Systems and its predecessors have been leaders in the
design and development of aircraft wheels, brakes and anti-skid systems,
investing significant resources to refine existing braking systems, develop new
technologies and design braking systems for new airframes. The Company has
carefully directed its efforts toward expanding Aircraft Braking Systems'
presence in the commercial and general aviation segments of the aircraft
industry, focusing particularly on medium- and short-range commercial aircraft.
These aircraft typically make more frequent landings than long-range commercial
aircraft and correspondingly require more frequent replacement of brake parts.
THE AIRCRAFT WHEEL AND BRAKE INDUSTRY
Aircraft manufacturers are required to obtain regulatory airworthiness
certification of their commercial aircraft by the FAA, by the United States
Department of Defense in the case of military aircraft, or by similar agencies
in most foreign countries. This process, which is both costly and time
consuming, involves testing the entire airframe, including the wheels and
braking system, to demonstrate that the airframe in operation complies with
relevant governmental requirements for safety and performance. Generally,
replacement parts for a wheel and brake system which has been certified for use
on an airframe may only be provided by the original manufacturer of such wheel
and brake system. Since most modern aircraft have a useful life of 25 years or
more and require replacement of certain components of the braking system at
regular intervals, sales of replacement parts are expected to provide a long and
steady source of revenues for the manufacturer of the braking system.
Due to the cost and time commitment associated with the aircraft
certification process, competition among aircraft wheel and brake suppliers most
often occurs at the time the airframe manufacturer makes its initial
installation decision. Generally, competing suppliers submit proposals in
response to requests for bids from manufacturers. Selections are made by the
manufacturer on the basis of technological superiority, conformity to design
criteria established by the manufacturer and pricing considerations. Typically,
general aviation aircraft manufacturers will select one supplier of wheels and
brakes for a particular aircraft. In the commercial transport market, however,
there will often be "dual sourcing" of wheels and brakes. In such case, an
airframe manufacturer may approve and receive FAA certification to configure a
particular airframe with equipment provided by two or more wheel and brake
manufacturers. Where two suppliers have been certified, the aircraft customer,
such as a major airline, will designate the original equipment to be installed
on the customer's aircraft. Competition among two certified suppliers for that
airline's initial installation decision generally focuses on such factors as the
system's "cost-per-landing," given certain assumptions concerning the frequency
of replacements required and the impact that the weight of the system has on the
airline's ability to load the aircraft with passengers, freight or fuel, and the
technical operating performance characteristics of the wheel and brake systems.
Once selected, airlines infrequently replace entire wheel and brake systems
because of the expense.
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In accordance with industry practice in the commercial aviation industry,
aircraft wheel and brake suppliers customarily sell original wheel and brake
equipment below cost in order to win selection of their products by airframe
manufacturers and airlines. These investments are typically recouped through
sale of replacement parts. Recovery of pricing concessions and design costs for
each airframe's wheels and brakes is contingent on a number of factors but
generally occurs prior to the end of the useful life of the particular aircraft.
Price concessions on original wheel and brake equipment are not customary in the
military market. Although manufacturers of military aircraft generally select
only one supplier of wheels and brakes for each model, the Government has
approved at times the purchase of specific component replacement parts from
suppliers other than the original supplier of the wheel and brake system.
PRODUCTS
Aircraft Braking Systems. Aircraft Braking Systems is one of the world's
leading manufacturers of wheels, steel and carbon brakes and anti-skid systems
for commercial transport, general aviation and military aircraft. Since 1989,
Aircraft Braking Systems has carefully directed its efforts toward expanding its
presence in the commercial and general aviation segments of the aircraft
industry, focusing particularly on high-cycle medium- and short-range commercial
aircraft. As a result of this strategic focus, during this period, Aircraft
Braking Systems has added approximately 1,200 medium- and short-range commercial
aircraft to the portfolio of aircraft using its products. These aircraft
typically make frequent landings and correspondingly require more frequent
replacement of brake parts. The braking systems produced by Aircraft Braking
Systems are either carbon or steel-based. While steel-based systems typically
are sold for less than carbon-based systems, such systems generally require more
frequent replacement because their steel brake pads tend to wear more quickly.
The Company's commercial transport fleet continued to grow during the nine
months ended December 31, 1996, due to an increase in the number of new aircraft
entering service, as well as a slower than expected retirement rate of older
aircraft. Airlines have responded to recent FAA regulatory noise abatement
requirements by outfitting their older DC-9 fleets with engine hushkits and
aircraft structural overhauls which effectively add up to fifteen years of
service life to the aircraft. The Company expects to produce replacement parts
for these refurbished aircraft over this period. Airlines such as Northwest
Airlines and U.S. Airways have opted for DC-9 life extension refurbishment
programs, to meet capacity needs, in lieu of buying replacement aircraft new.
Other airlines are expected to follow similar strategies, as the economics
generally are more favorable.
Approximately 75% of Aircraft Braking Systems' revenues are derived from
the sale of replacement parts. As of December 31, 1996, the Company's products
had been installed on over 30,000 commercial transport, general aviation and
military aircraft. Commercial transport aircraft include the DC-9, DC-10, Fokker
Fo-100, Fokker F-28, Canadair Regional Jet and Saab 340 on all of which Aircraft
Braking Systems is the sole-source supplier. In addition, the Company supplies
spare parts for the MD-80 program on a dual-source wheel and brake program.
Aircraft Braking Systems has been successful in having its wheels and
brakes selected for use on a number of new high-cycle airframe designs. These
aircraft that are just beginning to enter service include the McDonnell Douglas
MD-90, Airbus A-321, Saab 2000, Lear 60 and Fairchild Metro 23. Most recently,
Aircraft Braking Systems has been successful in being awarded the RJ-700
program, continuing its sole-source position on the Regional Jet. The RJ-700 is
a 70 passenger plane which is a stretch version of the 50 passenger Canadair
Regional Jet. In addition, the Company is a supplier of wheels and carbon brakes
for the Airbus A-330 and A-340 wide-body jets.
To date, Aircraft Braking Systems has been the sole supplier for wheels,
carbon brakes and anti-skid equipment on the new McDonnell Douglas MD-90
twin-jet. The MD-90 adds new performance characteristics to a product line that
began as the DC-9 model jet that first flew in 1965 and later evolved into the
popular MD-80 series also furnished with Aircraft Braking Systems' wheels and
brakes. McDonnell Douglas has booked orders for 154 MD-90 aircraft. However,
Boeing (which acquired McDonnell Douglas in August 1997) has indicated that it
may stop producing the MD-80 and the MD-90 after completing existing orders.
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<PAGE> 45
Aircraft Braking Systems is a basic supplier of wheels and carbon brakes on
the Airbus A-321, the European consortium's new 186-seat "stretch" version of
its popular A-320 standard body twin-jet. Airbus has booked orders for 195 A-321
aircraft. Of the 54 aircraft delivered to date, Aircraft Braking Systems has
provided wheels and brakes for 41 of these aircraft.
Aircraft Braking Systems' anti-skid systems, which are integrated into a
braking system, are designed to minimize the distance required to stop an
aircraft by utilizing sensors, mounted in the axle and driven by the wheel to
maximize the braking force while also preventing the wheels from locking and
skidding. Of the three principal competitors in the wheel and brake industry,
Aircraft Braking Systems is the only significant manufacturer of anti-skid
systems. Because of the sensitivity of anti-skid systems to variations in brake
performance, the Company believes that the ability to control the design and
performance characteristics of the brakes and its integrated anti-skid system
gives Aircraft Braking Systems a competitive advantage over its two largest
competitors. Other products manufactured by the Company include helicopter rotor
brakes and brake temperature monitoring equipment for various types of aircraft.
The following table shows the distribution of sales of aircraft wheels,
brakes and anti-skid systems to total sales of the Company:
<TABLE>
<CAPTION>
FISCAL YEARS
NINE MONTHS ENDED ENDED
DECEMBER 31, MARCH 31,
----------------- -----------------
1996 1996 1995
----------------- ---- ----
<S> <C> <C> <C>
Wheels and brakes.................... 81% 80% 80%
Anti-skid systems.................... 9% 8% 7%
--- --- ---
Total...................... 90% 88% 87%
=== === ===
</TABLE>
Engineered Fabrics. The Company believes Engineered Fabrics is the largest
aircraft fuel tank manufacturer in the world, serving approximately 90% of the
worldwide general aviation and commercial transport market and over half of the
domestic military market for such products. Recent programs awarded to
Engineered Fabrics include new production or replacement parts programs for the
U.S. Navy's F-18 C/D and E/F aircraft and F-15, F-16 and C-130 aircraft.
Engineered Fabrics has been selected by the U.S. Army to equip its new stealth
RAH-66 Comanche helicopter with fuel tanks and by McDonnell Douglas to supply
fuel tanks for the MD-600 program. Engineered Fabrics has also been awarded the
Bell/Boeing V-22 Osprey program. During the nine months ended December 31, 1996,
approximately 10% of the Company's total revenues were derived from sales made
by Engineered Fabrics.
Fuel tanks, manufactured by combining multiple layers of coated fabrics and
adhesives, are sold for use in commercial transport, military and general
aviation aircraft. During the nine months ended December 31, 1996, sales of fuel
tanks accounted for approximately 68% of Engineered Fabrics' total revenues. For
military applications, Engineered Fabrics' fuel tanks feature encapsulated
layers of rubber which expand in contact with fuel thereby sealing off holes or
gashes caused by bullets or other projectiles penetrating the walls of the fuel
tank. The Company manufactures crash-resistant fuel tanks for helicopters,
military aircraft and race cars that significantly reduce the potential for
fires, leaks and spilled fuel following a crash. Engineered Fabrics is the only
known supplier of polyurethane fuel tanks for aircraft, which are substantially
lighter and more flexible than their metal or nitrile counterparts and therefore
cost-advantageous. Engineered Fabrics also competes in the nitrile-designed fuel
tank market and won a three-year requirements contract in 1996 to supply nitrile
fuel tanks to the U.S. Navy for its F-14 aircraft.
In addition to fuel tanks, Engineered Fabrics produces iceguards, which are
heating systems made out of layered composite materials that are applied on
engine inlets, propellers, rotor blades and tails. Encapsulated in the material
are heating elements which are connected to the electrical system of the
aircraft and, when activated by the pilot, the system provides the protection.
Engineered Fabrics also produces a variety of products utilizing coated
fabrics such as oil containment booms, towable storage bladders, heavy lift bags
and pillow tanks. Oil containment booms are air-inflated cylinders that are used
to confine oil spilled on the high seas and along coastal waterways. Towable
storage bladders are used for storage and transportation of the recovered oil
after removal from the water. Heavy lift bags, often used in emergency
situations, are inserted into tight spaces and inflated to lift heavy loads
short
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<PAGE> 46
distances. Pillow tanks are collapsible rubberized containers used as an
alternative to steel drums and stationary storage tanks for the storage of
liquids.
SALES AND CUSTOMERS
The Company sells its products to more than 175 airlines, airframe
manufacturers, governments and distributors within each of the commercial
transport, general aviation and military aircraft markets. Sales to the
Government represented approximately 12%, 16% and 14% of total sales for the
nine months ended December 31, 1996 and for the fiscal years ended March 31,
1996 and 1995, respectively. No other customer accounted for more than 10% of
sales.
The following table shows the distribution of total Company revenues by
respective market, as a percentage of total revenues:
<TABLE>
<CAPTION>
FISCAL YEARS
NINE MONTHS ENDED ENDED
DECEMBER 31, MARCH 31,
----------------- -----------------
1996 1996 1995
----------------- ---- ----
<S> <C> <C> <C>
Commercial transport............... 63% 61% 61%
Military (U.S. and foreign)........ 18% 23% 19%
General Aviation................... 19% 16% 20%
--- --- ---
Total.................... 100% 100% 100%
=== === ===
</TABLE>
Commercial Transport. Customers for the Company's products in the
commercial transport market include most airframe manufacturers and major
airlines. The Company's products are used on a broad range of large commercial
transports (60 seats or more) and commuter aircraft (20 to 60 seats). Where
multiple braking systems are certified for a particular aircraft, it is
generally the airline and not the airframe manufacturer that decides which of
the approved wheel and brake suppliers will originally equip such airline's
fleet. Some of the Company's airline customers include American Airlines, Delta
Air Lines, Alitalia, Japan Air Systems, Lufthansa, Swissair, Northwest Airlines,
United Airlines, US Airways and Continental Airlines. The Company provides
replacement parts for certain aircraft designed by Boeing including the Boeing
707, but does not produce products for any commercial aircraft currently
manufactured by Boeing. Aircraft Braking Systems supplies products to McDonnell
Douglas, which merged in August 1997 with Boeing.
Military. The Company is the largest supplier of wheels, brakes and fuel
tanks to the U.S. military and also supplies the militaries of certain foreign
governments. The Company's products are used on a variety of fighters, training
aircraft, transports, cargo planes, bombers and helicopters. Some of the
military aircraft using these products are the F-2 (formerly the FS-X), F-4,
F-14, F-15, F-16, F-18, F-117A, A-10, B-1B, B2 and the C-130. Substantially all
of the Company's military products are sold to the Department of Defense,
foreign governments or to airframe manufacturers including the Lockheed Martin
Corporation ("Lockheed Martin"), McDonnell Douglas, Boeing, Sikorsky, Bell, Saab
and AIDC. In March 1996 the Company commenced wheel and brake deliveries to
Lockheed Martin for the upgraded C-130J aircraft. Brake control systems
manufactured for the military are used on the F-16, F-117A, B-2, Panavia
Toronado, British Aerospace Hawk, JAS-39 Jaguar and IDF aircraft.
General Aviation. The Company believes it is the industry's largest
supplier of wheels, brakes and fuel tanks for general aviation aircraft. This
market includes personal, business and executive aircraft. Customers include
airframe manufacturers, such as Gulfstream, Raytheon Aircraft, Learjet,
Canadair, Cessna and Dassault, and distributors such as Aviall. Anti-skid
systems are supplied by the Company to Gulfstream, Canadair, Dassault and a
variety of other aircraft manufacturers. General aviation aircraft using the
Company's equipment exclusively include the Beech Starship and Beech 400 A/T
series of aircraft, the Lear series 20, 30, 31A, 50 and 60 and the Gulfstream
G-I, G-II and G-III. Recently, the aviation industry has marketed "fractional
ownership" of aircraft. The Company believes this innovation could benefit its
business by increasing aircraft utilization.
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<PAGE> 47
The following table is a summary of the principal aircraft platforms
equipped with the Company's Aircraft Braking Systems products:
<TABLE>
<CAPTION>
COMMERCIAL
- ------------------------------------
<S> <C>
Airbus: A330/A340
A321
A310/A320
AI(R): ATR-42-300/320
ATR-42-400/500
Boeing: B707-320 B/C
Canadair: CRJ-100/200
CRJ-700
CASA: C-212-200
DeHavilland: DHC-8-400
Dornier: DO228-202
DO228-212
Fokker: F-27/FH-227
F-28
Fokker-50/60
Fokker-100/70
IPTN: N-250
Lockheed: L-100
L-1011
McDonnell Douglas: DC-3/4/6/8
DC-9-10/15/20/30
DC-9-40/50
DC-10-10/15
DC-10-30/40
MD-11
MD-81/82/87
MD-83/88
MD-95 NW
MD-90 Series
Mitsubishi: YS-11
Saab: SAAB 340 Series
SAAB 2000
<CAPTION>
MILITARY
- ------------------------------------
<S> <C>
Aerospatiale: SA-360/365
AIDC: IDF
BAe: Jaguar
Hawk
Beech: T-1A
C-12
Boeing: E-3 Series
E-6 A
E-8 Series
T-2
T-33
B-1B
Ch 46/47
Canadair: CT-114
CASA: C-101A
Cessna: A-37
A/T-37
DeHavilland: DHC-5
Fairchild: A-10A
Hawker Siddely: Buccaneer
1182
Lockheed Martin: F-117A
C-130 Series
C-141 A/B
F-16 Series
McDonnell Douglas: F-4C/D/E/G
A-4 Series
C-9A/B
KC-10A
Northrop Grumman: B-2
F-5 E/F
F-14 Series
E-2C Series
OV-1
A-6 Series
Panavia: Tornado
Pilatus: PC-6
Saab: J-35
AJ/JA-37
JAS-39 A/B
Sikorsky: SH-60
S-70
UH-60
CH-53
</TABLE>
<TABLE>
<CAPTION>
GENERAL AVIATION
- ----------------------------------------
<S> <C>
Aerospatiale: SN601
Bell: 206/212/230/412
Boeing: Vertol
Model 324
Canadair: CL600/601/601-3A
CL601-3R
CL604
Cessna: Citation I/II
310/401/402
414/421/441
Commander: 690, 1121
Dassault
Falcon: 10/100/20/200/
50/50EX
Fairchild: Metro III
Metro 23
Gulfstream: I/II/IIB/III/IV/IVSP
IAI: 1123/1124/1125
(Astra)
Galaxy
Lear: 23/24/25/31/35/31A/
55/55C/60
Piper: PA31P, T
Raytheon: 90/99/100/200
1900 Series
Starship
Beech Jet 400/400A
Hawker 4000
Sabreliner: 40/60/65/70/75/80
Sikorsky: S-76 Series
Swearingen: SJ-30-1/-2
</TABLE>
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<PAGE> 48
FOREIGN CUSTOMERS
The Company supplies products to a number of foreign aircraft
manufacturers, airlines and foreign governments. The following table shows sales
of the Company to both foreign and domestic customers:
<TABLE>
<CAPTION>
NINE MONTHS ENDED FISCAL YEARS ENDED
DECEMBER 31, MARCH 31,
----------------- -------------------
1996 1996 1995
----------------- ---- ----
<S> <C> <C> <C>
Domestic Sales....................... 57% 59% 62%
Foreign Sales........................ 43% 41% 38%
---- ---- ----
Total...................... 100% 100% 100%
==== ==== ====
</TABLE>
INDEPENDENT RESEARCH AND DEVELOPMENT
The Company employs scientific, engineering and other personnel to improve
its existing product lines and to develop new products and technologies in the
same or related fields. At December 31, 1996, the Company employed approximately
160 engineers (of whom 31 held advanced degrees); approximately 28 of such
engineers (including 14 holding advanced degrees) devoted all or part of their
efforts toward a variety of projects including refining carbon processing
techniques to create more durable braking systems, upgrading existing braking
systems to provide enhanced performance, and developing new technologies to
improve the Company's products.
The costs incurred relating to independent research and development for the
nine months ended December 31, 1996 and for the fiscal years ended March 31,
1996 and 1995 were $8.6 million, $9.8 million and $8.4 million, respectively.
PATENTS AND LICENSES
The Company has a large number of patents related to the products of its
subsidiaries. In addition, the Company has pending a substantial number of
patent applications and is licensed under several patents of others. While in
the aggregate its patents are of material importance to its business, the
Company believes no single patent or group of patents is of material importance
to its business as a whole.
COMPETITION
The Company faces substantial competition from a few suppliers in each of
its product areas. Its principal competitors that supply wheels and brakes are
Allied Signal's Aircraft Landing Systems Division and the B.F. Goodrich Company.
Both significant competitors are larger and have greater financial resources
than the Company. The principal competitor for anti-skid systems is the
Hydro-Aire Division of Crane Co. The principal competitors for fuel tanks are
American Fuel Cell & Coated Fabrics Company and Aerazur of France, both of which
are owned by Zodiac S.A., a French company.
BACKLOG
Backlog at September 30, 1997 and 1996 amounted to approximately $160.3
million and $141.8 million, respectively. Backlog consists of firm orders for
the Company's products which have not been shipped. Approximately 48% of total
Company backlog at September 30, 1997 is expected to be shipped during the year
ending December 31, 1997, with the balance expected to be shipped over the
subsequent two-year period. No significant seasonality exists for sales of the
products manufactured by the Company.
Of the total Company backlog at September 30, 1997, approximately 27% was
directly or indirectly for end use by the Government, substantially all of which
was for use by the Department of Defense. For certain risks associated with
Government contracts, see "Government Contracts" discussed below and "Risk
Factors -- Significant Customer."
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<PAGE> 49
GOVERNMENT CONTRACTS
For the nine months ended December 31, 1996 and for the fiscal years ended
March 31, 1996 and 1995, approximately 12%, 16%, and 14%, respectively, of the
Company's total sales were made to agencies of the Government or to prime
contractors or subcontractors of the Government.
All of the Company's defense contracts are firm, fixed-price contracts
under which the Company agrees to perform for a predetermined price. Although
the Company's fixed-price contracts generally permit the Company to keep
unexpected profits if costs are less than projected, the Company does bear the
risk that increased or unexpected costs may reduce profit or cause the Company
to sustain losses on the contract. All domestic defense contracts and
subcontracts to which the Company is a party are subject to audit, various
profit and cost controls and standard provisions for termination at the
convenience of the Government. Upon termination, other than for a contractor's
default, the contractor will normally be entitled to reimbursement for allowable
costs and to an allowance for profit. Foreign defense contracts generally
contain comparable provisions relating to termination at the convenience of the
government. To date, no significant fixed-price contract of the Company has been
terminated.
Companies supplying defense-related equipment to the Government are subject
to certain additional business risks peculiar to that industry. Among these
risks are the ability of the Government to unilaterally suspend the Company from
new contracts pending resolution of alleged violations of procurement laws or
regulations. Other risks include a dependence on appropriations by the
Government, changes in the Government's procurement policies (such as greater
emphasis on competitive procurements) and the need to bid on programs in advance
of design completion. A reduction in expenditures by the Government for aircraft
using products of the type manufactured by the Company, or lower margins
resulting from increasingly competitive procurement policies, or a reduction in
the volume of contracts or subcontracts awarded to the Company or substantial
cost overruns would have an adverse effect on the Company's cash flow and
results of operations.
SUPPLIES AND MATERIALS
The principal raw materials used in the Company's wheel and brake
manufacturing operations are steel, aluminum forgings and carbon compounds. The
Company purchases carbon for certain programs, steel and aluminum forgings from
several sources. The principal raw materials used by Engineered Fabrics to
manufacture fuel tanks and related coated fabric products are nylon cloth,
forged metal fittings and various adhesives and coatings, whose formulae are
internally developed and proprietary. The Company has not experienced any
shortage of raw materials to date.
In April 1997, the Company completed the construction of a 21,000 square
foot expansion of its carbon manufacturing facility in Akron, Ohio. This
facility has sufficient capacity to supply substantially all of the Company's
currently anticipated carbon requirements.
PERSONNEL
At December 31, 1996, the Company had 1,235 full-time employees, of which
872 were employed by Aircraft Braking Systems (407 hourly and 465 salaried
employees) and 363 were employed by Engineered Fabrics (242 hourly and 121
salaried employees). All of Aircraft Braking Systems' hourly employees are
represented by the United Auto Workers' Union and all of Engineered Fabrics'
hourly employees are represented by the United Textile Workers' Union.
Engineered Fabrics has entered into a three-year contract with its union
that expires on February 5, 1998. Aircraft Braking Systems' three-year contract
with the United Auto Workers' Union expired on August 10, 1991. Aircraft Braking
Systems has not had a ratified collective bargaining agreement since August 10,
1991, but has operated under Company-implemented terms and conditions of
employment. See "Risk Factors -- Certain Collective Bargaining Matters."
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<PAGE> 50
PROPERTIES
United States Facilities. Aircraft Braking Systems and Engineered Fabrics
operate two manufacturing facilities in the United States which are individually
owned except as set forth below under "Akron Facility Arrangements." Aircraft
Braking Systems' facility is located in Akron, Ohio, and consists of
approximately 770,000 square feet of manufacturing, engineering and office
space. Engineered Fabrics' facility is located in Rockmart, Georgia, and
consists of approximately 564,000 square feet of manufacturing, engineering and
office space. The Company believes that its property and equipment are generally
well-maintained, in good operating condition and adequate for its present needs.
Foreign Facilities. The Company occupies approximately 19,000 square feet
of leased office and warehouse space in Slough, England, under a lease expiring
in 2020. The Company also maintains sales and service offices in Rome, Italy and
Toulouse, France.
Akron Facility Arrangements. The manufacturing facilities owned by
Aircraft Braking Systems are part of a larger complex formerly owned and
operated by Loral Corporation and now owned by Lockheed Martin. Aircraft Braking
Systems and Lockheed Martin have various occupancy and service agreements to
provide for shared easements and services (including utility, sewer, and steam).
In addition to the 770,000 square feet owned by Aircraft Braking Systems, the
Company leases approximately 433,000 square feet of space within the Lockheed
Martin complex and is subject to annual occupancy payments to Lockheed Martin.
During the nine months ended December 31, 1996 and during the fiscal years ended
March 31, 1996 and 1995, Aircraft Braking Systems made occupancy payments to
Lockheed Martin of $1.2 million, $1.5 million and $1.3 million, respectively.
Certain access easements and agreements regarding water, sanitary sewer, storm
sewer, gas, electricity and telecommunication are perpetual. In addition,
Lockheed Martin and Aircraft Braking Systems equally control Valley Association
Corporation, an Ohio corporation formed to establish a single entity to deal
with the City of Akron and utility companies concerning governmental and utility
services that are furnished to Lockheed Martin's and Aircraft Braking Systems'
facilities.
LEGAL PROCEEDINGS
On December 15, 1995, Aircraft Braking Systems commenced an action in the
Court of Common Pleas, Summit County, Ohio against Hitco after Hitco threatened
to breach existing supply contracts unless prices were renegotiated. Until
recently, Hitco was the principal supplier of the carbon used by Aircraft
Braking Systems for its carbon brakes. Hitco claimed that Aircraft Braking
Systems breached the supply arrangements by electing to begin to expand its own
carbon production facility. The Aircraft Braking Systems' complaint, as amended,
seeks injunctive relief and damages for various breaches of contract which have
recently been estimated at up to $57 million. Hitco has counterclaimed in the
matter seeking, among other things, damages for lost profits, which Hitco has
recently estimated at up to $78 million (subject to mitigation) for the alleged
breach by Aircraft Braking Systems of alleged long-term contracts to purchase
carbon. Hitco was enjoined from refusing to perform its obligations pursuant to
existing contracts and purchase orders without change in terms. Accordingly,
through mid-December 1996, Hitco continued to supply carbon to the Company,
although Hitco failed to fill certain acknowledged purchase orders. Aircraft
Braking Systems has sought to hold Hitco in contempt of the court's injunction,
which motion has not been decided by the court. An injunction requested by Hitco
that would require the Company to turn over to Hitco technology allegedly
jointly developed and owned under the prior contractual arrangements has been
denied. The case is presently scheduled for trial in January 1998.
In related actions, a suit filed by Hitco in Superior Court, Los Angeles
County, California against Aircraft Braking Systems seeking substantially the
same relief as is asserted in the Ohio action, has been stayed. Hitco also filed
suit in the Federal District Court in the Northern District of Ohio for damages
and injunctive relief against a third party claiming that such party, in
supplying certain carbon to Aircraft Braking Systems, has acquired trade secrets
of Hitco from Aircraft Braking Systems and has misappropriated trade secrets and
technology developed under the same research and development contracts between
Hitco and Aircraft Braking Systems which are the subject of the Ohio case and
the California case. Aircraft Braking Systems has been granted leave to
intervene and Hitco has moved to dismiss the Federal action.
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<PAGE> 51
Management intends to vigorously advocate its interest in all lawsuits, to
seek dismissal of the California action and to proceed in the Ohio case to seek
damages from Hitco. Based upon the proceedings to date, management does not
expect the outcome of the litigation to be unfavorable to the Company. There can
be no assurance, however, as to the outcome of the litigation or that a judgment
against the Company would not materially adversely affect the Company.
In addition to the foregoing, there are various lawsuits and claims pending
against the Company incidental to its business. Although the final results in
such suits and proceedings cannot be predicted with certainty, in the opinion of
the Company's management, the ultimate liability, if any, will not have a
material adverse effect on the Company.
ENVIRONMENTAL MATTERS
The Company's manufacturing operations are subject to various environmental
laws and regulations administered by federal, state and local agencies. The
Company continually assesses its obligations and compliance with respect to
these requirements. Based upon these assessments, the Company believes that its
manufacturing facilities are in substantial compliance with all applicable
existing federal, state and local environmental laws and regulations. New
environmental protection laws that will be effective in 1997 and thereafter may
require the installation of air pollution and wastewater treatment control
equipment at the Company's manufacturing facilities. However, the Company does
not believe that its environmental expenditures, if any, will have a material
adverse effect on its financial condition or results of operations.
48
<PAGE> 52
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages and positions of the directors and
executive officers of the Company. All directors will hold office until the next
annual meeting of stockholders of the Company and until their successors are
duly elected and qualified, and all executive officers will hold office at the
pleasure of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
----------------------------------- --- -----------------------------------
<S> <C> <C>
Bernard L. Schwartz*............... 71 Chairman of the Board and Chief
Executive Officer
Donald E. Fogelsanger.............. 71 President
Kenneth M. Schwartz................ 46 Executive Vice President
Dirkson R. Charles................. 33 Chief Financial Officer
Ronald H. Kisner*.................. 49 Director and Secretary
Steven J. Berger**................. 40 Director
David J. Brand**................... 36 Director
Herbert R. Brinberg*............... 71 Director
Robert B. Hodes*................... 72 Director
John R. Paddock*................... 44 Director
A. Robert Towbin***................ 62 Director
Alan H. Washkowitz**............... 57 Director
</TABLE>
- ---------------
* Designated as director by BLS pursuant to the Stockholders' Agreement (as
defined).
** Designated by the Lehman Investors pursuant to the Stockholders' Agreement.
*** Designated as independent director by BLS and the Lehman Investors pursuant
to the Stockholders' Agreement.
Mr. Bernard L. Schwartz has been Chairman and Chief Executive Officer of
the Company since 1989. Mr. Schwartz has been Chairman and Chief Executive
Officer of Loral Space & Communications Ltd. ("Loral Space") since April 1996.
From 1972 to April 1996 Mr. Schwartz was Chairman and Chief Executive Officer of
Loral Corporation. Mr. Schwartz is Chairman and Chief Executive Officer of
Globalstar Telecommunications Limited, Chairman and Chief Executive Officer of
Space Systems/Loral, Inc., Chief Executive Officer of Globalstar, L.P., a
Director of Reliance Group Holdings, Inc. and certain subsidiaries, a Director
of First Data Corporation and a Trustee of New York University Medical Center.
Mr. Fogelsanger has been President of the Company since January 1996. From
April 1989 to January 1996, Mr. Fogelsanger was the President of Aircraft
Braking Systems. From 1987 to 1989 he was President of Loral Corporation's
Aircraft Braking Systems Division. From January 1986 to March 1987 he was Vice
President and General Manager of the ABS division of Goodyear Aerospace
Corporation ("GAC"). From 1980 to 1986 he was General Manager of Goodyear's
Aircraft Tire Operations. In 1968, Mr. Fogelsanger directed Goodyear's
development of a crash-resistant fuel system for helicopters that was credited
with saving hundreds of lives during the Vietnam War. He joined Goodyear in
1951.
Mr. Kenneth M. Schwartz has been Executive Vice President of the Company
since January 1996. From June 1989 to January 1996, Mr. Schwartz held the
positions of Chief Financial Officer, Treasurer and Secretary. Previously he was
the Corporate Director of Internal Audit for Loral Corporation since late 1987.
From 1984 to 1987, Mr. Schwartz held the position of Director of Cost and
Schedule Administration for Loral Electronic Systems. Prior to 1984, Mr.
Schwartz held various other positions with Loral Electronic Systems and the
accounting firm of Deloitte & Touche LLP. Mr. Schwartz is the nephew of Bernard
L. Schwartz.
Mr. Charles has been Chief Financial Officer of the Company since May 1996.
From May 1993 to May 1996, Mr. Charles was the Controller of the Company.
Previously he was the Manager of Accounting and
49
<PAGE> 53
Financial Planning. Prior to employment with the Company in 1989, Mr. Charles
held various other positions with the accounting firm of Arthur Andersen & Co.
LLP, which he joined in 1984.
Mr. Kisner has been a member of the law firm of Chekow & Kisner, P.C. since
1984. From 1973 to 1982, he was Associate General Counsel of APL Corporation,
where he held such offices as Secretary, Vice President and Director. From 1982
to 1984, Mr. Kisner was a sole practitioner. Since January 1997, Mr. Kisner has
been Secretary of the Company. Mr. Kisner's wife is the niece of Bernard L.
Schwartz.
Mr. Berger is a Managing Director of Lehman Brothers and Head of the
Merchant Banking Group. Mr. Berger joined Lehman Brothers in 1983 in the
Investment Banking Division and spent the early part of his career working on
principal investment, merger-related advisory and corporate finance
transactions. Mr. Berger became a Managing Director and Head of European
Investment Banking in 1991, Head of the Merchant Banking Group in 1995 and
Co-Head of the Investment Banking Division in 1996, a position he relinquished
in 1997 to concentrate full-time on Lehman Brothers' principal investment
activities. Mr. Berger is a director of L-3 Communications Corporation.
Mr. Brand is a Managing Director of Lehman Brothers and a principal in the
Global Mergers & Acquisitions Group, leading Lehman Brothers' Technology Mergers
and Acquisitions business. Mr. Brand joined Lehman Brothers in 1987 and has been
responsible for merger and corporate finance advisory services for many of
Lehman Brothers' technology and defense industry clients. Mr. Brand is a
director of L-3 Communications Corporation.
Mr. Hodes is Counsel to the law firm of Willkie Farr & Gallagher with which
he has been associated since 1949. He is a Director of Aerointernational Inc.,
W.R. Berkley Corporation, Crystal Oil Company, Globalstar Telecommunications,
Ltd., LCH Investments N.V., Loral Space & Communications Ltd., Mueller
Industries, Inc., Restructured Capital Holdings Ltd. and R.V.I. Guaranty Co.,
Ltd.
Dr. Brinberg has been President and Chief Executive Officer of Parnassus
Associates International, a firm of consultants in the field of Information
Management, since September 1989. Previously, he was President and Chief
Executive Officer of Wolters Kluwer U.S. Corporation, a wholly owned subsidiary
of Wolters Kluwer N.V. of the Netherlands, and its predecessor companies since
1978. He is also currently an Adjunct Professor of Management at Baruch College
City University of New York.
Dr. Paddock is a licensed psychologist who has maintained an independent
practice of psychotherapy, assessment and consultation in Atlanta, Georgia since
1982. He has also been President of the Georgia Psychological Association
(1993-1994), Director of Training for the Georgia School of Professional
Psychology, Adjunct Associate Professor of Psychology at Emory University,
Assistant Professor of Psychology at Kennesaw State College, and Southern Region
Coordinator for National Employee Assistance Services. Currently, he is visiting
Associate Professor of Psychology at Emory, and holds positions as Adjunct
Clinical Assistant Professor in the Department of Psychiatry at Emory, and is
Adjunct Professor of Psychology at Georgia Institute of Technology. Dr.
Paddock's wife is the daughter of Bernard L. Schwartz.
Mr. Towbin joined Unterberg Harris in September of 1995 as a Managing
Director. From January 1994 to September 1995, he was President and Chief
Executive Officer of the Russian-American Enterprise Fund and Vice Chairman of
its successor fund, The U.S. Russian Investment Fund. Mr. Towbin was a Managing
Director at Lehman Brothers from January 1987 until January of 1994. Mr. Towbin
was Vice Chairman, Member of the Executive Committee and Director of L.F.
Rothschild, Unterberg, Towbin Holdings, Inc. from 1986 to 1987 and from 1983 to
1986, Mr. Towbin was Vice Chairman. From 1977 to 1983 he was General Partner of
L.F. Rothschild, Unterberg, Towbin and from 1959 to 1977, Mr. Towbin was General
Partner of C.E. Unterberg, Towbin Co. Mr. Towbin is also a Director of Bradley
Real Estate Inc., Lancit Media Entertainment, Ltd., Columbus New Millennium
Fund, Gerber Scientific, Inc. and Globalstar Telecommunications Limited.
Mr. Washkowitz has been a Managing Director of Lehman Brothers since 1984.
He was a Managing Director of Lehman Brothers Kuhn Loeb, Inc. from 1978 to 1984.
Mr. Washkowitz began in the Corporate Finance Department of Kuhn Loeb & Co. in
1968 and became a general partner of the firm in 1975. Mr. Washkowitz is also a
director of Illinois Central Corporation, L-3 Communications Corporation and
McBride plc.
50
<PAGE> 54
EXECUTIVE OFFICERS OF AIRCRAFT BRAKING SYSTEMS AND ENGINEERED FABRICS
Set forth below are the names, ages and positions of the executive officers
of Aircraft Braking Systems and Engineered Fabrics. All executive officers hold
office at the pleasure of their respective Boards of Directors.
Aircraft Braking Systems
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------------- --- -----------------------------------
<S> <C> <C>
Ronald E. Welsch................... 62 President
Frank P. Crampton.................. 54 Vice President-Marketing
Richard W. Johnson................. 54 Vice President-Finance and
Controller
James J. Williams.................. 41 Vice President-Manufacturing
</TABLE>
Engineered Fabrics
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------------- --- -----------------------------------
<S> <C> <C>
Roger C. Martin.................... 60 President
Terry L. Lindsey................... 53 Vice President-Marketing
Anthony G. McCann.................. 38 Vice President-Operations
John A. Skubina.................... 42 Vice President-Finance
</TABLE>
Mr. Welsch has been President of Aircraft Braking Systems since January
1996. From November 1994 to January 1996, Mr. Welsch held the positions of
Executive Vice President and Chief Operating Officer. From September 1993 to
November 1994, he was Executive Vice President. Prior to joining Aircraft
Braking Systems, Mr. Welsch was General Manager of the GE 90 Commercial Engine
program at General Electric Aircraft Engines and held various positions in
management, including engineering, product support, marketing, product planning
and program management, over the course of 26 years. Mr. Welsch started his
aviation career at Douglas Aircraft in 1958 and joined Northrop Corporation in
1961. He entered the U.S. Marine Corp Aviation following graduation from Purdue
University.
Mr. Crampton was named Vice President of Marketing at Aircraft Braking
Systems in March 1987. He had been Director of Business Development for GAC's
Wheel and Brake Division since 1985. Prior to that assignment, he was the
divisional manager of Program Operations since 1983. Mr. Crampton joined
Goodyear in 1967. He became Section Manager in Commercial Sales in 1977, a
product marketing manager in 1978 and Divisional Sales Manager in 1979. In
August of 1982, he joined manufacturing as the manager of the manufacturing
process organization. He also worked for NASA at the Johnson Space Center,
Houston, Texas from 1963 to 1966.
Mr. Johnson has been Vice President of Finance and Controller at Aircraft
Braking Systems since April 1989. From 1987 to 1989, he was Vice President of
Finance and Controller of Loral Corporation's Aircraft Braking Systems Division.
Prior to this assignment, he had spent 22 years with GAC, including one year as
the Controller of the wheel and brake division. Mr. Johnson joined GAC in 1966.
He became Manager of Accounting in 1979 for the Centrifuge Equipment Division of
GAC after holding various positions in the Defense Systems Division.
Mr. Williams was named Vice President of Manufacturing at Aircraft Braking
Systems in May 1992. He had been Director of Manufacturing since joining
Aircraft Braking Systems in September 1989. Previously from April 1985 to August
1989, he was Branch Manager of Refurbishment Operations at United Technologies
responsible for the refurbishment process of the Solid Rocket Boosters on the
Shuttle Program. Mr. Williams started his aviation career in 1975 in the Air
Force as a Hydraulic Systems Specialist. He was Superintendent, Manufacturing at
Fairchild Republic Company from 1979 to 1983, followed by Manager, B-1B
Manufacturing Operations at Rockwell International Corporation from 1983 to
1985.
Mr. Martin has been President of Engineered Fabrics since 1987. From June
1984 until 1987, he was General Manager of GAC's Engineered Fabrics Division.
Mr. Martin has been continuously employed by
51
<PAGE> 55
Goodyear, GAC, Loral Corporation and the Company for the past 35 years. Other
positions Mr. Martin held with Goodyear include General Manager, Program Manager
and a number of research positions. He holds a patent for elastomeric protective
coating for metal storage reels.
Mr. Lindsey has served as Vice President of Business Development since
1989. He has been with GAC, Loral Corporation and the Company since 1977. Prior
to this he had 12 years of service with the U.S. Army. He joined GAC as Contract
Administrator of the Industrial Brake Operation in Berea, Kentucky, and
transferred to Engineered Fabrics in 1979 as Manager of Contracts.
Mr. McCann has been Vice President of Operations at Engineered Fabrics
since June 1993. Prior to that, he was Manager of Production Support from April
1990 to June 1993. He joined Engineered Fabrics in August 1988 as Manager of
Production. From January 1984 to August 1988, Mr. McCann worked for Aircraft
Braking Systems as Manager of Manufacturing Engineering, Manager of Assembly and
as a Manufacturing Engineer.
Mr. Skubina has been Vice President of Finance and Administration since
February 1991. Prior to that, he was made Vice President of Finance on April 1,
1990. He joined Engineered Fabrics in 1988 as Accounting Manager. From 1985
until 1988, Mr. Skubina was the Assistant Controller and Controller of MPD, a
division of M/A-Com.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation for the nine months ended
December 31, 1996 and for the fiscal years ended March 31, 1996 and 1995, paid
to the chief executive officer and each of the other four most highly
compensated executive officers of the Company and the Company's subsidiaries.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
NINE MONTHS ENDED COMPENSATION ----------------
DECEMBER 31, ------------------------- OPTIONS LTIP ALL OTHER
1996* SALARY BONUS GRANTED PAYOUTS COMPENSATION(a)
NAME AND PRINCIPAL POSITION OR FISCAL YEAR ($) ($) (#) ($) ($)
- --------------------------- ----------------- ---------- ---------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Bernard L. Schwartz........ 1996* 1,477,426(b) 1,247,000 -- -- --
Chairman of the Board 1996 1,770,500(b) -- -- -- --
and Chief Executive 1995 1,779,500(b) -- -- -- --
Officer
Kenneth M. Schwartz........ 1996* 274,231(b) 106,000 -- 28,333 19,331
Executive Vice President 1996 321,815(b) 115,000 -- 13,333 4,196
of K & F Industries, Inc. 1995 283,600(b) 105,000 -- -- 3,565
Donald E. Fogelsanger...... 1996* 170,769 115,000 -- 30,000 42,369
President of K & F 1996 196,000 125,000 -- 13,333 22,829
Industries, Inc. 1995 198,538 120,000 -- -- 19,442
Ronald E. Welsch........... 1996* 145,308 60,000 -- 22,000 25,997
President of Aircraft 1996 172,000 70,000 -- 10,000 38,533
Braking Systems 1995 162,769 78,000 -- -- 3,806
Corporation
Roger C. Martin............ 1996* 109,757 30,000 -- 17,333 27,229
President of Engineered 1996 136,674 55,000 -- 8,333 11,489
Fabrics Corporation 1995 132,767 55,500 -- -- 10,520
</TABLE>
- ---------------
(a) Includes the following: (i) Company contributions to individual 401(k) plan
accounts for the nine months ended December 31, 1996 and for the fiscal
years ended March 31, 1996 and 1995, respectively: Mr. K.
Schwartz -- $2,414, $3,996 and $3,375; Mr. Fogelsanger -- $3,054, $4,050 and
$3,475;
52
<PAGE> 56
Mr. Welsch -- $3,084, $4,050 and $3,446; Mr. Martin -- $3,442, $4,050 and
$3,110; (ii) the value of supplemental life insurance programs for the nine
months ended December 31, 1996 and for the fiscal years ended March 31, 1996
and 1995, respectively: Mr. K. Schwartz -- $16,917, $200 and $190; Mr.
Fogelsanger -- $39,315, $18,779 and $15,967; Mr. Welsch -- $22,913, $1,107
and $360; Mr. Martin -- $23,787, $7,439 and $7,410; and (iii) $33,376 paid
to Mr. Welsch during the fiscal year ended March 31, 1996, for moving
expenses incurred in connection with his employment.
(b) The Company has an Advisory Agreement with BLS which provides for the
payment of an aggregate of $200,000 per month of compensation to BLS and
persons designated by him (including certain executive officers of Loral
Space who are active in the management of the Company) in exchange for
acting as directors of the Company's subsidiaries and providing advisory
services to the Company and its subsidiaries. BLS has designated that
$100,000 of the aggregate annual advisory fee be paid to Kenneth M.
Schwartz, which is included in his salary for all periods shown.
OPTION GRANTS
There were no grants of stock options by the Company, during the nine
months ended December 31, 1996, to the named executive officers.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END(#) FY-END ($)(1)
SHARES -------------- -------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- -------------------------------------- ----------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Bernard L. Schwartz................... 0 0 0 0/0
Kenneth M. Schwartz................... 0 0 1,313/187 0/0
Donald E. Fogelsanger................. 0 0 2,375/125 0/0
Ronald E. Welsch...................... 0 0 250/250 0/0
Roger C. Martin....................... 0 0 1,375/125 0/0
</TABLE>
- ---------------
(1) None of the Company's stock has been publicly traded. All Company options
were granted at an exercise price of $84.60, the book value computed as of
April 27, 1989. All issued and outstanding options were exercised prior to
consummation of the Recapitalization and the common stock issued upon
exercise of such options was purchased as part of the Recapitalization at a
per share price of $175.58.
LONG-TERM INCENTIVE PLAN AWARDS
Under the Company's long-term incentive plan designed to provide an
incentive to encourage attainment of Company objectives and retain and attract
key executives of the Company, a limited number of persons participate in a
Deferred Bonus Plan. Under the terms of the plan, generally no awards are
allocated to any participant unless the Company has achieved at least a 10%
growth in earnings before interest, taxes and amortization over the prior fiscal
year. Awards vest and are paid (unless deferred by recipient direction) in three
equal annual installments starting on January 15th following each fiscal
year-end. All amounts not vested are forfeited upon termination of employment
for any reason other than death or disability prior to the vesting date. The
following awards were earned for the individuals named in the Summary
Compensation Table during the nine months ended December 31, 1996 and for the
fiscal years ended March 31, 1996 and 1995, respectively: Mr. K. Schwartz
$50,000, $45,000 and $40,000; Mr. Fogelsanger $55,000, $50,000 and $40,000; Mr.
Welsch $40,000, $36,000 and $30,000; and Mr. Martin $30,000, $27,000 and
$25,000.
53
<PAGE> 57
THE RETIREMENT PLAN
The Company established, effective May 1, 1989, as amended, the K & F
Retirement Plan for Salaried Employees (the "Company Retirement Plan"), a
defined benefit pension plan. The Company has received a favorable determination
letter from the Internal Revenue Service that the Company Retirement Plan is a
qualified plan under the Internal Revenue Code. The terms of the Company
Retirement Plan are as follows: a non-contributory benefit and a contributory
benefit. The cost of the former is borne by the Company; the cost of the latter
is borne partly by the Company and partly by the participants. Salaried
employees who have completed at least six months of service and satisfied a
minimum earnings level are eligible to participate in the contributory portion
of the Company Retirement Plan; salaried employees become participants in the
non-contributory portion on their date of hire. The Plan provides a benefit of
$20.00 per month for each year of credited service. For participants who
contribute to the Plan, in addition to the benefit of $20.00 per month for each
year of credited service, the Plan provides an annual benefit equal to the
greater of: 60% of the participant's aggregate contributions; or, average
compensation earned (while contributing) during the last 10 years of employment
in excess of 90% of the Social Security Wage Base amount multiplied by: (a) 2.4%
times years of continuous service up to 10, plus, (b) 1.8% times additional
years of such service up to 20, plus, (c) 1.2% times additional years of such
service up to 30, plus, (d) 0.6% times all additional such service above 30
years.
Effective January 1, 1990, the Plan was amended for eligible employees of
the Company and Aircraft Braking Systems to provide an annual benefit equal to
(a) the accrued benefit described above as of December 31, 1989, plus (b) a
non-contributory benefit for each year of credited service after January 1,
1990, of 0.7% of annual earnings up to the Social Security Wage Base or $288,
whichever is greater, plus (c) for each year of continuous service on and after
January 1, 1990, a contributory benefit of (i) for 14 years of continuous
service or less, 1.05% of annual earnings between $19,800 and the Social
Security Wage Base plus 2.25% of annual earnings above the Social Security Wage
Base, and (ii) for more than 14 years of continuous service, 1.35% of annual
earnings between $19,800 and the Social Security Wage Base plus 2.65% of annual
earnings above the Social Security Wage Base. In no event will the amount
calculated in (c) above be less than 60% of the participant's aggregate
contributions made on and after January 1, 1990. Benefits are payable upon
normal retirement at age 65 in the form of single life or joint and survivor
annuity or, at the participant's option with appropriate spouse consent, in the
form of an annuity with a term certain. A participant who has (a) completed at
least 30 years of continuous service, (b) attained age 55 and completed at least
10 years of continuous service, or (c) attained age 55 and the combination of
such participant's age and service equals at least 70 years, is eligible for
early retirement benefits. If a participant elects early retirement before
reaching age 62, such benefits will be reduced except that the non-contributory
benefits of a participant with at least 30 years of credited service will not be
reduced. In addition, employees who retire after age 55 but before age 62 with
at least 30 years of service are entitled to a supplemental non-contributory
benefit until age 62. Annual benefits under the Company Retirement Plan are
subject to a statutory ceiling of $120,000 per participant. Participants are
fully vested in their accrued benefits under the Company Retirement Plan after
five years of credited service with the Company.
The individuals named in the Summary Compensation Table also participate in
a supplemental plan which generally makes up for certain reductions in such
benefits caused by Internal Revenue Code limitations. Estimated annual benefits
upon retirement for these individuals who are participants in the amended plan
of the Company and Aircraft Braking Systems and the supplemental plan are
$223,000 for Mr. K. Schwartz; $116,000 for Mr. Fogelsanger; and $35,000 for Mr.
Welsch. BLS does not participate in either plan. The retirement benefits have
been computed on the assumption that (a) employment will be continued until
normal retirement at age 65; (b) current levels of creditable compensation and
the Social Security Wage Base will continue without increases or adjustments
throughout the remainder of the computation period; and (c) participation in the
contributory portion of the plan will continue at current levels. The Company
has a similar plan at Engineered Fabrics in which Mr. Martin participates.
Estimated annual benefits for Mr. Martin are $92,000 using the assumptions in
(a), (b) and (c) above.
For purposes of eligibility, vesting and benefit accrual, participants
receive credit for years of service with Loral Corporation and Goodyear. At
retirement, retirement benefits calculated according to the benefit
54
<PAGE> 58
formula described above are reduced by any retirement benefits payable from The
Goodyear Tire & Rubber Company Retirement Plan For Salaried Employees.
COMPENSATION OF DIRECTORS
The Board of Directors held three meetings during the nine months ended
December 31, 1996. Non-equity members of the Board of Directors receive annual
fees of $12,000 per year. Each of the Company's existing directors designated by
the Lehman Investors pursuant to existing stockholders arrangements has waived
compensation for services as a director. All directors are reimbursed for
reasonable out-of-pocket expenses incurred in that capacity.
ADVISORY AGREEMENT
The Company has an Advisory Agreement with BLS which provides for the
payment of an aggregate of $200,000 per month of compensation to BLS and persons
designated by him (including certain other executive officers of Loral Space who
are active in the management of the Company) in exchange for acting as directors
and providing advisory services to the Company and its subsidiaries. Such
agreement will continue until BLS dies or is disabled or ceases to own a
specified number of shares of common stock of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has not in the past used a compensation committee to determine
executive officer compensation. The payments to BLS, the Company's Chairman and
Chief Executive Officer, are paid in accordance with the Advisory Agreement. All
other executive compensation decisions are made by BLS in accordance with
policies established in consultation with the Board of Directors.
SECURITY OWNERSHIP
The following table sets forth certain information regarding the ownership
of the capital stock of the Company following the Recapitalization. Unless
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned. The address for each
stockholder is c/o K & F Industries, Inc., 600 Third Avenue, New York, New York
10016.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES OF OWNERSHIP OF
NAME COMMON STOCK CAPITAL STOCK
----------------------------------------------- --------------- -------------
<S> <C> <C>
Bernard L. Schwartz............................ 370,199 50.00%
*Lehman Brothers Merchant Banking Portfolio
Partnership L.P.(a).......................... 180,228 24.34
*Lehman Brothers Offshore Investment
Partnership L.P.(b).......................... 48,880 6.60
*Lehman Brothers Offshore Investment
Partnership -- Japan L.P.(b)................. 18,591 2.51
*Lehman Brothers Capital Partners II,
L.P.(c)...................................... 122,500 16.55
--------------- -------------
Total................................ 740,398 100.00%
</TABLE>
- ---------------
* Collectively referred to as the "Lehman Investors."
(a) LBI Group Inc. is the general partner of the limited partnership and is an
indirect wholly owned subsidiary of LBH.
(b) Lehman Brothers Offshore Partners Ltd. is the general partner of the limited
partnership and is an indirect wholly owned subsidiary of LBH.
(c) LBH is the general partner of the limited partnership. The limited
partnership is a fund for employees of LBH and its affiliates.
55
<PAGE> 59
STOCKHOLDERS' AGREEMENT
In connection with consummation of the Recapitalization, BLS and the Lehman
Investors (collectively, the "Stockholders") entered into a Stockholders'
Agreement (the "Stockholders' Agreement"). The Stockholders' Agreement contains
certain restrictions with respect to the transferability of the Company's
capital stock, subject to certain exceptions. The Stockholders' Agreement also
includes provisions regarding designation of members of the Board of Directors
and other voting arrangements. The Stockholders' Agreement will terminate at
such time as more than 75% of the shares of common stock and shares of common
stock issuable upon the exercise of options or rights to acquire common stock or
upon conversion of convertible securities (collectively, "Common Equivalents")
then outstanding have been sold pursuant to one or more public offerings, except
that (i) the registration rights continue as to any common stock held by the
Stockholders as long as they own their shares and (ii) the voting provisions
contained in the Stockholders' Agreement will terminate on the tenth anniversary
thereof.
The Stockholders' Agreement provides that the Company's Board of Directors
will be comprised initially of nine directors. Under the Stockholders'
Agreement, BLS will be entitled to appoint five directors, the Lehman Investors
will be entitled to appoint three directors and BLS and the Lehman Investors
will be entitled to designate jointly one independent director. Upon the death,
retirement or resignation as Chairman or Chief Executive Officer or permanent
disability of BLS, the Lehman Investors and the BLS Group (as defined in the
Stockholders' Agreement) will each be entitled to designate 50% of the members
of the Board of Directors. The Company's By-laws provide that for so long as
there is a director designated by the Lehman Investors, certain corporate
actions will require the vote of at least one director designated by the Lehman
Investors, including (with certain exceptions) (i) mergers, consolidations or
recapitalizations, (ii) issuances of capital stock, (iii) repurchases of and
dividends on capital stock, (iv) issuances of employee options to purchase more
than 50,000 shares of capital stock of the Company, (v) dissolution or
liquidation of the Company, (vi) acquisitions, sales or exchanges of assets in
excess of $5 million, (vii) amendment of the Charter or By-laws of the Company,
(viii) incurrences of debt or liens in excess of $10 million in the aggregate,
(ix) making loans, investments or capital expenditures in an aggregate amount in
excess of $10 million in each case in any single year, (x) transactions with
affiliates, (xi) prepayments of or amendments to any amount of financing in
excess of $10 million, (xii) engaging in new businesses or ventures and (xiii)
certain employee compensation and other matters.
The Stockholders' Agreement provides that any time after the earlier of (i)
the fifth anniversary of the Recapitalization, (ii) six months following the
death of BLS or (iii) upon the resignation or retirement of BLS as Chairman or
Chief Executive Officer, either the BLS Group or the Lehman Investors (the "Put
Party") may request an appraisal of the value of the capital stock of the
Company (the "Appraised Value") and may notify the other party of its desire to
sell all of its and its transferees' capital stock for a pro rata share of such
Appraised Value. The other party may elect to purchase such capital stock,
arrange for the purchase of such capital stock by a third party or notify the
Put Party that it does not intend to purchase, or arrange for the purchase by a
third party of, such capital stock. If the other party is unable or chooses not
to arrange for and consummate the purchase of such capital stock, the BLS Group
and the Lehman Investors shall cause the Company to be sold as an entirety if
such sale can be arranged for a price at least equal to the Appraised Value
(subject to reduction by no more than 10% under specified circumstances). Any
sale of the Company as an entirety shall include all Stockholders and the
proceeds thereof shall be allocated among the Stockholders in accordance with
their stock ownership.
Notwithstanding other restrictions on transfer set forth in the
Stockholders' Agreement, from and after March 3, 2001, the Lehman Investors will
have the right to transfer capital stock to a third party, subject to specified
conditions. The put-sale rights of the Lehman Investors described above and the
rights of the Lehman Investors to designate 50% of the members of the Board of
Directors upon the death, retirement, resignation or disability of BLS will
terminate upon any such transfer.
The Stockholders' Agreement provides certain first offer and tag-along
rights with respect to certain transfers of common stock or Common Equivalents.
The Stockholders' Agreement grants the Stockholders demand and incidental
registration rights with respect to shares of capital stock held by them, which
rights will be exercisable at any time after an initial public offering of the
Company's common stock approved by the Board of Directors. The Stockholders'
Agreement contains customary terms and provisions with respect to such
registration rights.
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CERTAIN TRANSACTIONS
GENERAL
BLS owns 50% of the capital stock of the Company and pursuant to the
Stockholders' Agreement has the right to designate a majority of the Board of
Directors of the Company. In addition, BLS serves as Chairman of the Board of
Directors and Chief Executive Officer of the Company, and devotes such time to
the business and affairs of the Company as he deems appropriate. Because BLS is
Chairman of the Board of Directors and has the right to designate a majority of
the Directors to the Board of Directors of the Company, he has operating control
of the Company. BLS is also Chairman and Chief Executive Officer of Loral Space.
The Company has an Advisory Agreement with BLS which provides for the
payment of an aggregate of $200,000 per month of compensation to BLS and persons
designated by him (including certain executive officers of Loral Space who are
active in the management of the Company) in exchange for acting as directors and
providing advisory services to the Company and its subsidiaries. Such agreement
will continue until BLS dies or is disabled or ceases to own a specified number
of shares of common stock of the Company.
The Company has a bonus plan pursuant to which the Company's Board of
Directors awards bonuses to BLS and other advisors ranging from 5% to 10% of
earnings in excess of $50 million before interest, taxes and amortization.
Bonuses earned under this plan (and paid to BLS and certain executive officers
of Loral Space) were $1,247,000 and $200,000 for the nine months ended December
31, 1996 and for the fiscal year ended March 31, 1996, respectively. BLS did not
receive any payments under this plan for the fiscal year ended March 31, 1996.
Pursuant to a financial advisory agreement between Lehman Brothers and the
Company, Lehman Brothers acts as exclusive financial adviser to the Company. The
Company pays Lehman Brothers customary fees for services rendered on an
as-provided basis. The agreement may be terminated by the Company or Lehman
Brothers upon certain conditions. During the nine months ended December 31,
1996, Lehman Brothers received underwriting discounts and commissions in
connection with the offering of the Existing Notes. In connection with the
Tender Offer, Lehman Brothers received a customary fee for acting as Dealer
Manager and Solicitation Agent. In addition, one or more affiliates of Lehman
Brothers received certain transaction fees in connection with the New Credit
Facility and the Offering. The Lehman Investors own 50% of the outstanding
capital stock of the Company and are entitled to elect three directors (in
addition to one independent director jointly designated by BLS and the Lehman
Investors) to the Company's Board of Directors. The Lehman Investors have the
benefit of certain additional rights under the Stockholders' Agreement and the
Company's By-laws.
In May 1996, the Company purchased $343,000 principal amount of 13 3/4%
Debentures from A. Robert Towbin, as trustee, who is a director of the Company
and who is a managing director of Unterberg Harris. The Company purchased such
13 3/4% Debentures at a price of 103.65% of the principal thereof plus accrued
interest. In May 1996, the 13 3/4% Debentures were callable at a price of
103.75% of the principal amount thereof. In connection with the
Recapitalization, the Company paid Unterberg Harris a fee of $1.0 million for
investment banking services.
The Company pays Ronald H. Kisner, who is a member of the Board of
Directors of the Company, a monthly retainer of $6,000 for legal services.
Pursuant to agreements between the Company and Loral Space (of which BLS is
Chairman and Chief Executive Officer), the Company reimburses Loral Space for
real property occupancy, benefits administration and legal services. The related
charges agreed upon were established to reimburse Loral Space for actual costs
incurred without profit or fee. The Company believes the arrangements are as
favorable to the Company as could have been obtained from unaffiliated parties.
Payments to Loral Space were $0.2 million for the nine months ended December 31,
1996. Included in accounts payable at December 31, 1996 is $0.2 million.
On April 22, 1996, Lockheed Martin acquired the defense electronics and
systems integration businesses of Loral Corporation, which included the Akron,
Ohio facility. The various occupancy and service agreements affecting the Akron,
Ohio facility will remain in full force and effect. The Company reimburses
Lockheed
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Martin for real property occupancy and costs relating to shared easements and
services pursuant to certain agreements previously entered into with Loral
Corporation as well as pursuant to a two-year Shared Services Agreement with
Lockheed Martin entered into on April 27, 1996.
Pursuant to agreements between the Company and Loral Corporation, the
parties provided services to each other and shared certain expenses relating to
a production program, real property occupancy, benefits administration,
treasury, accounting and legal services. The related charges agreed upon by the
parties were established to reimburse each party on the actual cost incurred
without profit or fee. The Company believes the arrangements with Loral
Corporation were as favorable to the Company as could have been obtained from
unaffiliated parties. Billings from Loral Corporation were $3.6 million and $3.0
million for the fiscal years ended March 31, 1996 and 1995, respectively.
Billings to Loral Corporation were $2.7 million and $0.2 million for the fiscal
years ended March 31, 1996 and 1995. Purchases from Loral Corporation were $2.2
million and $1.9 million for the fiscal years ended March 31, 1996 and 1995.
Included in accounts receivable and accounts payable at March 31, 1996 is $3.5
million and $2.3 million.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT FACILITY
In connection with the Recapitalization, the Company and the Lenders
entered into a credit facility, with Aircraft Braking Systems and Engineered
Fabrics as borrowers (each, a "Borrower" and together, the "Borrowers") on the
terms and subject to the conditions set forth below. The New Credit Facility
consists of a Term Loan in an aggregate principal amount of $322.0 million and a
Revolving Loan in an aggregate principal amount of $50.0 million. The Term Loan
is comprised of Term Loan A in the principal amount of $50.0 million and Term
Loan B in the principal amount of $272.0 million. The obligations under the New
Credit Facility are secured by a lien on substantially all of the assets of the
Borrowers and are guaranteed by the Company. Such guarantee is secured by a
pledge of all the issued and outstanding stock of the Borrowers and intercompany
notes held by the Company.
Term Loan A is repayable over a six-year period in 21 quarterly
installments of $125,000 and, thereafter, four quarterly installments of
$11,843,750. Term Loan B is repayable over an eight-year period in 28 quarterly
installments of $250,000 and, thereafter, four quarterly installments of $66.25
million. The Company is required to make mandatory prepayments in the event of
certain asset sales, upon the incurrence of additional indebtedness and from a
portion of excess cash flow. Up to $20 million of the Revolving Loan is
available for standby and commercial letters of credit. The Revolving Loan
commitment will terminate six years after the closing under the New Credit
Facility.
Borrowings under the New Credit Facility bear interest, at the option of
the Borrowers, at a rate equal to (a) the highest of (i) the publicly announced
prime rate of Citibank, N.A. ("Citibank"), (ii) the secondary market rate for
three-month certificates of deposit plus 1% and (iii) the federal funds rate
plus 1/2 of 1%, plus an applicable margin or (b) the rate at which eurodollar
deposits for one, two, three or six months (as selected by the Borrowers) are
offered in the interbank eurodollar market plus an applicable margin. Overdue
amounts under the New Credit Facility bear interest at a rate equal to the rate
then in effect with respect to such borrowings, plus 2% per annum.
The Company paid LCPI, an affiliate of the Lehman Investors, a commitment
fee for the period from the date of the commitment letter to the closing of the
New Credit Facility and certain upfront fees. In addition, the Company is
obligated to pay a quarterly commitment fee initially equal to 1/2 of 1% per
annum of the unused portion of the Revolving Loan commitment of $50.0 million,
provided that such commitment fee will decrease to 3/8 of 1% per annum if the
consolidated leverage ratio is less than 5.0 to 1 but greater than or equal to
4.5 to 1 and will decrease to 1/4 of 1% per annum if the consolidated leverage
ratio is less than 4.5 to 1. The Company is also obligated to pay a commission
on all outstanding letters of credit in the amount of an applicable margin then
in effect with respect to eurodollar loans as well as fronting fees on the face
amount of each letter of credit.
The New Credit Facility contains customary representations and warranties,
covenants and conditions to borrowing. There can be no assurance that the
conditions to borrowing under the New Credit Facility will be satisfied.
The New Credit Facility contains a number of negative covenants that limit
the Company's subsidiaries from, among other things, incurring other
indebtedness, entering into merger or consolidation transactions, disposing of
all or substantially all of their assets, making certain restricted payments,
creating any liens on the Borrowers' assets, creating guarantee obligations and
material lease obligations and entering into sale and leaseback transactions and
transactions with affiliates. In addition, the New Credit Facility limits the
ability of the Company to redeem the Notes.
The New Credit Facility also requires the maintenance of certain quarterly
financial and operating ratios, including: (i) a consolidated cash interest
coverage ratio, (ii) a subsidiary cash interest coverage ratio and (iii) a
consolidated leverage ratio. Capital expenditures are limited to $20.0 million
in fiscal 1997 and 1998 and $17.0 million in any fiscal year thereafter. In
addition, the New Credit Facility requires the Company to maintain a specified
minimum consolidated adjusted net worth.
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The New Credit Facility also contains customary events of default,
including default upon the nonpayment of principal, interest, fees or other
amounts or the occurrence of a change of control.
The Company used funds initially drawn under the New Credit Facility to
refinance indebtedness under the Existing Credit Agreement, which terminated
upon the completion of the offering and sale of the Old Notes, and, together
with the net proceeds from the issuance of the Old Notes, to fund the
Recapitalization.
SETTLEMENT AGREEMENT
On October 15, 1997, the Company entered into the Settlement Agreement with
the Pension Benefit Guaranty Corporation (the "PBGC") regarding payment of the
Company's unfunded pension liabilities. Pursuant to the Settlement Agreement,
the Company is committed to contribute to its pension plans $4.5 million this
year and thereafter to make scheduled contributions to its pension plans equal
to the minimum amount of cash required under statutory funding obligations. In
order to secure performance of its obligations under the Settlement Agreement,
the PBGC holds a $4.5 million letter of credit for the benefit of the pension
plans and the Company granted the PBGC a second lien on the same assets securing
the New Credit Facility.
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DESCRIPTION OF THE NOTES
GENERAL
The Old Notes were, and the New Notes will be, issued pursuant to an
Indenture (the "Indenture") between the Company and State Street Bank and Trust
Company, as trustee (the "Trustee"). The terms of the New Notes are identical in
all respects to the Old Notes, except that the New Notes have been registered
under the Securities Act and, therefore, will not bear legends restricting their
transfer and will not contain provisions providing for the payment of liquidated
damages under certain circumstances relating to the Registration Rights
Agreement, which provisions will terminate upon the consummation of the Exchange
Offer.
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 (the "Trust Indenture Act"). The Notes are subject to all such terms,
and holders of Notes are referred to the Indenture and the Trust Indenture Act
for a statement thereof. The following summary of certain provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference Indenture, including the definitions therein of certain terms used
below. A copy of each of the Indenture and Registration Rights Agreement is
available as set forth under "Available Information." The definitions of certain
terms used in the following summary are set forth below under "-- Certain
Definitions."
The Notes rank senior to or pari passu in right of payment with all
subordinated Indebtedness of the Company. The Notes are subordinated in right of
payment to all Senior Indebtedness of the Company, including all obligations of
the Company under the New Credit Facility.
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the Notes. The Notes are
effectively subordinated to all indebtedness and other liabilities and
commitments (including trade payables and lease obligations) of the Company's
Subsidiaries. Any right of the Company to receive assets of any of its
Subsidiaries upon the latter's liquidation or reorganization (and the consequent
right of the Holders of the Notes to participate in those assets) will be
effectively subordinated to the claims of that Subsidiary's creditors, except to
the extent that the Company is itself recognized as a creditor of such
Subsidiary, in which case the claims of the Company would still be subordinate
to any security in the assets of such Subsidiary and any indebtedness of such
Subsidiary senior to that held by the Company.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $185.0 million and
will mature on October 15, 2007. Interest on the Notes accrues at the rate of
9 1/4% per annum and is payable semi-annually in arrears, in cash on April 15
and October 15, commencing on April 15, 1998, to Holders of record on the
immediately preceding April 1 and October 1. Interest on the Notes accrues from
the most recent date to which interest has been paid or, if no interest has been
paid, from the date of original issuance. Interest is computed on the basis of a
360-day year comprised of twelve 30-day months. Principal, premium, if any, and
interest on the Notes is payable at the office or agency of the Company
maintained for such purpose within the City and State of New York or, at the
option of the Company, payment of interest may be made by check mailed to the
Holders of the Notes at their respective addresses set forth in the register of
Holders of Notes; provided that all payments with respect to Notes the Holders
of which have given wire transfer instructions to the Company are required to be
made by wire transfer of immediately available funds to the accounts specified
by the Holders thereof. Until otherwise designated by the Company, the Company's
office or agency in New York will be the office of the Trustee maintained for
such purpose. The Notes are issued in denominations of $1,000 and integral
multiples thereof.
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to October 15,
2002. Thereafter, the Notes are subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more
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than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest thereon to
the applicable redemption date, if redeemed during the twelve-month period
beginning on October 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------------------------------- ----------
<S> <C>
2002.............................................. 104.625%
2003.............................................. 103.083%
2004.............................................. 101.542%
2005 and thereafter............................... 100.000%
</TABLE>
Notwithstanding the foregoing, on or prior to October 15, 2000, the Company
may redeem up to an aggregate of $65.0 million in aggregate principal amount of
Notes at a redemption price of 109.25% of the principal amount thereof, in each
case plus accrued and unpaid interest thereon to the redemption date, with the
net proceeds of one or more underwritten public offerings of common stock of the
Company; provided that at least $120.0 million in aggregate principal amount of
Notes remain outstanding immediately after the occurrence of such redemption;
and provided, further, that such redemption shall occur within 45 days of the
date of the closing of such underwritten public offering of common stock of the
Company.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities 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 by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon to the date of purchase (the "Change of Control Payment Date").
Within 30 days following any Change of Control, the Company will mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase Notes pursuant to the procedures
required by the Indenture and described in such notice. The Company will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by
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the Company. The Paying Agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Indenture
provides that, prior to complying with the provisions of this covenant, but in
any event within 90 days following a Change of Control, the Company will either
repay all outstanding Senior Indebtedness or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Indebtedness to permit
the repurchase of the Notes required by this covenant. The Company will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The New Credit Facility limits the ability of the Company to purchase any
Notes and also provides that certain change of control events with respect to
the Company would constitute a default thereunder. Any future credit agreements
or other agreements relating to Senior Indebtedness to which the Company becomes
a party may contain similar restrictions and provisions. In the event a Change
of Control occurs at a time when the Company is prohibited from purchasing
Notes, the Company could seek the consent of its lenders to the purchase of
Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, constitute a default under
the New Credit Facility. In such circumstances, the subordination provisions in
the Indenture would likely restrict payments to the Holders of Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 70% of the consideration therefor received by the Company
or such Subsidiary is in the form of cash or Cash Equivalents; provided that the
amount of (x) any liabilities (as shown on the Company's or such Subsidiary's
most recent balance sheet) of the Company or any Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets and (y) any notes, securities or other obligations received by the
Company or any such Subsidiary from such transferee that are immediately
(subject to normal settlement periods) converted by the Company or such
Subsidiary into cash (to the extent of the cash received), shall be deemed to be
cash for purposes of this provision.
The Company may apply such Net Proceeds, at its option, within 360 days
after the receipt of any Net Proceeds from an Asset Sale, (a) to permanently
reduce (x) Senior Indebtedness or (y) Indebtedness of the Company's Subsidiaries
or (b) to invest in the business or businesses of the Company or any of its
Subsidiaries or any business directly related to any business then conducted by
the Company or any of its Subsidiaries or any business related to the aircraft
industry or used for working capital purposes. Pending the final application of
any such Net Proceeds, the Company may temporarily reduce Senior Revolving
Indebtedness or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indenture.
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Any Net Proceeds from Asset Sales that are not applied or invested as provided
in the first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $10 million, the
Company will be required to make an offer to all Holders of Notes (an "Asset
Sale Offer") to purchase the maximum principal amount of Notes that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and unpaid interest
thereon to the date of purchase, in accordance with the procedures set forth in
the Indenture. To the extent that the aggregate amount of Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Notes surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on
a pro rata basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset at zero.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes is
subordinated in right of payment as set forth in the Indenture, to the prior
payment in full of all Senior Indebtedness, whether outstanding on the date of
the Indenture or thereafter.
Upon any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to creditors upon any
dissolution or winding up or total or partial liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Indebtedness (including any interest accruing under the New Credit
Facility subsequent to an event of bankruptcy whether or not such interest is an
allowed claim in such proceeding) shall first be paid in full in cash or Cash
Equivalents, or payment provided for in cash or Cash Equivalents, before the
Holders or the Trustee on behalf of the Holders shall be entitled to receive any
payment by the Company of the principal of, premium, if any, or interest on the
Notes, or to acquire or redeem any of the Notes for cash or property (except
that Holders of Notes may receive securities that are subordinated at least to
the same extent as the Notes to Senior Indebtedness and any securities issued in
exchange for such securities). Before any payment may be made by, or on behalf
of, the Company of the principal of, premium, if any, or interest on the Notes
upon any such dissolution, winding up, liquidation or reorganization, any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the Holders of the Notes or
the Trustee on their behalf would be entitled, but for the subordination
provisions of the Indenture, shall be made by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, directly to the holders of the Senior Indebtedness (pro
rata to such holders on the basis of the respective amounts of Senior
Indebtedness held by such holders) or their representatives or to the trustee or
trustees under any indenture pursuant to which any of such Senior Indebtedness
may have been issued, as their respective interests may appear, to the extent
necessary to pay all such Senior Indebtedness in full in cash or Cash
Equivalents after giving effect to any concurrent payment, distribution or
provision therefor, to or for the holders of such Senior Indebtedness.
If any default in the payment of any principal of or interest on any Senior
Indebtedness outstanding under any Specified Senior Indebtedness or any
Designated Senior Indebtedness when due and payable, whether at maturity, upon
any redemption, by declaration or otherwise, occurs and is continuing, no
payment shall be made by the Company with respect to the principal of, premium,
if any, or interest on, or other amounts owing with respect to, the Notes or to
redeem or acquire any of the Notes for cash or property or otherwise. If any
event of default occurs and is continuing under any Designated Senior
Indebtedness other than a default in payment of the principal of or interest on
any Designated Senior Indebtedness (or if such an event of default would occur
upon any payment of any kind or character with respect to the Notes), as such
event of default is defined in such Designated Senior Indebtedness, permitting
the holders thereof to accelerate the maturity thereof and if the holder or
holders or a representative of such holder or holders gives written notice of
the event of default to the Company and the Trustee (a "Default Notice"), then,
unless and until such event of default has been cured or waived or has ceased to
exist or the Trustee receives notice from the holder or holders of the relevant
Designated Senior Indebtedness (or a representative of such holder or holders)
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terminating the Blockage Period (as defined below), during the 179 day period
after the delivery, of such Default Notice (the "Blockage Period"), the Company,
or any person acting on its behalf shall not, (x) make any payment or
distribution of or with respect to the principal of, premium, if any, or
interest on, or other amounts owing with respect to the Notes, or (y) acquire
any of the Notes for cash or property or otherwise. At the expiration of such
Blockage Period, the Company shall, as set forth in the Indenture, promptly pay
to the Trustee all sums which the Company would have been obligated to pay
during such Blockage Period but for this paragraph. Only one such Blockage
Period may be commenced with any 360 consecutive days. For all purposes of this
paragraph, no event of default which existed or was continuing with respect to
the Designated Senior Indebtedness to which the Blockage Period relates on the
date such Blockage Period commenced shall be or be made the basis for the
commencement of any subsequent Blockage Period by the holder or holders of such
Designated Senior Indebtedness (or a representative of such holder or holders)
unless such event of default is cured or waived for a period of not less than 90
consecutive days.
The Indenture further requires that the Company promptly notify holders of
Senior Indebtedness if payment of the Notes is accelerated because of an Event
of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Indebtedness. As of September
30, 1997, after giving pro forma effect to the Recapitalization, the principal
amount of Senior Indebtedness outstanding would have been approximately $345.0
million. The Indenture limits, subject to certain financial tests, the amount of
additional Indebtedness, including Senior Indebtedness, that the Company and its
subsidiaries can incur. See "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock."
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend
or make any other payment or distribution on account of the Company's or any of
its Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of the Company's Equity Interests in their capacity
as such (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock), dividends or distributions payable to the
Company or any Subsidiary of the Company or dividends or distributions payable
by a Subsidiary of the Company to its shareholders on a pro rata basis); (ii)
purchase, redeem or otherwise acquire or retire for value any Equity Interests
of the Company or any direct or indirect parent of the Company (other than any
such Equity Interests owned by the Company); (iii) make any principal payment
on, or purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the Notes, except at stated maturity; or
(iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) with respect to Restricted Payments described in clauses (i) and
(ii) of the immediately preceding paragraph, the Company would, at the time
of such Restricted Payment and after giving pro forma effect thereto as if
such Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant described below under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock;"
and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the date
of the Indenture (including the Restricted Payments permitted by the next
paragraph, but excluding Restricted Payments permitted by clauses (ii),
(iii), (iv),
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(v) and (vi) of the next paragraph), is less than the sum of (i) an amount
equal to the difference (but not less than zero) between (A) Cumulative
Operating Cash Flow and (B) the product of 1.3 times Cumulative Total
Interest Expense, plus (ii) 100% of the aggregate net proceeds, including
the fair market value of property other than cash as determined in good
faith by the Board of Directors whose determination shall be conclusive and
evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee, received by the Company
from the issue or sale after the date of the Indenture of Equity Interests
of the Company or of debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
convertible debt securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or debt securities issued subsequent to the date of
the Indenture that have been converted into Disqualified Stock), plus (iii)
to the extent that any Restricted Investment that was made after the date
of the Indenture is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment, plus (iv) $15 million.
The foregoing provisions do not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the preceding paragraph; (iii) the defeasance, redemption
or repurchase of subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness or the substantially concurrent
issuance (other than to a Subsidiary of the Company) of Equity Interests of the
Company (other than Disqualified Stock); provided that the amount of any such
net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (iv) investments, loans or advances to joint ventures of
the Company or any of its Subsidiaries in an aggregate amount at any time not to
exceed $20 million; and (v) the repurchase of shares of, or options to purchase
shares of, the Company's common stock held by employees of the Company (other
than any member of the BLS Group) or any of its Subsidiaries pursuant to the
forms of agreements under which such employees purchase, or are granted the
option to purchase, shares of such common stock in an aggregate amount not to
exceed $3 million in any fiscal year; provided that the amount available in any
given fiscal year shall be increased by the excess, if any, of (A) $3 million
over (B) the amount used pursuant to this clause (v) in the immediately
preceding fiscal year and (vi) distributions made by the Company on the date of
the Indenture provided that the proceeds of such distributions were used solely
to consummate the Recapitalization.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (as determined in good faith by the Board of Directors, which
determination shall be conclusive and evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee) on the
date of the Restricted Payment of the asset(s) proposed to be transferred by the
Company or such Subsidiary, as the case may be, pursuant to the Restricted
Payment. Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed, which
calculations may be based upon the Company's latest available financial
statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "Incur") any Indebtedness (including
Acquired Debt) or Disqualified Stock and will not permit any of its Subsidiaries
to issue any shares of preferred stock; provided, however, that the Company or
any of its Subsidiaries may incur Indebtedness (including Acquired Debt) or
issue shares of Disqualified Stock and the Subsidiaries may issue shares of
preferred stock if the
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Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock or preferred stock is issued would have been at least
2.0 to 1.0, determined on a pro forma basis (including a pro forma application
of the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock or preferred stock had been issued, as the
case may be, at the beginning of such four-quarter period.
The foregoing provisions do not apply to:
(i) the incurrence by the Company or its Subsidiaries of Indebtedness
and letters of credit pursuant to the New Credit Facility (with letters of
credit being deemed to have a principal amount equal to the maximum
potential liability of the Company or its Subsidiaries thereunder) in an
aggregate principal amount not to exceed $372.0 million, less the aggregate
amount of all proceeds of Assets Sales that have been applied since the
date of the Indenture to permanently reduce the outstanding amount of such
Indebtedness pursuant to the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales;"
(ii) Existing Indebtedness;
(iii) the incurrence by the Company, or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture to be incurred;
(iv) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries; provided, however, that (i) if the Company is the obligor on
such Indebtedness, such Indebtedness is expressly subordinate to the
payment in full of all Obligations with respect to the Notes and (ii)(A)
any subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than the Company or a
Subsidiary and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Subsidiary shall be deemed, in
each case, to constitute an incurrence of such Indebtedness by the Company
or such Subsidiary, as the case may be;
(v) Indebtedness under Guarantees in respect of obligations of joint
ventures of the Company or any of its Subsidiaries in aggregate principal
amount not to exceed $20 million at any one time;
(vi)(A) Indebtedness incurred to finance the purchase or construction
of property, plant or equipment which will be treated as Consolidated
Capital Expenditures of the Company so long as such Indebtedness is secured
by a Lien on the property, plant or equipment so purchased or constructed
and such Indebtedness does not exceed the value of such property, plant or
equipment so purchased or constructed and such Lien shall not extend to or
cover other assets of the Company or any of its Subsidiaries other than the
property, plant or equipment so purchased or constructed and the real
property, if any, on which the property so constructed or so purchased, is
situated and the accessions, attachments, replacements and improvements
thereto or (B) Indebtedness incurred in connection with any lease financing
transaction in conjunction with the acquisition of new property; provided
that such lease financing transaction is consummated within 60 days of such
acquisition (whether such lease will be treated as an operating or capital
lease in accordance with GAAP) and the aggregate of the Indebtedness
incurred pursuant to clauses (A) and (B) does not exceed $15 million during
any fiscal year (such amount is referred to as the "Maximum Amount");
provided that the Maximum Amount for each year shall be increased by the
excess, if any, of (a) $30 million over (b) Consolidated Capital
Expenditures for the immediately preceding two years;
(vii) Indebtedness incurred in connection with any sale and leaseback
transaction, provided that the aggregate of the Indebtedness incurred
pursuant to this clause (vii) shall not exceed $30.0 million;
(viii) obligations incurred in the ordinary course of business under
(A) trade letters of credit which are to be repaid in full not more than
one year after the date on which such Indebtedness is originally incurred
to finance the purchase of goods by the Company or a Subsidiary of the
Company; (B) standby
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letters of credit issued for the purpose of supporting (1) workers'
compensation liabilities of the Company or any of its Subsidiaries as
required by law, (2) obligations with respect to leases of the Company or
any of its Subsidiaries, (3) performance, payment, deposit or surety
obligations of the Company or any of its Subsidiaries or (4) environmental
liabilities of the Company or any of its Subsidiaries as required by law,
not exceeding an aggregate amount of $15 million at any one time
outstanding in addition to any amounts required by law; (C) performance
bonds and surety bonds, and refinancings thereof, and (D) Guarantees of
Indebtedness incurred in the ordinary course of business of suppliers,
licensees, franchisees, or customers in an aggregate amount not to exceed
$5 million;
(ix) Indebtedness to repurchase shares, or cancel options to purchase
shares, of the Company's common stock held by employees of the Company
(other than any member of the BLS Group) or any of its Subsidiaries
pursuant to the forms of agreements under which such employees purchase
shares of the Company's common stock;
(x) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of the Indenture to be outstanding; and
(xi) the incurrence by the Company or any of its Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding not to exceed $25 million.
Notwithstanding the foregoing, the accretion or amortization of original
issue discount under any Indebtedness, the payment of interest in additional
Indebtedness or the accretion of the liquidation preference of Disqualified
Stock or preferred stock, shall not be deemed an incurrence of Indebtedness,
Disqualified Stock or preferred stock; provided, however, that such accretion or
amortization or payment of interest is included in Fixed Charges.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction on
the ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) the New Credit Facility as in effect as of the date of
the Indenture, and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are no more restrictive
with respect to such dividend and other payment restrictions than those
contained in the New Credit Facility as in effect on the date of the Indenture,
(b) the Indenture and the Notes, (c) applicable law, (d) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (e) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and
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consistent with past practices, (f) purchase money obligations for property,
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so acquired, or (g)
Permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Notes and the Indenture pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Wholly Owned Subsidiary of the
Company, the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (A) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to directly or indirectly enter into any transaction
involving aggregate consideration in excess of $1,000,000 with any Affiliate or
holder of 5% or more of any class of Capital Stock of the Company (including any
Affiliates of such holders) except for transactions (including any loans or
advances by or to any Affiliate) in good faith the terms of which are fair and
reasonable to the Company or such Subsidiary, as the case may be, and are at
least as favorable as the terms which could be obtained by the Company or such
Subsidiary, as the case may be, in a comparable transaction made on an arm's
length basis with Persons who are not such a Holder, an Affiliate of such Holder
or Affiliate of the Company; provided that any such transaction shall be
conclusively deemed to be on terms which are fair and reasonable to the Company
or any of its Subsidiaries and on terms which are at least as favorable as the
terms which could be obtained on an arm's length basis with Persons who are not
such a Holder, an Affiliate of such Holder or Affiliate of the Company if such
transaction is approved by a majority of the Company's directors (including a
majority of the Company's disinterested and independent directors, if any); and
provided further that with respect to the purchase or disposition of assets of
the Company or any of its Subsidiaries having a net book value in excess of $5
million, if the Company does not have any disinterested and independent
directors, in addition to approval of its board of directors, the Company shall
obtain a written opinion of an Independent Financial Advisor stating that the
terms of such transaction are fair and reasonable to the Company or its
Subsidiary, as the case may be, and are at least as favorable to the Company or
such Subsidiary, as the case may be, as could have been obtained on an arm's
length basis with Persons who are not such a holder, an Affiliate of such holder
or Affiliate of the Company. This covenant shall not apply to (a) any
transaction between the Company or any Affiliate thereof and any Lehman
Investors, including, without limitation, the payment of fees to any Lehman
Investor for financial and consulting services, (b) transactions between the
Company or any of its Subsidiaries and any employee or
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director of, or consultant to, the Company or any of its Subsidiaries that are
approved by the Board of Directors, (c) the payment of reasonable and customary
regular fees to directors of the Company, (d) any transaction between the
Company and any of its Subsidiaries or between any of its Subsidiaries, (e) any
Restricted Payment not otherwise prohibited by the "Restricted Payments"
covenant or (f) transactions with Loral Space pursuant to agreements in effect
on the date of the Indenture (as such agreements are in effect on such date).
No Senior Subordinated Indebtedness
The Indenture provides that the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Indebtedness and senior in any
respect in right of payment to the Notes.
Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
is paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission, the Company will
file a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the Company has agreed that, for so long as any Notes
remain outstanding, they will furnish to the 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.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (ii) default in payment when due of
the principal of or premium, if any, on the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (iii) failure by the Company for
45 days after notice to comply with any of its other agreements in the Indenture
or the Notes; (iv) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the date
of the Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $10 million or more; (v) failure by the Company or
any of its Subsidiaries to
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pay final judgments aggregating in excess of $10 million, which judgments are
not paid, discharged or stayed for a period of 60 days; and (vi) certain events
of bankruptcy or insolvency with respect to the Company or any of its
Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately; provided, that so long
as the New Credit Facility is in effect, such declaration shall not become
effective until the earlier of (i) five days after receipt of notice of such
acceleration by the Agent and the Company or (ii) an acceleration of obligations
under the New Credit Facility. Notwithstanding the foregoing, in the case of an
Event of Default arising from certain events of bankruptcy or insolvency, with
respect to the Company, any Significant Subsidiary or any group of Subsidiaries
that, taken together, would constitute a Significant Subsidiary, all outstanding
Notes will become due and payable without further action or notice. Holders of
the Notes may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of the Notes notice of
any continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
October 15, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to October 15, 2002, then the
premium specified in the Indenture shall also become immediately due and payable
to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due from the trust referred to below, (ii)
the Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company
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may, at its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, 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 on
the outstanding Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Notes are
being defeased to maturity or to a particular redemption date; (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 of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) 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 must have delivered to the Trustee an
opinion of counsel to the effect that 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; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all Notes issued thereunder, when (a) either (i) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust and thereafter repaid to the Company) have been delivered to
the Trustee for cancellation; or (ii) all such Notes not theretofore delivered
to such Trustee for cancellation have become due and payable by reason of the
making of a notice of redemption or otherwise or will become due and payable
within one year and the Company has irrevocably deposited or caused to be
deposited with such Trustee as trust funds in trust solely for the benefit of
the Holders, cash in U.S. dollars, non-callable Government Securities, or a
combination thereof, in such amounts as will be sufficient without consideration
of any reinvestment of interest, to pay and discharge the entire indebtedness on
such Notes not theretofore delivered to the Trustee for cancellation for
principal, premium, if any, and accrued interest to the date of maturity or
redemption; (b) no Default or Event
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of Default with respect to the Indenture or the Notes shall have occurred and be
continuing on the date of such deposit or shall occur as a result of such
deposit and such deposit will not result in a breach or violation of, or
constitute a default under, any other instrument to which the Company is a party
or by which the Company is bound; (c) the Company has paid or caused to be paid
all sums payable by it under such Indenture; and (d) the Company has delivered
irrevocable instructions to the Trustee under such Indenture to apply the
deposited money toward the payment of such Notes at maturity or the redemption
date, as the case may be. In addition, the Company must deliver an Officers'
Certificate and an opinion of counsel to the Trustee stating that all conditions
precedent to satisfaction and discharge have been satisfied.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with 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 is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, 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 principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders"), (iii) reduce the rate of or change
the time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note payable
in money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders") or (viii) make any change in
the foregoing amendment and waiver provisions. In addition, any amendment to the
provisions of Article 10 of the Indenture (which relate to subordination) will
require the consent of the Holders of at least 75% in aggregate principal amount
of the Notes then outstanding if such amendment would adversely affect the
rights of Holders of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
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 Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
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CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in the
form of one Global Note (the "Global Note"). The Global Note will be deposited
with, or on behalf of, DTC (the "Depositary") and registered in the name of Cede
& Co., as nominee of the Depositary (such nominee being referred to herein as
the "Global Note Holder").
New Notes that are issued as described below under "-- Certificated Notes"
will be issued in the form of registered definitive certificates (the
"Certificated Notes"). Upon the transfer of Certificated Notes, such
Certificated Notes may, unless the Global Note has previously been exchanged for
Certificated Notes, be exchanged for an interest in the Global Note representing
the principal amount of Notes being transferred. Transfer of beneficial
interests in the Global Note will be subject to the applicable rules and
procedures of the Depositary and its direct or indirect participants, including,
if applicable, those of Euroclear (as defined) and CEDEL (as defined), which may
change from time to time. The Notes may be presented for registration of
transfer and exchange at the offices of the Registrar.
The Depositary has advised the Company that the Depositary is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the clearance
and settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of Participants. The Participants
include securities brokers and dealers (including the Initial Purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to the Depositary's system is also available to other entities such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
(collectively, "Indirect Participants"). Persons who are not Participants may
beneficially own securities held by or on behalf of the Depositary only through
the Participants or Indirect Participants. The ownership interest and transfer
of ownership interest of each actual purchaser of each security held by or on
behalf of the Depositary are recorded on the records of the Participants and
Indirect Participants.
The Depositary has also advised the Company that pursuant to procedures
established by it, (i) upon deposit of the Global Note, the Depositary will
credit the accounts of Participants with portions of the principal amount of the
Global Note and (ii) ownership of such interests in the Global Note will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by the Depositary (with respect to Participants) or by
Participants and the Indirect Participants (with respect to other owners of
beneficial interests in the Global Note).
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer a beneficial interest in the Global Note to such persons may be limited
to that extent. Because the Depositary can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants and certain banks, the
ability of a person having a beneficial interest in the Global Note to pledge
such interest to persons or entities that do not participate in the Depositary
system, or
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otherwise take actions in respect of such interests, may be affected by the lack
of physical certificate evidencing such interest.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTE WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS, OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, premium, if any, and interest on
the Global Note registered in the name of the Depositary or its nominee will be
payable by the Trustee to the Depositary or its nominee in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee will treat the persons in whose names the Notes,
including the Global Notes, are registered as the owners thereof for the purpose
of receiving such payments and for any and all other purposes whatsoever.
Consequently, neither the Company, the Trustee nor any agent of the Company or
the Trustee has or will have any responsibility or liability for (i) any aspect
of the Depositary's records or any Participant's or Indirect Participant's
records relating to or payments made on account of beneficial ownership
interests in the Global Note, or for maintaining, supervising or reviewing any
of the Depositary's records or any Participant's or Indirect Participant's
records relating to the beneficial ownership interests in the Global Note or
(ii) any other matter relating to the actions and practices of the Depositary or
any of its Participants or Indirect Participants.
The Depositary has advised the Company that its current practices, upon
receipt of any payment in respect of securities such as the Notes (including
principal and interest), is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in principal amount of beneficial interests in the relevant
security such as the Global Notes as shown on the records of the Depositary.
Payments by Participants and the Indirect Participants to the beneficial owners
of Notes will be governed by standing instructions and customary practices and
will not be the responsibility of the Depositary, the Trustee or the Company.
Neither the Company nor the Trustee will be liable for any delay by the
Depositary or its Participants in identifying the beneficial owners of the
Notes, and the Company and the Trustee may conclusively rely on and will be
protected in relying on instructions from the Depositary or its nominee as the
registered owner of the Notes for all purposes.
Except for trades involving only the Euroclear System ("Euroclear") and
Cedel Bank, S.A. ("CEDEL") Participants, interests in the Global Note will trade
in the Depositary's Same-Day Funds Settlement System and secondary market
trading activity in such interests will, therefore, settle in immediately
available funds, subject in all cases to the rules and procedures of the
Depositary and its Participants.
Transfers between Participants in the Depositary will be effective in
accordance with the Depositary's procedures, and will be settled in same-day
funds. Transfers between Participants in Euroclear and CEDEL will be effected in
the ordinary way in accordance with their respective rules and operating
procedures.
Cross-market transfers between Participants in the Depositary, on the one
hand, and Euroclear or CEDEL Participants, on the other hand, will be effected
through the Depositary in accordance with the depository's rules on behalf of
Euroclear or CEDEL, as the case may be, by its respective depository; however,
such cross-market transactions will require delivery of instructions to
Euroclear or CEDEL, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or CEDEL, as the case may be, will, if
the transaction meets its settlement requirements, deliver instructions to its
respective depository to take action to effect final settlement on its behalf by
delivering or receiving interests in the Global Note in the Depositary, and
making or receiving payment in accordance with normal procedures for same-day
fund settlement applicable to the Depositary. Euroclear Participants and CEDEL
Participants may not deliver instructions directly to the depositories for
Euroclear or CEDEL.
Due to time zone differences, the securities accounts of a Euroclear or
CEDEL Participant purchasing an interest in the Global Note from a Participant
in the Depositary will be credited, and any such crediting will be reported to
the relevant Euroclear or CEDEL Participant, during the securities settlement
processing day (which must be a business day for Euroclear or CEDEL) immediately
following the settlement date of the Depositary. Cash received in Euroclear or
CEDEL as a result of sales of interests in the Global Note by or
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through a Euroclear or CEDEL Participant to a Participant in the Depositary will
be received with value on the settlement date of the Depositary but will be
available in the relevant Euroclear or CEDEL cash account only as of the
business day for Euroclear or CEDEL following the Depositary's settlement date.
The Depositary has advised the Company that it will take any action
permitted to be taken by a Holder of Notes only at the direction of one or more
Participants to whose account the Depositary interests in the Global Notes are
credited and only in respect of such portion of the aggregate principal amount
of the Notes as to which such Participant or Participants has or have given
direction. However, if there is an Event of Default under the Notes, the
Depositary reserves the right to exchange Global Notes for legended Notes in
certificated form, and to distribute such Notes to its Participants.
The information in this section concerning the Depositary, Euroclear and
CEDEL and their book-entry systems has been obtained from sources that the
Company believes to be reliable, but the Company takes no responsibility for the
accuracy thereof. Although the Depositary, Euroclear and CEDEL have agreed to
the foregoing procedures to facilitate transfers of interests in the Global Note
among Participants in the Depositary, Euroclear and CEDEL, they are under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the Trustee
will have any responsibility for the performance by the Depositary, Euroclear or
CEDEL or their respective Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
Exchange of Book-Entry Notes for Certificated Notes
The Global Note is exchangeable for definitive Notes in registered
certificated form if (i) the Depositary notifies the Company that it is (A)
unwilling or unable to continue as depository for the Global Note and the
Company thereupon fails to appoint a successor depository or (B) has ceased to
be a clearing agency registered under the Exchange Act or (ii) the Company, at
its option, notifies the Trustee in writing that it elects to cause issuance of
the Notes in certificated form. In addition, beneficial interests in the Global
Note may be exchanged for certificated Notes upon request but only upon at least
20 days prior written notice given to the Trustee by or on behalf of the
Depositary in accordance with customary procedures. In all cases, certificated
Notes delivered in exchange for the Global Note or beneficial interest therein
will be registered in names, and issued in any approved denominations, requested
by or on behalf of the Depositary (in accordance with its customary procedures).
Certificated Notes
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of certificated Notes. Upon any such issuance,
the Trustee is required to register such certificated Notes in the name of, and
cause the same to be delivered to, such person or persons (or the nominee of any
thereof). In addition, if (i) the Company notifies the Trustee in writing that
the Depositary is no longer willing or able to act as a depository and the
Company is unable to locate a qualified successor within 90 days or (ii) the
Company, at its option, notifies the Trustee in writing that it elects to cause
the issuance of Notes in the form of certificated Notes under the Indenture,
then, upon surrender by the Global Note Holder of its Global Note, Notes in such
form will be issued to each person that the Global Note Holder and the
Depository identify as being the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
Same Day Settlement and Payment
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, premium, if any, and interest) be made by
wire transfer of immediately available funds to the
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accounts specified by the Global Note Holder. With respect to certificated
Notes, the Company will make all payments of principal, premium, if any, and
interest by wire transfer of immediately available funds to the accounts
specified by the Holders thereof or, if no such account is specified, by mailing
a check to each such Holder's registered address. The Company expects that
secondary trading in the certificated Notes will also be settled in immediately
available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise, provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback, other
than sale and leaseback transactions so long as the present value of the rental
obligations of the Company and its Subsidiaries thereunder do not exceed $30.0
million in the aggregate since the Issue Date) other than sales of inventory in
the ordinary course of business consistent with past practices (provided that
the sale, lease, conveyance or other disposition of all or substantially all of
the assets of the Company and its Subsidiaries taken as a whole will be governed
by the provisions of the Indenture described above under the caption "-- Change
of Control" and/or the provisions described above under the caption "-- Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sale
covenant), and (ii) the issue or sale by the Company or any of its Subsidiaries
of Equity Interests of any of the Company's Subsidiaries, in the case of either
clause (i) or (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $5.0 million or (b)
for net proceeds in excess of $5.0 million. Notwithstanding the foregoing: (i) a
transfer of assets by the Company to a Subsidiary or by a Subsidiary to the
Company or to another Subsidiary, (ii) an issuance of Equity Interests by a
Subsidiary to the Company or to another Subsidiary, and (iii) a Restricted
Payment that is permitted by the covenant described above under the caption
"-- Restricted Payments" will not be deemed to be Asset Sales.
"Bank" means any financial institution extending credit under the New
Credit Facility.
"BLS" means Bernard L. Schwartz.
"BLS Group" means (i) BLS, (ii) BLS's spouse and descendants (collectively,
"relatives"), (iii) a trust of which there are no beneficiaries other than BLS,
or relatives of BLS, or a charitable institution or organization, (iv) a
partnership, corporation or limited liability company of which there are no
other partners, stockholders or members, as applicable, other than BLS or the
relatives of BLS, (v) a legal representative or guardian of BLS or a relative of
BLS if BLS or such relative becomes mentally incompetent, (vi) any person
succeeding BLS or a relative of BLS by will or by the laws of descent, (vii) any
individual who is employed by, a consultant to or a director of the Company or
any of its subsidiaries, and (viii) any individual who is a consultant or
advisor to BLS with respect to the investment by BLS in the Company.
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"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than twelve
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500.0 million, (iv) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above and (v)
commercial paper having a rating of at least A-3 from Moody's Investors Service,
Inc. or P-3 from Standard & Poor's Corporation and in each case maturing within
six months after the date of acquisition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Permitted Investors, (ii) the adoption of a plan relating to
the liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above), other than the
Permitted Investors, becomes the "beneficial owner" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of
more than 50% of the voting stock of the Company or (iv) the first day on which
a majority of the members of the Board of Directors of the Company are not
Continuing Directors. For purposes of this definition, any transfer of an Equity
Interest of an entity that was formed for the purpose of acquiring voting stock
of the Company will be deemed to be a transfer of such portion of such voting
stock as corresponds to the portion of the equity of such entity that has been
so transferred.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any net loss realized in connection with an Asset Sale (to the extent
such losses were deducted in computing such Consolidated Net Income), plus (ii)
provision for taxes based on income or profits of such Person and its
Subsidiaries for such period, to the extent that such provision for taxes was
included in computing such Consolidated Net Income, plus (iii) consolidated
interest expense of such Person and its Subsidiaries for such period, whether
paid or accrued (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations but excluding amortization
of deferred financing fees incurred in connection with the Recapitalization), to
the extent that any such expense was deducted in computing such Consolidated Net
Income, plus (iv) depreciation, amortization (including amortization of goodwill
and other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash charges (excluding any such
non-cash charge to the extent that it represents an accrual of or reserve for
cash charges in any future period or amortization of a prepaid cash expense that
was paid in a prior period) of such Person and its Subsidiaries for such period
to the extent that such depreciation, amortization and other non-cash charges
were deducted in computing such Consolidated Net Income, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of the
referent
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Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent (and in same proportion) that the Net Income of such
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Interest Expense" of any Person for any period means interest
expense (including amortization of original issue discount and non-cash interest
payments or accruals and the interest portion of Capitalized Leases but
excluding amortization of deferred financing fees incurred in connection with
the Recapitalization) of such Person and its Consolidated Subsidiaries, all as
determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Subsidiary thereof, (ii) the Net Income of any Subsidiary
shall be excluded to the extent that the declaration or payment of dividends or
similar distributions by that Subsidiary of that Net Income is not at the date
of determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all \unamortized debt discount and expense and unamortized deferred charges as
of such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of the Company who (i) was a member of such Board on the date of
the Indenture or (ii) was nominated for election or elected to such Board with
the approval of a majority of the Continuing Directors who were members of such
Board at the time of such nomination or election.
"Cumulative Operating Cash Flow" means, for the period beginning September
30, 1997 through and including the end of the last fiscal quarter (taken as one
accounting period) preceding the date of any proposed Restricted Payment,
Operating Cash Flow for the Company and its Consolidated Subsidiaries for such
period determined on a consolidated basis in accordance with GAAP.
"Cumulative Total Interest Expense" means, for the period beginning
September 30, 1997 through and including the end of the last fiscal quarter
(taken as one accounting period) preceding the date of any proposed Restricted
Payment, Consolidated Interest Expense for the Company and its Consolidated
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP.
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"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.
"Designated Senior Indebtedness" means (i) Indebtedness under the New
Credit Facility and (ii) if there is no Indebtedness outstanding or active
commitments to issue Indebtedness under the New Credit Facility, any other
Indebtedness constituting Senior Indebtedness which, at the time of
determination has an aggregate principal amount outstanding of at least $25
million and is specifically designated in the instrument evidencing such Senior
Indebtedness as "Designated Senior Indebtedness."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock so long as it is a debt
security).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the date of the Indenture, including the Notes, until such amounts
are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations but excluding amortization of deferred financing fees incurred in
connection with the Recapitalization) and (ii) the consolidated interest of such
Person and its Subsidiaries that was capitalized during such period and (iii)
any interest expense on Indebtedness of another Person that is Guaranteed by
such Person or one of its Subsidiaries or secured by a Lien on assets of such
Person or one of its Subsidiaries (whether or not such Guarantee or Lien is
called upon) and (iv) the product of (a) all cash dividend payments (and
non-cash dividend payments in the case of a Person that is a Subsidiary) on any
series of preferred stock of such Person, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges
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attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the referent Person or any of its
Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public 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, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, without duplication, with respect to any Person, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability upon
a balance sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether or
not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment. If the Company or any
Subsidiary of the Company sells or otherwise disposes of any Equity Interests of
any direct or indirect Subsidiary of the Company such that, after giving effect
to any such sale or disposition, such Person is no longer a Subsidiary of the
Company, the Company shall be deemed to have made an Investment on the date of
any such sale or disposition equal to the fair market value of the Equity
Interests of such Subsidiary not sold or disposed of.
"Lehman Investors" means those certain merchant banking partnerships
affiliated with Lehman Brothers Holdings Inc.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and
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leaseback transactions) or (b) the disposition of any securities by such Person
or any of its Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Subsidiaries and (ii) any extraordinary or nonrecurring
gain or loss, together with any related provision for taxes on such
extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting and investment
banking fees, and sales commissions) and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale, and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"New Credit Facility" means that certain New Credit Facility, dated as of
October 15, 1997, by and among Aircraft Braking Systems, Engineered Fabrics,
Lehman Brothers, as arranger, Lehman Commercial Paper Inc., as syndication
agent, The First National Bank of Chicago, as administrative agent, and the
lenders named therein, providing for up to $372.0 million of borrowings,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time with the
same or different lenders.
"Obligations" means any principal, interest, penalties, fees, expenses,
indemnifications, reimbursements, obligations, damages and other liabilities or
other amounts payable under the documentation governing any Indebtedness.
"Operating Cash Flow" of any Person means, for any period, the sum of (a)
Net Income of such Person and its consolidated Subsidiaries for such period,
plus (b) provision for taxes based on income or profits included in computing
Net Income of such Person for such period, plus (c) Consolidated Interest
Expense of such Person for such period, plus (d) other non-cash charges deducted
from consolidated revenues in determining Net Income of such Person for such
period, in each case, determined on a consolidated basis in accordance with
GAAP.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Subsidiary of the Company; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Subsidiary of the Company in a Person,
if as a result of such Investment (i) such Person becomes a Subsidiary of the
Company or (ii) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Subsidiary of the Company; and (d) any Restricted
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales."
"Permitted Investor" means (i) any Person that is a member of the BLS Group
or (ii) any Lehman Investor.
"Permitted Liens" means (i) Liens on assets of the Company or its
Subsidiaries that secure Senior Indebtedness permitted by the terms of the
Indenture to be incurred; (ii) Liens in favor of the Company; (iii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Subsidiary of the Company; provided that
such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company; (iv) Liens on property existing at
the time of acquisition thereof by the Company or any Subsidiary of the Company,
provided that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens existing on the date of the Indenture and any extensions
or renewals thereof, provided that such Liens do not extend to or cover any
other property or assets of the Company or any Subsidiary; (vi) statutory Liens
or landlords and carriers', warehouseman's, mechanics',
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suppliers', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business; (vii) Liens for taxes, assessments, government
charges or claims which are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and if a reserve or
other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made therefor; (viii) Liens incurred or deposits made in
the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (ix) Liens created or
deposits made to secure the performance of tenders, bids, leases, statutory
obligations, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a like nature incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money); (x) easements, rights-of-way, restrictions and other similar
charges or encumbrances not interfering in any material respect with the
business of the Company or any Significant Subsidiary incurred in the ordinary
course of business; (xi) any attachment or judgment Lien, unless the judgment it
secures shall not, within 60 days after the entry thereof, have been discharged
or execution thereof stayed pending appeal, or shall not have been discharged
within 60 days after the expiration of any such stay; (xii) any other Liens
imposed by operation of law which do not materially affect the Company's ability
to perform its obligations under the Notes and the Indenture; (xiii) rights of
banks to set off deposits against debts owed to said bank; (xiv) Liens upon
specific items of inventory or other goods and proceeds of the Company or its
Subsidiaries securing the Company's or any Subsidiary's obligations in respect
of bankers' acceptances issued or created for the account of any such Person to
facilitate the purchase, shipment or storage of such inventory or other goods;
(xv) Liens securing reimbursement obligations with respect to letters of credit
which encumber documents and other property relating to such letters of credit
and the products and proceeds thereof; (xvi) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (xvii) Liens encumbering
property or assets under construction arising from progress or partial payments
by a customer of the Company or one of its Subsidiaries relating to such
property or assets; (xviii) Liens on the property or assets of the Company or
its Subsidiaries in favor of the PBGC in respect of unfunded pension obligations
or similar obligations pursuant to any agreement existing on the date of the
Indenture as in effect on the date of the Indenture; and (xix) Liens incurred in
the ordinary course of business of the Company or any Subsidiary of the Company
with respect to obligations that do not exceed $5 million at any one time
outstanding and that (a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of business by the Company or such Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; provided that: (i) the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount (or accreted
value, if applicable) of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of accrued and unpaid interest
thereon, reasonable expenses incurred in connection therewith and any associated
redemption premium); (ii) such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Senior Indebtedness" means (i) all Indebtedness and other monetary
obligations (whether now existing or hereafter incurred) of the Company and its
Subsidiaries on, under or in respect of, the New Credit Facility and including
all fees, expenses (including reasonable fees and expenses of counsel), claims,
charges,
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indemnity obligations and interest accruing on or subsequent to the filing of a
petition initiating any proceeding in bankruptcy, insolvency or like proceeding
whether or not such interest is an allowed claim in such proceeding; (ii) all
other Indebtedness of the Company (other than the Notes and the Existing Notes),
whether presently outstanding or hereafter created, incurred or assumed, unless
such Indebtedness, by its terms or the terms of the instrument creating or
evidencing it is subordinate in right of payment to or pari passu with the Notes
and (iii) any Hedging Obligations; provided that the term Senior Indebtedness
shall not include (a) any Indebtedness of the Company which when incurred and
without respect to any election under Section 11(b) of the Bankruptcy Code, was
without recourse to the Company, (b) any Indebtedness of the Company to any of
its Subsidiaries or Affiliates, (c) any Indebtedness of the Company not
otherwise permitted by the covenants described under the captions "Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" and
"-- Subordination -- No Senior Subordinated Debt," (d) Indebtedness to any
employee of the Company, (e) any liability for taxes and (f) trade payables.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Specified Senior Indebtedness" means any Indebtedness constituting Senior
Indebtedness which, at the time of determination has an aggregate principal
amount outstanding of at least $25 million and is specifically designated in the
instrument evidencing such Senior Indebtedness as "Specified Senior
Indebtedness."
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment. sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership 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 and one or
more Wholly Owned Subsidiaries of such Person.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and disposition
of Notes by an initial beneficial owner of Notes that, for United States federal
income tax purposes, is not a "United States person" (a "Non-United States
Holder"). This discussion is based upon the United States federal tax law now in
effect, which is subject to change, possibly retroactively. For purposes of this
discussion, a "United States person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in the
United States or under the laws of the United States or of any political
subdivision thereof, an estate whose income is includible in gross income for
United States federal income tax purposes regardless of its source or a trust,
if a U.S. court is able to exercise primary supervision over the administration
of the trust and one or more U.S. fiduciaries have the authority to control all
substantial decisions of the trust. This rule on trusts is effective for tax
years beginning after December 31, 1996, or in some cases earlier by election.
The tax treatment of the holders of the Notes may vary depending upon their
particular situations. U.S. persons acquiring the Notes are subject to different
rules than those discussed below. In addition, certain other holders (including
insurance companies, tax exempt organizations, financial institutions and
broker-dealers) may be subject to special rules not discussed below. Prospective
investors are urged to consult their tax advisors regarding the United States
federal tax consequences of acquiring, holding and disposing of Notes, as well
as any tax consequences that may arise under the laws of any foreign, state,
local or other taxing jurisdiction.
New final regulations dealing with withholding tax on income paid to
foreign persons and related matters (the "New Withholding Regulations") were
issued by the Treasury Department on October 6, 1997, and are expected to be
published in the near future in the Federal Register. In general, the New
Withholding Regulations do not significantly alter the substantive withholding
and information reporting requirements, but unify current certification
procedures and forms and clarify reliance standards. The New Withholding
Regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Accordingly, payments made on or
before December 31, 1998 will continue to be subject to the regulations that
existed before the New Withholding Regulations were issued. THE NEW WITHHOLDING
REGULATIONS ARE QUITE COMPLEX. NON-U.S. HOLDERS ARE STRONGLY URGED TO CONSULT
THEIR OWN TAX ADVISORS WITH RESPECT TO THE NEW WITHHOLDING REGULATIONS.
INTEREST
Interest paid by the Company to a Non-United States Holder will not be
subject to United States federal income or withholding tax if such interest is
not effectively connected with the conduct of a trade or business within the
United States by such Non-United States Holder and such Non-United States Holder
(i) does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the Company; (ii) is not a controlled
foreign corporation with respect to which the Company is a "related person"
within the meaning of the United States Internal Revenue Code of 1986 (the
"Code") and (iii) certifies, under penalties of perjury, that such holder is not
a United States person and provides such holder's name and address. For payments
made after December 31, 1998, the New Withholding Regulations specify that the
statement must be made on Form W-8 and provided prior to payment.
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
federal income tax on gain recognized on a sale, redemption or other disposition
of a Note unless (i) the gain is effectively connected with the conduct of a
trade or business within the United States by the Non-United States Holder or
(ii) in the case of a Non-United States Holder who is a nonresident alien
individual and holds the Note as a capital asset, such holder is present in the
United States for 183 or more days in the taxable year and certain other
requirements are met.
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FEDERAL ESTATE TAXES
If interest on the Notes is exempt from withholding of United States
federal income tax under the rules described above, the Notes will not be
included in the estate of a deceased Non-United States Holder for United States
federal estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
For payments made on or before December 31, 1998, the Company will, where
required, report to the holders of Notes and the Internal Revenue Service the
amount of any interest paid on the Notes in each calendar year and the amounts
of tax withheld, if any, with respect to such payments.
In the case of payments of interest to Non-United States holders, temporary
Treasury regulations provide that the 31% backup withholding tax and certain
information reporting will not apply to such payments with respect to which
either the requisite certification, as described above, has been received or an
exemption has otherwise been established; provided that neither the Company nor
its payment agent has actual knowledge that the holder is a United States person
or that the conditions of any other exemption are not in fact satisfied. Under
temporary Treasury regulations, these information reporting and backup
withholding requirements will apply, however, to the gross proceeds paid to a
Non-United States Holder on the disposition of the Notes by or through a United
States office of a United States or foreign broker, unless the holder certifies
to the broker under penalties of perjury as to its name, address and status as a
foreign person or the holder otherwise establishes an exemption. Information
reporting requirements, but not backup withholding, will also apply to a payment
of the proceeds of a disposition of the Notes by or through a foreign office of
a United States broker or foreign brokers with certain types of relationships to
the United States unless such broker has documentary evidence in its file that
the holder of the Notes is not a United States person, and such broker has no
actual knowledge to the contrary, or the holder establishes an exemption.
Neither information reporting nor backup withholding generally will apply to a
payment of the proceeds of a disposition of the Notes by or through a foreign
office of a foreign broker not subject to the preceding sentence.
Recently, the Treasury Department has issued proposed regulations regarding
the withholding and information reporting rules discussed above. In general, the
proposed regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms and
clarify reliance standards. If finalized in their current form, the proposed
regulations would generally be effective for payments made after December 31,
1997, subject to certain transition rules.
For payments made after December 31, 1998, the New Withholding Regulations
provide that to the extent a Non-United States Holder certifies on Form W-8 (or
a permitted substitute form) as to such holder's status as a foreign person, the
backup withholding provisions and the information reporting provisions will
generally not apply. If a Non-United States Holder fails to provide such
certification, such holder may be subject to certain information reporting and
the 31% backup withholding tax.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
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PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any holder thereof
(other than any such holder that is an "affiliate" of the Company within the
meaning of Rule 405 promulgated under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holder's business, such holder has no arrangement with any person to participate
in the distribution of such New Notes and neither such holder nor any such other
person is engaging in or intends to engage in a distribution of such New Notes.
Accordingly, any holder who is an affiliate of the Company or any holder using
the Exchange Offer to participate in a distribution of the New Notes will not be
able to rely on such interpretations by the staff to the Commission and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a resale transaction. Notwithstanding the
foregoing, each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with any resale of New Notes received in exchange
for Old Notes where such Old Notes were acquired as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from the Company.) The Company has agreed that, for a period of one year from
the date of this Prospectus, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until (90 days from the date of this
Prospectus), all dealers effecting transactions in the New Notes may be required
to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the from of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker-dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver, and by delivering, a
prospectus as required, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of one year from the date of this Prospectus, the Company will
send a reasonable number of additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company will pay all the
expenses incident to the Exchange Offer (which shall not include the expenses of
any holder in connection with resales of the New Notes). The Company has agreed
to indemnify the Initial Purchasers and any broker-dealer participating in the
Exchange Offer against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Company by O'Sullivan Graev & Karabell, LLP, New York, New York.
87
<PAGE> 91
EXPERTS
The consolidated financial statements as of December 31, 1996 and March 31,
1996 and for the nine months ended December 31, 1996 and for each of the two
years ended March 31, 1995 and March 31, 1996 included in this Prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report dated January 23, 1997 appearing herein and are included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Exchange Act, and in accordance therewith files reports and other information
with the Commission. Such material filed by the Company with the Commission may
be inspected by anyone without charge at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material may be obtained at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Such material can also be inspected on the
Internet at http.//www.sec.gov.
In the event that the Company ceases to be subject to the informational
reporting requirements of the Exchange Act, the Company has agreed that, so long
as any Notes remain outstanding, it will furnish to the Trustee and deliver or
cause to be delivered to the holders of the Notes copies of (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if the Company were required
to file such forms and, with respect to annual information only, a report
thereon by the Company's independent public accountants and (ii) all reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports.
88
<PAGE> 92
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
K & F INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996............ F-2
Consolidated Statements of Operations for the nine months ended September 30, 1997 and
1996................................................................................ F-3
Consolidated Statements of Cash Flows for the nine months ended September 30, 1997 and
1996................................................................................ F-4
Independent Auditors' Report.......................................................... F-8
Consolidated Balance Sheets as of December 31, 1996 and March 31, 1996................ F-9
Consolidated Statements of Operations for the nine months ended December 31, 1996 and
the years ended March 31, 1996 and 1995............................................. F-10
Consolidated Statements of Stockholders' Deficiency for the nine months ended December
31, 1996 and the years ended March 31, 1996 and 1995................................ F-11
Consolidated Statements of Cash Flows for the nine months ended December 31, 1996 and
the years ended March 31, 1996 and 1995............................................. F-12
Notes to Consolidated Financial Statements............................................ F-13
</TABLE>
F-1
<PAGE> 93
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 750,000 $ 1,508,000
Accounts receivable, net.................................. 40,658,000 36,032,000
Inventory................................................. 65,111,000 68,334,000
Deferred tax asset........................................ -- 1,411,000
Other current assets...................................... 662,000 586,000
------------- -------------
Total current assets.............................. 107,181,000 107,871,000
------------- -------------
Property, plant and equipment............................... 142,926,000 136,900,000
Less, accumulated depreciation and amortization........... 73,859,000 66,914,000
------------- -------------
69,067,000 69,986,000
------------- -------------
Deferred charges, net of amortization....................... 23,961,000 24,674,000
Cost in excess of net assets acquired, net of
amortization.............................................. 192,426,000 196,446,000
Intangible assets, net of amortization...................... 17,717,000 20,138,000
------------- -------------
$ 410,352,000 $ 419,115,000
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable, trade................................... $ 12,133,000 $ 11,253,000
Current portion of senior term loan....................... 1,500,000 6,000,000
Interest payable.......................................... 4,281,000 6,689,000
Other current liabilities................................. 53,739,000 49,740,000
------------- -------------
Total current liabilities......................... 71,653,000 73,682,000
------------- -------------
Postretirement benefit obligation other than pensions....... 76,301,000 75,439,000
Other long-term liabilities................................. 14,619,000 16,300,000
Senior term loan............................................ 34,000,000 34,000,000
Senior revolving loan....................................... 19,000,000 13,000,000
11 7/8% senior secured notes due 2003....................... 70,000,000 100,000,000
10 3/8% senior subordinated notes due 2004.................. 140,000,000 140,000,000
Stockholders' Deficiency:
Preferred stock, $.01 par value -- authorized, 1,050,000
shares; issued and outstanding, 1,027,635 shares
(liquidation preference of $60,110,000)................ 10,000 10,000
Common stock, Class B, $.01 par value -- authorized,
460,000 shares; issued and outstanding, 458,994 shares
(liquidation preference of $26,848,000)................ 5,000 5,000
Common stock, Class A, $.01 par value -- authorized,
2,100,000 shares; issued and outstanding, 553,344
shares................................................. 6,000 6,000
Additional paid-in capital................................ 155,350,000 155,350,000
Deficit................................................... (159,777,000) (178,147,000)
Adjustment to equity for minimum pension liability........ (10,649,000) (10,649,000)
Cumulative translation adjustment......................... (166,000) 119,000
------------- -------------
Total stockholders' deficiency.................... (15,221,000) (33,306,000)
------------- -------------
$ 410,352,000 $ 419,115,000
============= =============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 94
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER SEPTEMBER
30, 30,
1997 1996
------------ ------------
<S> <C> <C>
Sales........................................................... $224,296,000 $207,455,000
Costs and expenses.............................................. 167,934,000 162,557,000
Amortization.................................................... 7,734,000 7,805,000
------------ ------------
Operating income................................................ 48,628,000 37,093,000
Interest and investment income.................................. 191,000 784,000
Interest expense................................................ (22,969,000) (29,848,000)
------------ ------------
Income before income taxes and extraordinary charge............. 25,850,000 8,029,000
Income tax provision............................................ (5,767,000) (220,000)
------------ ------------
Income before extraordinary charge.............................. 20,083,000 7,809,000
Extraordinary charge from early extinguishment of debt, net of (1,713,000) (9,142,000)
tax...........................................................
------------ ------------
Net income (loss)............................................... $ 18,370,000 $ (1,333,000)
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 95
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER SEPTEMBER
30, 30,
1997 1996
------------ ------------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss)............................................. $ 18,370,000 $ (1,333,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.............................. 14,679,000 14,258,000
Non-cash interest expense -- amortization of deferred
financing charges........................................ 1,072,000 1,130,000
Deferred income taxes...................................... 1,411,000 --
Extraordinary charge from early extinguishment of debt..... 1,713,000 9,142,000
Changes in assets and liabilities:
Accounts receivable, net................................. (4,782,000) 246,000
Inventory................................................ 3,094,000 (7,684,000)
Other current assets..................................... (76,000) (307,000)
Accounts payable, interest payable, and other current
liabilities........................................... 2,471,000 5,089,000
Postretirement benefit obligation other than pensions.... 862,000 (2,324,000)
Other long-term liabilities.............................. (1,681,000) 923,000
------------ ------------
Net cash provided by operating activities............. 37,133,000 19,140,000
------------ ------------
Cash flows from investing activities:
Capital expenditures.......................................... (6,026,000) (15,592,000)
Deferred charges.............................................. (1,781,000) (462,000)
------------ ------------
Net cash used in investing activities................. (7,807,000) (16,054,000)
------------ ------------
Cash flows from financing activities:
Payments of senior term loan.................................. (4,500,000) --
Payments of senior revolving loan............................. (33,000,000) (49,000,000)
Payments of long-term debt.................................... (30,000,000) (180,000,000)
Borrowings under senior term loan............................. -- 40,000,000
Borrowings under senior revolving loan........................ 39,000,000 58,000,000
Proceeds from issuance of senior subordinated notes........... -- 140,000,000
Deferred charges -- financing costs........................... -- (6,772,000)
Premiums paid on early extinguishment of debt................. (1,584,000) (4,500,000)
Proceeds from sale and leaseback transaction.................. -- 1,215,000
------------ ------------
Net cash used by financing activities................. (30,084,000) (1,057,000)
------------ ------------
Net (decrease) increase in cash and cash equivalents............ (758,000) 2,029,000
Cash and cash equivalents, beginning of period.................. 1,508,000 3,178,000
------------ ------------
Cash and cash equivalents, end of period........................ $ 750,000 $ 5,207,000
============ ============
Supplemental cash flow information:
Cash interest paid during period.............................. $ 24,305,000 $ 34,076,000
============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 96
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited consolidated financial statements have been
prepared by K & F Industries, Inc. and Subsidiaries (the "Company") pursuant
to the rules of the Securities and Exchange Commission ("SEC") and, in the
opinion of the Company, include all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of financial position,
results of operations and cash flows. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such SEC rules. The Company believes that the disclosures made
are adequate to make the information presented not misleading. The
consolidated statements of operations for the three and nine months ended
September 30, 1997 are not necessarily indicative of the results to be
expected for the full year. It is suggested that these financial statements
be read in conjunction with the audited financial statements and notes
thereto included in the Company's December 31, 1996 Transition Report on Form
10-K.
2. On October 15, 1997, the Company completed a recapitalization involving the
repayment of all existing indebtedness as well as the repurchase of a portion
of its outstanding capital stock. Financing was provided with $185 million of
9 1/4% Senior Subordinated Notes due 2007 and $345 million in borrowings
under a new credit facility.
The new credit facility consists of $322 million of term loans and a $50
million revolving credit facility. The revolving credit facility matures in
2003. The term loans consist of a $50 million Tranche A term loan and a $272
million Tranche B term loan. The Tranche A term loan is a six-year amortizing
facility maturing in 2003. The Tranche B term loan is an eight-year
amortizing facility maturing in 2005. The Company will be required to make
mandatory reductions in the credit facility in the event of certain asset
sales, the incurrence of certain additional indebtedness and from a portion
of excess cash flow (as defined).
In connection with the repurchase of a portion of the outstanding capital
stock and the repayment of all existing indebtedness, the Company will
directly increase its stockholders' deficiency by approximately $218.6
million and record an extraordinary charge of approximately $29.8 million
(excluding any related tax benefit) for the write-off of unamortized
financing costs, redemption premiums and tender offer payments. In addition,
the Company will record a charge to operations of approximately $12.0 million
relating to the exercise of stock options and other fees. All charges will be
reflected in the fourth quarter of 1997.
On June 1, 1997, the Company redeemed $30 million aggregate principal amount
of its 11 7/8% Senior Notes at a redemption price of 105.28% of the principal
amount thereof. In connection therewith, the Company recorded an
extraordinary charge of $1,713,000 (net of income tax benefit of $553,000)
for the write-off of unamortized financing costs and redemption premiums.
3. Receivables are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Accounts receivable, principally from commercial
customers....................................... $ 37,289,000 $ 34,086,000
Accounts receivable, on U. S. Government and other
long-term contracts............................. 3,729,000 2,359,000
Allowances........................................ (360,000) (413,000)
----------- -----------
$ 40,658,000 $ 36,032,000
=========== ===========
</TABLE>
F-5
<PAGE> 97
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. Inventory consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER
30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Raw materials and work-in-process................. $ 43,947,000 $ 46,742,000
Finished goods.................................... 9,969,000 10,821,000
Inventoried costs related to U.S. Government and
other long-term contracts....................... 11,195,000 10,771,000
----------- -----------
$ 65,111,000 $ 68,334,000
=========== ===========
</TABLE>
The Company customarily sells original wheel and brake equipment below cost
as an investment in a new airframe which is expected to be recovered through
the subsequent sale of replacement parts. These commercial investments
(losses) are recognized when original equipment is shipped. Losses on U.S.
Government contracts are immediately recognized in full when determinable.
Inventory is stated at average cost, not in excess of net realizable value.
In accordance with industry practice, inventoried costs may contain amounts
relating to contracts with long production cycles, a portion of which will
not be realized within one year.
5. Other current liabilities consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Accrued payroll costs............................. $ 15,689,000 $ 15,170,000
Accrued taxes..................................... 7,567,000 6,504,000
Accrued costs on long-term contracts.............. 5,876,000 5,744,000
Accrued warranty costs............................ 9,580,000 6,695,000
Customer credits.................................. 4,901,000 7,483,000
Postretirement benefit obligation other than
pensions........................................ 2,000,000 2,000,000
Other............................................. 8,126,000 6,144,000
----------- -----------
$ 53,739,000 $ 49,740,000
=========== ===========
</TABLE>
6. Contingencies
On December 15, 1995, the Company's Aircraft Braking Systems subsidiary
commenced an action in the Court of Common Pleas, Summit County, Ohio against
Hitco Technologies, Inc. ("Hitco") after Hitco threatened to breach existing
supply contracts unless prices were renegotiated. Until recently, Hitco was
the principal supplier of the carbon used by Aircraft Braking Systems for its
carbon brakes. Hitco claimed that Aircraft Braking Systems breached the
supply arrangements by electing to begin to expand its own carbon production
facility. The Aircraft Braking Systems' complaint, as amended, seeks
injunctive relief and damages for various breaches of contract which have
recently been estimated at up to $57 million. Hitco has counterclaimed in the
matter seeking, among other things, damages for lost profits, which Hitco has
recently estimated at up to $78 million (subject to mitigation) for the
alleged breach by Aircraft Braking Systems of alleged long-term contracts to
purchase carbon. Hitco was enjoined from refusing to perform its obligations
pursuant to existing contracts and purchase orders without change in terms.
Accordingly, through mid-December 1996, Hitco continued to supply carbon to
the Company, although Hitco failed to fill certain acknowledged purchase
orders. Aircraft Braking Systems has sought to hold Hitco in contempt of the
court's injunction, which motion has not been decided by the court. An
injunction requested by Hitco that would require the Company to turn over to
Hitco technology allegedly jointly developed and owned under the prior
contractual arrangements has been denied. The case is presently scheduled for
trial in January 1998.
F-6
<PAGE> 98
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In related actions, a suit filed by Hitco in Superior Court, Los Angeles
County, California against Aircraft Braking Systems seeking substantially the
same relief as is asserted in the Ohio action, has been stayed. Hitco also
filed suit in the Federal District Court in the Northern District of Ohio for
damages and injunctive relief against a third party claiming that such party,
in supplying certain carbon to Aircraft Braking Systems, has acquired trade
secrets of Hitco from Aircraft Braking Systems and has misappropriated trade
secrets and technology developed under the same research and development
contracts between Hitco and Aircraft Braking Systems which are the subject of
the Ohio case and the California case. Aircraft Braking Systems has been
granted leave to intervene and Hitco has moved to dismiss the Federal action.
Management intends to vigorously advocate its interest in all lawsuits, to
seek dismissal of the California action and to proceed in the Ohio case to
seek damages from Hitco. Based upon the proceedings to date, management does
not expect the outcome of the litigation to be unfavorable to the Company.
There can be no assurance, however, as to the outcome of the litigation or
that a judgment against the Company would not materially adversely affect the
Company.
In addition to the foregoing, there are various lawsuits and claims pending
against the Company incidental to its business. Although the final results in
suits and proceedings cannot be predicted with certainty, in the opinion of
the Company's management, the ultimate liability, if any, will not have a
material adverse effect on the Company.
F-7
<PAGE> 99
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
K & F Industries, Inc.:
We have audited the accompanying consolidated balance sheets of K & F
Industries, Inc. and subsidiaries (the "Company") as of December 31, 1996 and
March 31, 1996, and the related consolidated statements of operations,
stockholders' deficiency, and cash flows for the nine months ended December 31,
1996 and for each of the two years in the period ended March 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of K & F Industries, Inc. and
subsidiaries as of December 31, 1996 and March 31, 1996, and the results of
their operations and their cash flows for the nine months ended December 31,
1996 and for each of the two years in the period ended March 31, 1996 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
January 23, 1997
F-8
<PAGE> 100
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................... $ 1,508,000 $ 2,412,000
Accounts receivable, net..................................... 36,032,000 35,228,000
Inventory.................................................... 68,334,000 63,332,000
Deferred tax asset........................................... 1,411,000 --
Other current assets......................................... 586,000 832,000
------------- -------------
Total current assets...................................... 107,871,000 101,804,000
------------- -------------
Property, Plant and Equipment -- Net........................... 69,986,000 65,044,000
Deferred Charges -- Net of amortization of $3,741,000 and
$9,452,000................................................... 24,674,000 24,082,000
Cost in Excess of Net Assets Acquired -- Net of amortization of
$46,839,000 and $42,257,000.................................. 196,446,000 202,119,000
Intangible Assets -- Net of amortization of $26,576,000 and
$24,035,000.................................................. 20,138,000 22,988,000
------------- -------------
Total Assets......................................... $ 419,115,000 $ 416,037,000
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable............................................. $ 11,253,000 $ 12,485,000
Current portion of long-term debt............................ 6,000,000 --
Interest payable............................................. 6,689,000 8,217,000
Other current liabilities.................................... 49,740,000 44,775,000
------------- -------------
Total current liabilities................................. 73,682,000 65,477,000
------------- -------------
Postretirement Benefit Obligation Other Than Pensions.......... 75,439,000 75,390,000
Other Long-Term Liabilities.................................... 16,300,000 20,871,000
Long-Term Debt................................................. 287,000,000 294,000,000
Commitments and Contingencies (Notes 12 and 13)
Stockholders' Deficiency:
Preferred stock, $.01 par value -- authorized, 1,050,000
shares; issued and outstanding, 1,027,635 shares
(liquidation preference of $60,110,000)................... 10,000 10,000
Common stock, Class B, $.01 par value -- authorized, 460,000
shares; issued and outstanding, 458,994 shares
(liquidation preference of $26,848,000)................... 5,000 5,000
Common stock, Class A, $.01 par value -- authorized,
2,100,000 shares; issued and outstanding, 553,344
shares.................................................... 6,000 6,000
Additional paid-in capital................................... 155,350,000 155,350,000
Deficit...................................................... (178,147,000) (184,049,000)
Adjustment to equity for minimum pension liability........... (10,649,000) (10,572,000)
Cumulative translation adjustment............................ 119,000 (451,000)
------------- -------------
Total stockholders' deficiency............................ (33,306,000) (39,701,000)
------------- -------------
Total Liabilities and Stockholders' Deficiency....... $ 419,115,000 $ 416,037,000
============= =============
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 101
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED MARCH 31,
DECEMBER 31, ---------------------------
1996 1996 1995
----------------- ------------ ------------
<S> <C> <C> <C>
Net sales.......................................... $ 212,703,000 $264,736,000 $238,756,000
Cost of sales...................................... 136,813,000 180,435,000 164,697,000
------------ ------------ ------------
Gross margin....................................... 75,890,000 84,301,000 74,059,000
Independent research and development............... 8,623,000 9,767,000 8,363,000
Selling, general and administrative expenses....... 17,297,000 22,564,000 19,208,000
Amortization....................................... 7,810,000 10,415,000 10,411,000
------------ ------------ ------------
Operating income................................... 42,160,000 41,555,000 36,077,000
Interest expense, net of interest income of
$787,000, $722,000 and $374,000.................. 27,197,000 41,048,000 46,250,000
------------ ------------ ------------
Income (loss) before income taxes and extraordinary
charge........................................... 14,963,000 507,000 (10,173,000)
Income tax benefit................................. 81,000 -- --
------------ ------------ ------------
Income (loss) before extraordinary charge.......... 15,044,000 507,000 (10,173,000)
Extraordinary charge from early extinguishment of
debt............................................. (9,142,000) (1,913,000) --
------------ ------------ ------------
Net income (loss).................................. $ 5,902,000 $ (1,406,000) $(10,173,000)
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 102
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
NINE MONTHS ENDED DECEMBER 31, 1996 AND
YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
CLASS B CLASS A ADJUSTMENT
PREFERRED STOCK COMMON STOCK COMMON STOCK TO EQUITY FOR
------------------ --------------- --------------- ADDITIONAL MINIMUM CUMULATIVE
SHARES SHARES SHARES PAID-IN PENSION TRANSLATION
ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT CAPITAL DEFICIT LIABILITY ADJUSTMENT
--------- ------- ------- ------ ------- ------ ------------ ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, April 1,
1994............ 899,999 $ 9,000 -- -- 484,616 $5,000 $ 89,986,000 $(172,470,000) $ (7,467,000) $ (418,000)
Net loss........ (10,173,000)
Conversion of
subordinated
convertible
debentures.... 458,994 5,000 52,602,000
Issuance of
preferred
stock......... 127,636 1,000 10,799,000
Issuance of
common
stock......... 68,728 1,000 1,963,000
Pension
adjustment.... 275,000
Cumulative
translation
adjustment.... 134,000
--------- ------- ------- ------ ------- ------- ------------ ------------- ------------ --------
Balance, March 31,
1995............ 1,027,635 10,000 458,994 5,000 553,344 6,000 155,350,000 (182,643,000) (7,192,000) (284,000)
Net loss........ (1,406,000)
Pension
adjustment.... (3,380,000)
Cumulative
translation
adjustment.... (167,000)
--------- ------- ------- ------ ------- ------- ------------ ------------- ------------ --------
Balance, March 31,
1996............ 1,027,635 10,000 458,994 5,000 553,344 6,000 155,350,000 (184,049,000) (10,572,000) (451,000)
Net income...... 5,902,000
Pension
adjustment.... (77,000)
Cumulative
translation
adjustment.... 570,000
--------- ------- ------- ------ ------- ------- ------------ ------------- ------------ --------
Balance, December
31, 1996........ 1,027,635 $10,000 458,994 $5,000 553,344 $6,000 $155,350,000 $(178,147,000) $ (10,649,000) $ 119,000
========= ======= ======= ====== ======= ======= ============ ============= ============ ========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE> 103
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED MARCH 31,
DECEMBER 31, ---------------------------
1996 1996 1995
----------------- ------------ ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss).................................................. $ 5,902,000 $ (1,406,000) $(10,173,000)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation................................................... 6,834,000 8,506,000 8,432,000
Amortization................................................... 7,810,000 10,415,000 10,411,000
Non-cash interest expense -- convertible debentures............ -- -- 3,950,000
Non-cash interest expense -- amortization of deferred financing
charges..................................................... 1,101,000 1,561,000 1,482,000
Provision for losses on accounts receivable.................... 2,000 1,548,000 63,000
Extraordinary charge from early extinguishment of debt......... 9,142,000 1,913,000 --
Deferred tax benefit........................................... (320,000) -- --
Changes in assets and liabilities:
Accounts receivable......................................... (552,000) (3,296,000) (767,000)
Inventory................................................... (4,686,000) (1,664,000) 5,919,000
Other current assets........................................ 246,000 274,000 90,000
Accounts payable............................................ (1,232,000) 2,140,000 1,317,000
Interest payable............................................ (1,528,000) (554,000) (47,000)
Other current liabilities................................... 4,965,000 7,002,000 2,791,000
Postretirement benefit obligation other than pensions....... 49,000 (2,327,000) (2,433,000)
Other long-term liabilities................................. (4,339,000) (1,811,000) (3,682,000)
------------- ------------ ------------
Net cash provided by operating activities................. 23,394,000 22,301,000 17,353,000
------------- ------------ ------------
Cash Flows From Investing Activities:
Capital expenditures............................................... (14,091,000) (10,418,000) (2,824,000)
Deferred charges................................................... (250,000) (538,000) (363,000)
------------- ------------ ------------
Net cash used in investing activities..................... (14,341,000) (10,956,000) (3,187,000)
------------- ------------ ------------
Cash Flows From Financing Activities:
Payments of senior revolving loan.................................. (49,000,000) (9,000,000) (20,000,000)
Borrowings under senior revolving loan............................. 48,000,000 23,000,000 10,000,000
Borrowings under senior term loan.................................. 40,000,000 -- --
Proceeds from issuance of senior subordinated notes................ 140,000,000 -- --
Payments of senior subordinated debentures......................... (180,000,000) (30,000,000) --
Premiums paid on early extinguishment of debt...................... (4,500,000) (1,126,000) --
Deferred charges -- financing costs................................ (6,772,000) (300,000) --
Payment of subordinated convertible debentures..................... -- -- (12,764,000)
Proceeds from issuance of common and preferred stocks.............. -- -- 12,764,000
Proceeds from sale and lease back transaction...................... 2,315,000 -- --
------------- ------------ ------------
Net cash used in financing activities..................... (9,957,000) (17,426,000) (10,000,000)
------------- ------------ ------------
Net (decrease) increase in cash and cash equivalents................. (904,000) (6,081,000) 4,166,000
Cash and cash equivalents, beginning of period....................... 2,412,000 8,493,000 4,327,000
------------- ------------ ------------
Cash and cash equivalents, end of period............................. $ 1,508,000 $ 2,412,000 $ 8,493,000
============= ============ ============
- ------------------------------------------
Supplemental Information:
Interest paid during the period.................................... $ 28,411,000 $ 40,763,000 $ 41,239,000
============= ============ ============
Income taxes paid during the period................................ $ 344,000 $ -- $ --
============= ============ ============
Supplemental disclosure of non-cash financing activities:
See Note 9 for a discussion of non-cash financing activities.
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE> 104
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
K & F Industries, Inc. ("K & F") and subsidiaries (collectively, the
"Company") is primarily engaged in the design, development, manufacture and
distribution of wheels, brakes and anti-skid systems for commercial, military
and general aviation aircraft, and the manufacture of materials for fuel tanks,
iceguards, inflatable oil booms and various other products made from coated
fabrics for military and commercial uses. The Company serves the aerospace
industry (which is experiencing some consolidation) and sells its products to
airframe manufacturers and commercial airlines throughout the world and to the
United States and certain foreign governments. The Company's activities are
conducted through its two wholly owned subsidiaries, Aircraft Braking Systems
Corporation ("Aircraft Braking Systems"), which generated approximately 90% of
the Company's total revenues during the nine months ended December 31, 1996 and
Engineered Fabrics Corporation (collectively, the "Subsidiaries"), which
generated approximately 10% of the Company's total revenues during the nine
months ended December 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Year-End Change -- Effective December 31, 1996, the Company changed its
fiscal year-end from March 31 to December 31. Accordingly, the accompanying
financial statements include audited financial statements for the nine months
ended December 31, 1996.
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company. All material intercompany accounts and
transactions between these entities have been eliminated.
Cash and Cash Equivalents -- Cash and cash equivalents consist of cash,
commercial paper and other investments that are readily convertible into cash
and have original maturities of three months or less.
Revenue and Expense Recognition -- Sales are recorded as units are shipped.
The Company customarily sells original wheel and brake equipment below cost as
an investment in a new airframe which is expected to be recovered through the
subsequent sale of replacement parts. These commercial investments (losses) are
recognized when original equipment is shipped. For the nine months ended
December 31, 1996 and for the fiscal years ended March 31, 1996 and 1995,
investments were $20.2 million, $29.9 million and $23.9 million, respectively.
Losses on U.S. government contracts are immediately recognized in full when
determinable.
Inventory -- Inventory is stated at average cost, not in excess of net
realizable value. In accordance with industry practice, inventoried costs may
contain amounts relating to contracts with long production cycles, a portion of
which will not be realized within one year.
Property, Plant and Equipment -- Property, plant and equipment are stated
at cost. Maintenance and repairs are expensed when incurred; renewals and
betterments are capitalized. When assets are retired or otherwise disposed of,
the cost and accumulated depreciation are eliminated from the accounts, and any
gain or loss is included in the results of operations. Depreciation is provided
on the straight-line method over the estimated useful lives of the related
assets as follows: buildings and improvements -- 8 to 40 years; machinery,
equipment, furniture and fixtures -- 3 to 25 years; leasehold
improvements -- over the life of the applicable lease or 10 years, whichever is
shorter.
Deferred Charges -- Deferred charges consist primarily of financing costs
($8.7 million and $7.7 million, which is net of amortization (non-cash interest
expense) of $1.3 million and $6.9 million at December 31, 1996 and March 31,
1996, respectively), and program participation costs ($13.9 million and $14.5
million, which is net of amortization of $2.4 million and $1.8 million, at
December 31, 1996 and March 31, 1996, respectively) paid in connection with the
sole-source award of wheels, brakes and anti-skid equipment on the McDonnell
Douglas Corporation's MD-90 twin-jet program. Program participation costs are
being amortized on a straight-line method over a period of 20 years. Deferred
financing charges are primarily being amortized on an effective interest method
over periods of 5 to 8 years.
F-13
<PAGE> 105
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cost in Excess of Net Assets Acquired -- Cost in excess of net assets
acquired is being amortized on the straight-line method over a period of 40
years. The Company reviews the cost in excess of net assets acquired for
recoverability on an on-going basis using undiscounted cash flows. Impairments
would be recognized in operating results.
Intangible Assets -- Intangible assets consist of patents, licenses and
computer software which are stated at cost and are being amortized on a
straight-line method over periods of 5 to 30 years.
Evaluation of Long-Lived Assets -- Long-lived assets are assessed for
recoverability on an on-going basis in accordance with Statement of Financial
Accounting Standards (SFAS) No. 121. In evaluating the value and future benefits
of long-lived assets, their carrying value would be reduced by the excess, if
any, of the long-lived asset over management's estimate of the anticipated
discounted future net cash flows of the related long-lived asset. There were no
adjustments to the carrying amount of long-lived assets during the nine months
ended December 31, 1996 and during the fiscal years ended March 31, 1996 and
1995, resulting from the Company's evaluations.
Warranty -- Estimated costs of product warranty are accrued when individual
claims arise with respect to a product. When the Company becomes aware of such
defects, the estimated costs of all potential warranty claims arising from such
defects are fully accrued.
Business and Credit Concentrations -- The Company's customers are
concentrated in the airline industry but are not concentrated in any specific
region. The U.S. government accounted for approximately 12%, 16% and 14% of
total sales for the nine months ended December 31, 1996 and for the fiscal years
ended March 31, 1996 and 1995, respectively. No other single customer accounted
for 10% or more of consolidated revenues for the nine months and fiscal years
then ended, and there were no significant accounts receivable from a single
customer, except the U. S. government, at December 31, 1996 and March 31, 1996.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the 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.
Accounting and Reporting Changes -- Effective April 1, 1996, the Company
adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." SFAS No. 121 establishes accounting
standards for the recognition of an impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used, and for long-lived assets and certain identifiable intangibles to be
disposed of. The adoption of SFAS No. 121 did not have a material effect on the
Company's financial position or results of operations.
Effective April 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 encourages (but does not require)
adoption of the fair value based method of accounting for stock-based
compensation plans. Entities may continue to measure compensation costs for
those plans using the intrinsic value based method of accounting, but must make
pro forma disclosures of net income (loss) as if the accounting provisions of
SFAS No. 123 had been adopted. The Company has elected to continue the intrinsic
value method of accounting for stock-based compensation plans and provide the
required pro forma disclosures. As a result, the adoption of SFAS No. 123 had no
effect on the Company's financial position or results of operations. (See Note
9.)
Reclassifications -- Certain amounts in the prior years' financial
statements have been reclassified to conform to the current period presentation.
F-14
<PAGE> 106
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------ -----------
<S> <C> <C>
Accounts receivable, principally from commercial
customers....................................... $ 34,086,000 $32,704,000
Accounts receivable on U.S. government and other
long-term contracts............................. 2,359,000 4,136,000
Allowances........................................ (413,000) (1,612,000)
---------- ----------
Total................................... $ 36,032,000 $35,228,000
========== ==========
</TABLE>
4. INVENTORY
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------ -----------
<S> <C> <C>
Raw materials and work-in-process................. $ 46,742,000 $39,656,000
Finished goods.................................... 10,821,000 11,364,000
Inventoried costs related to U.S. government and
other long-term contracts....................... 10,771,000 12,312,000
---------- ----------
$ 68,334,000 $63,332,000
========== ==========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------ ------------
<S> <C> <C>
Land............................................ $ 661,000 $ 661,000
Buildings and improvements...................... 33,961,000 29,148,000
Machinery, equipment, furniture and fixtures.... 102,278,000 95,315,000
---------- ----------
Total................................. 136,900,000 125,124,000
Less accumulated depreciation and
amortization.................................. 66,914,000 60,080,000
---------- ----------
Total................................. $ 69,986,000 $ 65,044,000
========== ==========
</TABLE>
During the nine months ended December 31, 1996, the Company sold and leased
back assets with a net book value of $2,315,000.
6. OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------ -----------
<S> <C> <C>
Accrued payroll costs............................. $ 15,170,000 $15,756,000
Accrued taxes..................................... 6,504,000 7,783,000
Accrued costs on long-term contracts.............. 5,744,000 5,195,000
Accrued warranty costs............................ 6,695,000 8,023,000
Customer credits.................................. 7,483,000 3,230,000
Postretirement benefit obligation other than
pensions........................................ 2,000,000 2,000,000
Other............................................. 6,144,000 2,788,000
---------- ----------
Total................................... $ 49,740,000 $44,775,000
========== ==========
</TABLE>
F-15
<PAGE> 107
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------ ------------
<S> <C> <C>
Senior revolving loan(a)........................ $ 13,000,000 $ 14,000,000
Senior term loan(a)............................. 40,000,000 --
11 7/8% Senior Secured Notes due 2003(b)........ 100,000,000 100,000,000
10 3/8% Senior Subordinated Notes due 2004(c)... 140,000,000 --
13 3/4% Senior Subordinated Debentures due
2001(d)....................................... -- 180,000,000
------------ ------------
Total................................. 293,000,000 294,000,000
Less current maturities(a)...................... 6,000,000 --
------------ ------------
Total................................. $287,000,000 $294,000,000
============ ============
</TABLE>
(a) Credit Agreement -- In August 1996, the Company entered into an Amended
and Restated Credit Agreement (the "Credit Agreement") consisting of a $40
million senior term loan (the "Term Loan") and a $70 million revolving loan
facility (the "Revolving Loan"). The proceeds from the Revolving Loan were used
to repay outstanding indebtedness under the Company's 1992 revolving credit
facility. Both loans bear interest at varying interest rates selected at the
option of the Company. At December 31, 1996, the interest rate on the Term Loan
was 7.875%. At December 31, 1996 and March 31, 1996, the interest rate on the
Revolving Loan was 7.875% and 8.37%, respectively. Obligations under the Credit
Agreement are secured by a lien on the inventory, accounts receivable and
certain other tangible assets. All borrowings under the Revolving Loan mature
August 14, 2001. The Term Loan is a six-year amortizing facility maturing
September 30, 2002.
Scheduled debt maturities of the Term Loan for the five years subsequent to
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
----------------------------------------------------------------- ----------
<S> <C>
1997............................................................. $3,500,000
1998............................................................. 6,000,000
1999............................................................. 6,500,000
2000............................................................. 8,000,000
2001............................................................. 8,500,000
</TABLE>
In addition to scheduled quarterly payments, the net proceeds from certain
asset sales, new equity or debt offerings and 50% of excess cash flow (as
defined) must be used to prepay the Term Loan. As a result of the excess cash
flow calculation (calculated from August 14, 1996), at December 31, 1996
additional long-term debt of $2.5 million has been classified as current.
The Credit Agreement provides for Revolving Loans not to exceed $70
million, with availability determined by reference to a borrowing base of
eligible accounts receivable and inventory. The revolving loan facility provides
for the issuance of up to $15 million of letters of credit subject to the unused
portion of the borrowing base. At December 31, 1996 and March 31, 1996, the
Company had $51.6 million and $40.6 million, respectively, available to borrow
under the revolving loan facility. At December 31, 1996 and March 31, 1996, the
Company had outstanding letters of credit of $5.4 million and $5.8 million,
respectively.
The Credit Agreement contains certain covenants and events of default,
including limitations on additional indebtedness, liens, asset sales, dividend
payments, capital expenditures and other distributions from the Subsidiaries to
K & F and contains financial ratio requirements including a cash interest
coverage ratio, a leverage ratio and maintenance of a minimum adjusted net
worth. The Company was in compliance with all covenants at December 31, 1996.
F-16
<PAGE> 108
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) 11 7/8% Senior Secured Notes -- On June 10, 1992, the Company issued
$100 million of 11 7/8% Senior Secured Notes which mature on December 1, 2003
(the "Senior Notes"). The Senior Notes are not subject to a sinking fund. The
Senior Notes may not be redeemed prior to June 1, 1997. On and after June 1,
1997, the Company may redeem the Senior Notes at descending premiums ranging
from 5.28% in June 1997 to no premium after June 2001.
(c) 10 3/8% Senior Subordinated Notes -- On August 15, 1996, the Company
issued $140 million of 10 3/8% Senior Subordinated Notes which mature on
September 1, 2004 (the "10 3/8% Notes"). The 10 3/8% Notes are not subject to a
sinking fund. The 10 3/8% Notes may not be redeemed prior to September 1, 2000.
On and after September 1, 2000, the Company may redeem the 10 3/8% Notes at
descending premiums ranging from 5.19% in September 2000 to no premium after
September 2003.
(d) 13 3/4% Senior Subordinated Debentures -- During the nine months ended
December 31, 1996, the Company redeemed the remaining $180 million of the $210
million of 13 3/4% Senior Subordinated Debentures which were to mature on August
1, 2001 (the "13 3/4% Debentures"). The Company used the net proceeds from the
10 3/8% Notes together with borrowings under the Credit Agreement, to redeem the
remaining 13 3/4% Debentures at a price of 102.5% of the principal amount
thereof. In connection therewith, the Company recorded an extraordinary charge
of $9.142 million, consisting of redemption premiums and the write-off of
unamortized financing costs.
On December 28, 1995, the Company redeemed $30 million principal amount of
the 13 3/4% Debentures at a redemption price of 103.75% of the principal amount
thereof. The Company used cash on hand and borrowings from the revolving credit
facility to redeem the 13 3/4% Debentures. In connection therewith, the Company
recorded an extraordinary charge of $1.913 million, consisting of redemption
premiums and the write-off of unamortized financing costs.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of all financial instruments reported on the balance
sheet at December 31, 1996 and March 31, 1996 approximate their fair value,
except as discussed below.
The fair value of the Company's total debt based on quoted market prices or
on current rates for similar debt with the same maturities was approximately
$308 million and $311 million at December 31, 1996 and March 31, 1996,
respectively.
9. CAPITAL STOCK
a. On February 15, 1995, the Board of Directors approved a one-for-ten
reverse common stock split for all holders of Class A and Class B common stock
on such date.
b. On September 2, 1994, K & F retired the $65.4 million principal amount
of 14 3/4% Subordinated Convertible Debentures held by Loral Corporation, in
exchange for $12.76 million in cash and 458,994 shares of Class B common stock
representing 22.5% of equity. The cash portion of this transaction was funded
with the proceeds from the sale of capital stock to K & F's principal
stockholders for which stockholders received a total of 68,728 shares of Class A
common stock and 127,636 shares of preferred stock. As a result, K & F's
stockholders' equity was increased by $65.4 million and long-term debt was
reduced by an equal amount, resulting in no gain or loss on the transaction.
c. The preferred stock is convertible into Class A voting common stock on a
one-for-one basis. The preferred stock and Class B common stock are entitled to
vote on all matters on which the Class A common stock will vote and are entitled
to one vote per share.
d. The Company has a Stock Option Plan which provides for the grant of
non-qualified or incentive stock options to acquire 50,000 authorized but
unissued shares of Class A common stock. The options are
F-17
<PAGE> 109
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exercisable in four equal installments on the second, third, fourth and fifth
anniversaries of the date of grant, and shall remain exercisable until the
expiration of the option, 10 years from the date of the grant, at an exercise
price of $84.60.
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED
NINE MONTHS ENDED MARCH 31
DECEMBER 31, -----------------
1996 1996 1995
----------------- ------ ------
<S> <C> <C> <C>
Outstanding at beginning of year................. 11,500 11,500 12,000
Granted.......................................... -- -- --
Canceled......................................... (250) -- (500)
------ ------ ------
Outstanding at end of year....................... 11,250 11,500 11,500
====== ====== ======
Exercisable options outstanding.................. 10,375 9,625 8,938
====== ====== ======
Available for future grant....................... 38,750 38,500 38,500
====== ====== ======
</TABLE>
The weighted-average remaining contractual life of options outstanding at
December 31, 1996 was 2.8 years.
e. In April 1996, Loral Space (which owns 22.5% of the outstanding capital
stock of K & F) granted options to certain officers and employees of K & F to
purchase 265,000 shares of Loral Space common stock at $10.50 per share. Such
exercise price was equal to the market price at grant date. These options expire
ten years from the date of grant and become exercisable ratably over a five-year
period.
K & F is obligated to pay annual interest at LIBOR plus two percent to
Loral Space on the balance of options issued but not exercised, times $10.50. At
December 31, 1996, the amount due to Loral Space is $140,000 which has been
charged to operations.
As described in Note 2, K & F accounts for its stock-based compensation
using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and its related
interpretations. SFAS No. 123, "Accounting for Stock-Based Compensation"
requires the disclosure of pro forma net income (loss) had K & F adopted the
fair value method as of the beginning of 1995. SFAS No. 123 requires that equity
instruments granted to an employee by a principal stockholder be included as
part of the disclosure. However, disclosure has been omitted because the pro
forma incremental effect of these options on net income (loss) required to be
disclosed under SFAS No. 123 is not material to K & F's results of operations.
10. EMPLOYEE BENEFIT PLANS
The Company provides pension benefits to substantially all employees
through hourly and salaried pension plans. The plans provide benefits based
primarily on the participant's years of service. The salaried plan also includes
voluntary employee contributions. The Company's funding policy is to contribute
at least the minimum amount required by the Employee Retirement Income Security
Act of 1974.
F-18
<PAGE> 110
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Net pension cost included the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED MARCH 31,
DECEMBER 31, ---------------------------
1996 1996 1995
----------------- ----------- -----------
<S> <C> <C> <C>
Service cost-benefits earned during
the period............................ $ 1,521,000 $ 1,562,000 $ 1,590,000
Interest cost on projected benefit
obligation............................ 3,980,000 4,901,000 4,224,000
Actual (return) loss on plan assets..... (5,439,000) (9,940,000) 954,000
Net amortization and deferral........... 2,512,000 6,988,000 (3,869,000)
----------- ----------- -----------
Net pension cost.............. $ 2,574,000 $ 3,511,000 $ 2,899,000
=========== =========== ===========
</TABLE>
The table below sets forth the funded status of the plans as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation............................. $ 70,371,000 $ 65,642,000
============ ============
Accumulated benefit obligation........................ $ 70,496,000 $ 65,987,000
Effect of projected future salary increases........... 2,624,000 2,113,000
------------ ------------
Projected benefit obligation.......................... 73,120,000 68,100,000
Plan assets at fair market value........................ 63,268,000 55,100,000
------------ ------------
Unfunded projected benefit obligation................... 9,852,000 13,000,000
Unrecognized prior service cost......................... (1,876,000) (2,185,000)
Unrecognized net loss................................... (13,273,000) (12,685,000)
Adjustment for minimum liability........................ 12,525,000 12,757,000
------------ ------------
Accrued pension cost recognized in the consolidated
balance sheet......................................... $ 7,228,000 $ 10,887,000
============ ============
</TABLE>
SFAS No. 87 requires recognition in the balance sheet of an additional
minimum pension liability for underfunded plans with accumulated benefit
obligations in excess of plan assets. A corresponding amount is recognized as an
intangible asset or a reduction of equity. At December 31, 1996, the Company's
additional minimum liability was $12,525,000 with a corresponding equity
reduction of $10,649,000 and intangible asset of $1,876,000. At March 31, 1996,
the Company's additional minimum liability was $12,757,000 with a corresponding
equity reduction of $10,572,000 and intangible asset of $2,185,000.
Investments held by the Company's pension plans consist primarily of
Fortune 500 equity securities and investment grade fixed income securities.
The assumptions used in accounting for the plans are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
NINE MONTHS ENDED MARCH 31,
DECEMBER 31, -------------
1996 1996 1995
----------------- ---- ----
<S> <C> <C> <C>
Discount rate........................................ 7.75% 7.50% 8.50%
Rate of increase in compensation levels.............. 4.50 4.50 4.50
Expected long-term rate of return on assets.......... 9.50 9.50 9.50
</TABLE>
Eligible employees having one year of service also participate in one of
the Company's Savings Plans (hourly or salaried). Under one of these plans, the
Company matches 45% of a participating employee's contributions, up to 6% of
compensation. The employer contributions generally vest to participating
employees after five years of service. The matching contributions were $572,000,
$687,000 and $532,000 for the nine months ended December 31, 1996 and for the
fiscal years ended March 31, 1996 and 1995, respectively.
F-19
<PAGE> 111
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides postretirement health care and life insurance benefits
for all eligible employees and their dependents active at April 27, 1989 and
thereafter, and postretirement life insurance benefits for retirees prior to
April 27, 1989. Participants are eligible for these benefits when they retire
from active service and meet the eligibility requirements of the Company's
pension plans. The health care plans are generally contributory and the life
insurance plans are generally non-contributory.
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED MARCH 31,
DECEMBER 31, ---------------------------
1996 1996 1995
----------------- ----------- -----------
<S> <C> <C> <C>
Service cost-benefits attributed to
service............................... $ 873,000 $ 619,000 $ 400,000
Interest cost on accumulated
postretirement benefit................ 3,176,000 3,474,000 3,543,000
Net amortization and deferral........... (2,442,000) (4,332,000) (3,732,000)
----------- ----------- -----------
Net periodic postretirement benefit
cost.................................. $ 1,607,000 $ (239,000) $ 211,000
=========== =========== ===========
</TABLE>
Presented below are the total obligations and amounts recognized in the
Company's consolidated balance sheets, inclusive of the current portion:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
-------------- -----------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................ $ 34,042,000 $ 30,172,000
Fully eligible active plan participants............. 2,247,000 2,838,000
Other active plan participants...................... 22,558,000 16,304,000
------------ ------------
Total accumulated postretirement benefit obligation... 58,847,000 49,314,000
Unrecognized net loss................................. (20,081,000) (14,105,000)
Unrecognized prior service cost related to plan....... 38,673,000 42,181,000
------------ ------------
Accrued postretirement benefit cost................... $ 77,439,000 $ 77,390,000
============ ============
</TABLE>
The assumed annual rate of increase in the per capita cost of covered
health care benefits was 11% during the nine months ended December 31, 1996 and
will be 10.3% during the fiscal year ending December 31, 1997. The rate was
assumed to decrease gradually to 6.5% by fiscal year 2002 and remain at that
level thereafter. The health care cost trend rate assumption has a significant
effect on the amounts reported. A change in the assumed health care trend rates
by 1% in each year would change the accumulated postretirement benefit
obligation at December 31, 1996 by $8,000,000 and the aggregate of the service
and interest cost components of net postretirement benefit cost for the nine
months ended December 31, 1996 by $1,100,000. The weighted average discount rate
used in determining the accumulated postretirement benefit obligation as of
December 31, 1996 and March 31, 1996 was 7.75% and 7.50%, respectively.
F-20
<PAGE> 112
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. COMMITMENTS
The Company is party to various noncancellable operating leases which are
longer than a one-year term for certain data processing, and other equipment and
facilities with minimum rental commitments payable as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
----------------------------------------------------------------- ----------
<S> <C>
1997............................................................. $4,707,000
1998............................................................. 4,810,000
1999............................................................. 4,823,000
2000............................................................. 4,352,000
2001............................................................. 1,745,000
Thereafter....................................................... 6,565,000
</TABLE>
Rental expense was $3,491,000, $4,758,000 and $4,641,000 for the nine
months ended December 31, 1996 and for the fiscal years ended March 31, 1996 and
1995, respectively.
13. CONTINGENCIES
In the past, Aircraft Braking Systems had been purchasing substantially all
of the carbon for its carbon brakes under supply arrangements with Hitco
Technologies, Inc. ("Hitco"). As described below Aircraft Braking Systems and
Hitco are in litigation. A loss of carbon supply for the carbon brakes
manufactured by Aircraft Braking Systems would have a material, adverse effect
on the Company's business and financial condition. However, for certain
programs, the Company has developed an alternate supplier and also has commenced
a major expansion of its existing carbon manufacturing facility in Akron, Ohio.
Construction of the facility is substantially complete and is expected to be
fully operational during the second quarter of calendar year 1997. Aircraft
Braking Systems is currently manufacturing carbon on three of the five new
densification furnaces to be installed. When fully operational, the Company
believes it will have sufficient sources of carbon to meet all of its
requirements for brake production at the current level of business.
On December 15, 1995, the Company's Aircraft Braking Systems subsidiary
commenced an action in the Court of Common Pleas, Summit County, Ohio against
Hitco after Hitco threatened to breach existing supply contracts unless prices
were renegotiated. Hitco has been the principal supplier of carbon used by
Aircraft Braking Systems for its carbon brakes. Hitco claimed that Aircraft
Braking Systems breached the supply arrangements by electing to begin to expand
its own carbon production facility. The Aircraft Braking Systems' complaint, as
amended, seeks damages in excess of $47 million, injunctive relief and specific
performance requiring Hitco to perform its obligations pursuant to existing
contracts and purchase orders. Hitco has counterclaimed in the matter seeking,
among other things, damages up to $130 million for the alleged breach by
Aircraft Braking Systems of alleged long-term contracts to purchase carbon.
Hitco was enjoined from refusing to perform its obligations pursuant to existing
contracts and purchase orders without change in terms. Hitco has sought to have
the injunction vacated or modified, and/or a declaratory judgment terminating
Hitco's obligation to supply Aircraft Braking Systems at prices previously
pertaining. To date, the preliminary injunction has not been vacated or
modified, although Hitco argues it expired on December 13, 1996. Through January
1997, Hitco continued to supply carbon to the Company, although Hitco failed to
acknowledge certain purchase orders. Aircraft Braking Systems has sought to hold
Hitco in contempt of the court's injunction. Hitco has sought an injunction
requiring that the Company turn over technology allegedly jointly developed and
owned under the prior contractual arrangements. Hearings have been concluded on
both the Company's contempt motion and Hitco's motion seeking technology but
neither has been decided by the court.
F-21
<PAGE> 113
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In related actions, a suit filed by Hitco in Superior Court, Los Angeles
County, California against Aircraft Braking Systems seeking substantially the
same relief as is asserted in the Ohio action has been stayed. Hitco also filed
suit in the Federal District Court in the Northern District of Ohio for damages
and injunctive relief against a third party claiming that such party, in
supplying certain carbon to Aircraft Braking Systems, has acquired trade secrets
of Hitco from Aircraft Braking Systems and has misappropriated trade secrets and
technology developed under the same research and development contracts between
Hitco and Aircraft Braking Systems which are the subject of the Ohio case and
the California case. Aircraft Braking Systems has been granted leave to
intervene and the other party has moved to dismiss the Federal action.
Management intends to vigorously advocate its interest in all lawsuits, to
seek dismissal of the California action and to proceed in the Ohio case to
enforce the preliminary injunction and otherwise to protect Aircraft Braking
Systems' carbon supply as well as to seek damages from Hitco. Based upon the
proceedings to date, advice of counsel and its own assessment of the matters in
dispute, management does not expect the outcome of the litigation to be
unfavorable to the Company.
There are various lawsuits and claims pending against the Company
incidental to its business. Although the final results in such suits and
proceedings cannot be predicted with certainty, in the opinion of management,
the ultimate liability, if any, will not have a material adverse effect on the
Company.
14. INCOME TAXES
The components of the net deferred tax benefit and corresponding valuation
allowance is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------- -------------
<S> <C> <C>
Tax net operating loss carryforwards.................. $ 71,051,000 $ 68,233,000
Temporary differences:
Postretirement and other employee benefits.......... 33,708,000 35,861,000
Intangibles......................................... 55,124,000 58,997,000
Program participation costs......................... (6,109,000) (6,348,000)
Other............................................... 6,802,000 7,165,000
------------- -------------
Deferred tax benefit.................................. 160,576,000 163,908,000
Valuation allowance................................... (159,165,000) (163,908,000)
------------- -------------
Net deferred tax asset................................ $ 1,411,000 $ --
============= =============
</TABLE>
SFAS No. 109 requires that a valuation allowance be recorded against tax
assets which are not likely to be realized. The Company has established a
valuation allowance against the majority of these benefits given the uncertain
nature of their ultimate realization. The change in the valuation allowance
reflects the extent that taxable income has been projected during the
carryforward period.
In the event of future recognition of a 100 percent reduction of the
valuation allowance, income tax expense and goodwill would be reduced by $75
million and $56 million, respectively. The realization of these benefits would
reduce future income tax payments by $159 million. At December 31, 1996 goodwill
has been reduced by $1.1 million as a result of the reduction in the valuation
allowance.
The Company's benefit for income taxes for the nine months ended December
31, 1996 consists of:
<TABLE>
<S> <C>
Current domestic provision.................................... $ 1,330,000
Foreign provision............................................. 170,000
Domestic utilization of net operating loss carryforwards...... (1,581,000)
-----------
Income tax benefit............................................ $ (81,000)
===========
</TABLE>
F-22
<PAGE> 114
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's effective tax rate of 0.5% benefit for the nine months ended
December 31, 1996 differs from the federal statutory rate (benefit of 35%) due
to the partial-utilization of tax net operating losses of $3.5 million and the
change in the valuation allowance. For the fiscal years ended March 31, 1996 and
1995 the Company's effective tax rate of zero percent differed from the federal
statutory rate (benefit of 35%) due to the change in the valuation allowance.
The Company has tax net operating loss carryforwards of approximately $185
million at December 31, 1996. The tax net operating losses expire from 2005
through 2011, with $23 million of carryforwards expiring in 2005.
15. RELATED PARTY TRANSACTIONS
Bernard L. Schwartz ("BLS") owns 27.12% of the common stock of the Company
and serves as Chairman of the Board of Directors and Chief Executive Officer.
BLS is also Chairman and Chief Executive Officer of Loral Space & Communications
Ltd. ("Loral Space"). Prior to that he was Chairman and Chief Executive Officer
of Loral Corporation. The Company has an Advisory Agreement with BLS which
provides for the payment of an aggregate of $200,000 per month of compensation
to BLS and persons designated by him (including certain other executive officers
of Loral Space who are active in the management of the Company) in exchange for
acting as directors and providing advisory services to the Company and its
subsidiaries. Such agreement will continue until BLS dies or is disabled or
ceases to own at least 135,000 shares of common stock of the Company.
In May 1996, K & F purchased $343,000 principal amount of the Company's
13 3/4% Debentures from A. Robert Towbin, who is a member of the Board of
Directors of the Company, at a price of 103.65% of the principal thereof plus
accrued interest. In May 1996, the 13 3/4% Debentures were callable at a price
of 103.75% of the principal amount.
The Company pays Ronald H. Kisner, who is a member of the Board of
Directors of the Company, a monthly retainer of $6,000 for legal services.
On September 2, 1994, K & F retired the $65.4 million principal amount of
Convertible Debentures held by Loral Corporation. (See Note 9.)
The Company has a bonus plan pursuant to which the Company's Board of
Directors awards bonuses to BLS and other advisors ranging from 5% to 10% of
earnings in excess of $50 million before interest, taxes and amortization.
Bonuses earned under this plan were $200,000 for the fiscal year ended March 31,
1996 and paid to certain executive officers of Loral Space. BLS did not receive
any payments under this plan for the fiscal year ended March 31, 1996. Bonuses
for the nine months ended December 31, 1996 have not yet been determined nor
approved by the Company's Board of Directors.
Lehman Brothers has from time to time provided investment banking,
financial advisory and other services to the Company, for which services Lehman
Brothers has received fees. As the beneficial owners of 48.17% of the
outstanding capital stock, the Lehman Investors are able to elect three
directors to the Company's Board of Directors and have the benefit of certain
rights under the Stockholders Agreement and the Company's By-laws. During the
nine months ended December 31, 1996, Lehman Brothers received underwriting
discounts and commissions of $2.6 million in connection with the offering of the
10 3/8% Notes.
Pursuant to agreements between the Company and Loral Space (which owns
22.5% of the outstanding capital stock), the Company reimburses Loral Space for
real property occupancy, benefits administration and legal services. The related
charges agreed upon were established to reimburse Loral Space for actual costs
incurred without profit or fee. The Company believes the arrangements are as
favorable to the Company as could have been obtained from unaffiliated parties.
Payments to Loral Space were $0.2 million for the nine months ended December 31,
1996. Included in accounts payable at December 31, 1996 is $0.2 million.
F-23
<PAGE> 115
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to agreements between K & F and Loral Corporation, the parties
provided services to each other and shared certain expenses relating to a
production program, real property occupancy, benefits administration, treasury,
accounting and legal services. The related charges agreed upon by the parties
were established to reimburse each party on the actual cost incurred without
profit or fee. The Company believes the arrangements with Loral Corporation were
as favorable to the Company as could have been obtained from unaffiliated
parties. Billings from Loral Corporation were $3.6 million and $3.0 million for
the fiscal years ended March 31, 1996 and 1995, respectively. Billings to Loral
Corporation were $2.7 million and $0.2 million for the fiscal years ended March
31, 1996 and 1995. Purchases from Loral Corporation were $2.2 million and $1.9
million for the fiscal years ended March 31, 1996 and 1995. Included in accounts
receivable and accounts payable at March 31, 1996 is $3.5 million and $2.3
million.
On April 22, 1996, Lockheed Martin acquired the defense electronics and
systems integration businesses of Loral Corporation which included the Akron,
Ohio facility. The various occupancy and service agreements affecting the Akron,
Ohio facility will remain in full force and effect. K & F will continue to
reimburse Lockheed Martin for real property occupancy, and costs relating to
shared easements and services.
F-24
<PAGE> 116
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE NOTES OFFERED HEREBY
NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
ANY OF THE NOTES TO ANY PERSON IN ANY JURISDICTION IN WHICH IT WOULD BE UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH
IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 1
Risk Factors........................... 12
The Exchange Offer..................... 18
The Recapitalization................... 26
Capitalization......................... 28
Unaudited Pro Forma Consolidated
Financial Information................ 29
Selected Historical Consolidated
Financial Information................ 34
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 36
Business............................... 40
Management............................. 49
Security Ownership..................... 55
Certain Transactions................... 57
Description of Certain Indebtedness.... 59
Description of the Notes............... 61
Certain United States Federal Tax
Considerations For Non-United States
Holders.............................. 85
Plan of Distribution................... 87
Legal Matters.......................... 87
Experts................................ 88
Available Information.................. 88
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
======================================================
======================================================
$185,000,000
K & F INDUSTRIES, INC.
9 1/4% SERIES B
SENIOR SUBORDINATED
NOTES DUE 2007
----------------------------------------
PROSPECTUS
----------------------------------------
, 1997
======================================================
<PAGE> 117
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
provides for the indemnification of officers and directors under certain
circumstances against expenses incurred in successfully defending against a
claim and authorizes Delaware corporations to indemnify their officers and
directors under certain circumstances against expenses and liabilities incurred
in legal proceedings involving such persons because of their being or having
been an officer or director. Pursuant to Section 102(b)(7) of the General
Corporation Law of the State of Delaware, the Certificate of Incorporation of
the Registrant provides that the directors of the Registrant, individually or
collectively, shall not be held personally liable to the Registrant or its
stockholders for monetary damages for breaches of fiduciary duty as directors,
except that any director shall remain liable (1) for any breach of the
director's fiduciary duty of loyalty to the Registrant or its stockholders, (2)
for acts or omissions not in good faith or involving intentional misconduct or a
knowing violation of law, (3) for liability under Section 174 of the General
Corporation Law of the State of Delaware or (4) for any transaction from which
the director derived an improper personal benefit. The by-laws of the Registrant
provide for indemnification of its officers and directors to the full extent
authorized by law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<C> <C> <S>
*1.01 -- Purchase Agreement dated as of October 9, 1997 between the Company and Lehman
Brothers Inc. and Unterberg Harris
2.01 -- Agreement for Sale and Purchase of Assets dated March 26, 1989 between Loral
Corporation and the Company(1)
*2.02 -- Stock Purchase Agreement dated September 15, 1997 among the Company and the
Stockholders of the Company
*2.03 -- First Amendment to Stock Purchase Agreement dated as of October 15, 1997 among
the Company and the Securityholders named therein
*3.01 -- Amended and Restated Certificate of Incorporation of the Company
*3.02 -- Amended and Restated By-Laws of the Company
*4.01 -- Indenture dated as of October 15, 1997 for the Notes between the Company and
State Street Bank and Trust Company, as trustee
4.02 -- Indenture dated as of August 15, 1996 for the 10 3/8% Senior Subordinated Notes
between the Company and Fleet National Bank, as trustee(8)
*5.01 -- Opinion of O'Sullivan Graev & Karabell, LLP
10.01 -- Securities Purchase Agreement dated as of April 27, 1989, among the Company, BLS
and LBH(1)
10.02 -- Assumption Agreement dated as of April 27, 1989(1)
10.03 -- Non-Competition Agreement dated as of April 27, 1989, between the Company and
BLS(1)
10.04 -- K & F Industries, Inc. Retirement Plan for Salaried Employees(4)
10.05 -- K & F Industries, Inc. Savings Plan for Salaried Employees(4)
10.06 -- Goodyear Aerospace Corporation Supplemental Unemployment Benefits Plan for
Salaried Employees Plan A(1)
10.07 -- The Loral Systems Group Release and Separation Allowance Plan(1)
10.08 -- Letter Agreement dated April 27, 1989, between the Company and Shearson Lehman
Brothers Inc.(1)
10.09 -- K & F Industries, Inc. 1989 Stock Option Plan(2)
10.10 -- K & F Industries, Inc. Executive Deferred Bonus Plan(2)
</TABLE>
II-1
<PAGE> 118
<TABLE>
<C> <C> <S>
10.11 -- Securities Purchase Agreement dated as of July 22, 1991, among the Company, BLS
and the Lehman Investors(3)
10.12 -- Securities Purchase Agreement among the Company, BLS and the Lehman Investors
dated September 2, 1994(5)
10.13 -- Agreement dated as of September 2, 1994 between the Company and Loral(5)
10.14 -- Securities Conversion Agreement among the Company and the Converting
Stockholders, dated November 8, 1994(5)
*10.15 -- Shared Services Agreement dated as of April 27, 1996 between Lockheed Martin
Tactical Defense Systems -- Akron and ABS
10.16 -- K & F Industries, Inc. Supplemental Executive Retirement Plan(7)
10.17 -- Amended and Restated Credit Agreement dated as of August 14, 1996 among Aircraft
Braking Systems Corporation ("ABS"), Engineered Fabrics Corporation ("EFC"), the
Lenders (as defined therein), Lehman Commercial Paper, Inc., as Documentation
Agent and Chase Securities Inc., individually and as agent for the Lenders
("Chase")(8)
10.18 -- Amended and Restated Security Agreement dated as of August 14, 1996 between ABS
and Chase(8)
10.19 -- Amended and Restated Security Agreement dated as of August 14, 1996 between EFC
and Chase(8)
10.20 -- Revolving Credit Note dated as of August 14, 1996 executed by each of ABS and EFC
in favor of NBD Bank(8)
10.21 -- Facility A Notes dated as of August 14, 1996 executed by each of ABS and EFC in
favor of NBD Bank(8)
10.22 -- Amended and Restated K & F Agreement dated as of August 14, 1996 between the
Company and Chase(8)
10.23 -- Amended and Restated Subordination Agreement dated as of August 14, 1996 between
ABS and Chase(8)
10.24 -- Amended and Restated Subordination Agreement dated as of August 14, 1996 between
EFC and Chase(8)
10.25 -- Purchase Agreement dated August 12, 1996 among the Company, Lehman Brothers Inc.
and Chase Securities Inc.(8)
10.26 -- Registration Rights Agreement dated as of August 15, 1996 among the Company,
Lehman Brothers Inc. and Chase Securities Inc.(8)
*10.27 -- Credit Agreement dated as of October 15, 1997 among ABS, EFC, the Lenders (as
defined therein), Lehman Commercial Paper, Inc., as Documentation Agent and The
First National Bank of Chicago ("FNBC"), as Administrative Agent
*10.28 -- Guarantee and Collateral Agreement dated as of October 15, 1997 among the
Company, ABS, EFC, certain subsidiaries named therein and FNBC, as Collateral
Agent
*10.29 -- Form of Term Note dated as of October 15, 1997 to be executed by each of ABS and
EFC in favor of FNBC
*10.30 -- Form of Revolving Credit Note dated as of October 15, 1997 to be executed by each
of ABS and EFC in favor of FNBC
*10.31 -- Subordination Agreement dated as of October 15, 1997 between ABS and FNBC
*10.32 -- Subordination Agreement dated as of October 15, 1997 between EFC and FNBC
*10.33 -- Intercreditor Agreement dated as of October 15, 1997 among the Pension Benefit
Guaranty Corporation ("PBGC"), FNBC, ABS, EFC and the Company
*10.34 -- K & F Agreement dated as of October 15, 1997 executed by the Company in favor of
FNBC
*10.35 -- Settlement Agreement dated as of October 15, 1997 between the Company and PBGC
</TABLE>
II-2
<PAGE> 119
<TABLE>
<C> <C> <S>
*10.36 -- Registration Rights Agreement dated as of October 15, 1997 between the Company
and Lehman Brothers Inc. and Unterberg Harris
*10.37 -- Dealer Manager Agreement dated as of September 15, 1997 between Lehman Brothers
Inc. and the Company
*10.38 -- Amended and Restated Director Advisory Agreement dated as of October 15, 1997
between the Company and BLS
*10.39 -- Stockholders' Agreement dated as of October 15, 1997 between the Company and the
Stockholders identified therein
*12.01 -- Statement of computation of ratio of earnings (deficiency) to fixed charges
*12.02 -- Statement of computation of pro forma earnings to fixed charges
21.01 -- Subsidiaries of the Registrant(1)
*23.01 -- Consent of O'Sullivan Graev and Karabell, LLP (included in Exhibit 5)
*23.02 -- Consent of Deloitte & Touche LLP
24.01 -- Powers of Attorney (included on signature page)
*25.01 -- Statement of Eligibility and Qualifications under the Trust Indenture Act of 1939
of State Street Bank and Trust Company, as Trustee
**99.1 -- Form of Letter of Transmittal
**99.2 -- Form of Notice of Guaranteed Delivery
**99.3 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees
**99.4 -- Form of Letter to Clients
</TABLE>
- ---------------
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1, No. 33-29035 and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1990 and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1991 and incorporated herein by
reference.
(4) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1, No. 33-47028 and incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994 and incorporated herein by
reference.
(6) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1995 and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1996 and incorporated herein by
reference.
(8) Previously filed as an exhibit to the Company's Registration Statement on
Form S-4 filed on August 29, 1996.
* Filed herewith.
** To be filed by Amendment.
(b) Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required
information is shown in financial statements or notes thereto.
II-3
<PAGE> 120
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the DGCL, the Certificate of
Incorporation and By-laws, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
II-4
<PAGE> 121
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned Registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
II-5
<PAGE> 122
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, state of New
York, on the 25th day of November, 1997.
K & F INDUSTRIES, INC.
By: /s/ KENNETH M. SCHWARTZ
------------------------------------
Kenneth M. Schwartz
Executive Vice President
We the undersigned directors and officers of K & F Industries, Inc. do
hereby constitute and appoint KENNETH M. SCHWARTZ and DIRKSON R. CHARLES, our
true and lawful attorneys and agents, to do any and all acts and things in our
names and behalf in our capacities as directors and officers and to execute any
and all instruments for us in our names in the capacities indicated below, which
said attorneys and agents may deem necessary or advisable to enable said
corporation to comply with the Securities Act of 1933 and any rules, regulations
and requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but without limitation,
power and authority to sign for us or any of us in our names in the capacities
indicated below, any and all amendments (including post-effective amendments)
hereto; and we do hereby ratify and confirm all that said attorneys and agents
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by or on behalf of the
following persons in the capacity and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<C> <S> <C>
/s/ BERNARD L. SCHWARTZ Chairman of the Board, Chief November 25, 1997
- ------------------------------------------ Executive Officer and
Bernard L. Schwartz Director (principal
executive officer)
/s/ KENNETH M. SCHWARTZ Executive Vice President November 25, 1997
- ------------------------------------------
Kenneth M. Schwartz
/s/ DIRKSON R. CHARLES Chief Financial Officer November 25, 1997
- ------------------------------------------ (principal financial and
Dirkson R. Charles accounting officer)
/s/ STEVEN J. BERGER Director November 25, 1997
- ------------------------------------------
Steven J. Berger
/s/ DAVID J. BRAND Director November 25, 1997
- ------------------------------------------
David J. Brand
/s/ HERBERT R. BRINBERG Director November 25, 1997
- ------------------------------------------
Herbert R. Brinberg
/s/ ROBERT B. HODES Director November 25, 1997
- ------------------------------------------
Robert B. Hodes
</TABLE>
II-6
<PAGE> 123
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<C> <S> <C>
/s/ RONALD H. KISNER Director November 25, 1997
- ------------------------------------------
Ronald H. Kisner
/s/ JOHN R. PADDOCK Director November 25, 1997
- ------------------------------------------
John R. Paddock
/s/ A. ROBERT TOWBIN Director November 25, 1997
- ------------------------------------------
A. Robert Towbin
/s/ ALAN H. WASHKOWITZ Director November 25, 1997
- ------------------------------------------
Alan H. Washkowitz
</TABLE>
II-7
<PAGE> 1
Exhibit 1.01
EXECUTION COPY
K & F INDUSTRIES, INC.
9 1/4% Senior Subordinated Notes due 2007
PURCHASE AGREEMENT
October 9, 1997
LEHMAN BROTHERS INC.
UNTERBERG HARRIS
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Ladies and Gentlemen:
K & F Industries, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Initial Purchasers") $185.0 million in
aggregate principal amount of its 9 1/4% Senior Subordinated Notes due 2007 (the
"Series A Notes") pursuant to the terms of an Indenture (the "Indenture")
between the Company and State Street Bank and Trust Company, as trustee (the
"Trustee"), relating to the Series A Notes. Capitalized terms used but not
defined herein shall have the meanings given to such terms in the Indenture.
The Series A Notes will be offered and sold to you pursuant to an
exemption from the registration requirements under the Securities Act of 1933,
as amended (the "Act"). The Company has prepared a preliminary offering
memorandum (the "Preliminary Offering Memorandum"), dated September 22, 1997 and
a final offering memorandum (the "Offering Memorandum," and together with the
Preliminary Offering Memorandum, the "Offering Documents"), dated October 9,
1997, relating to the Company and the Series A Notes. As described in the
Offering Memorandum, the Company will use all of the net proceeds from the
offering of the Series A Notes to effect the Recapitalization (as defined in the
Offering Memorandum) of the Company.
<PAGE> 2
Upon original issuance thereof, and until such time as the same is
no longer required under the applicable requirements of the Act, the Series A
Notes (and all securities issued in exchange therefor or in substitution
thereof) shall bear the following legend:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR
(B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a) UNDER THE
SECURITIES ACT) ("ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND
IS ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN OFF-SHORE TRANSACTION;
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE SECURITY
EVIDENCED HEREBY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B)
TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) TO AN ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A
U.S. PERSON THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO STATE STREET BANK
AND TRUST COMPANY, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING
TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM
OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE,
AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT, OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE
JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C),
(D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE (OR A SUCCESSOR TRUSTEE,
AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION
AS IT MAY REASONABLE REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT."
You have advised the Company that you will make offers (the "Exempt
Resales") of the Series A Notes purchased by you hereunder on the terms set
forth in the Offering Memorandum, as
2
<PAGE> 3
amended or supplemented, solely to (i) persons whom you reasonably believe to be
"qualified institutional buyers" as defined in Rule 144A under the Act ("QIBs"),
(ii) a limited number of other "accredited investors," as defined in Rule 501(a)
under the Act, who execute a letter containing certain representations and
agreements in the form set forth as Annex A to the Offering Memorandum (each, an
"Accredited Investor") and (iii) outside the United States to persons other than
U.S. Persons in offshore transactions meeting the requirements of Rule 904 of
Regulation S ("Regulation S") under the Act (such persons specified in clauses
(i) through (iii) being referred to herein as the "Eligible Purchasers"). As
used herein, the terms "offshore transaction," "United States" and "U.S. person"
have the respective meanings given to them in Regulation S. You will offer the
Series A Notes to Eligible Purchasers initially at a price equal to 100% of the
principal amount thereof. Such price may be changed at any time without notice.
It is understood by the parties hereto that on or prior to the
Closing Date (as defined herein) the Company will (i) purchase approximately 63%
of its outstanding capital stock pursuant to the Stock Purchase Agreement (as
defined in the Offering Memorandum), (ii) repay all of its outstanding
indebtedness under the Existing Credit Agreement (as defined in the Offering
Memorandum), (iii) redeem the remaining $70 million outstanding of its 11 7/8%
Senior Secured Notes due 2003, (iv) consummate the Tender Offer (as defined in
the Offering Memorandum) and Consent Solicitation (as defined in the Offering
Memorandum), and (v) enter into the New Credit Facility (as defined in the
Offering Memorandum under the caption "Description of the Notes") with the
Company, as guarantor, the Subsidiaries (as defined herein), and the other
parties thereto and the Company will use the proceeds from the Offering,
together with borrowings under the New Credit Facility, to effect the
Recapitalization.
Holders (including subsequent transferees) of the Series A Notes
will have the registration rights set forth in the registration rights agreement
(the "Registration Rights Agreement"), to be dated October 15, 1997 (the
"Closing Date"), in the form of Exhibit A hereto, for so long as such Series A
Notes constitute "Transfer Restricted Securities" (as defined in the
Registration Rights Agreement). Pursuant to the Registration Rights Agreement,
the Company will agree to file with the Securities and Exchange Commission (the
"Commission") under the circumstances set forth therein, (i) a registration
statement under the Act (the "Exchange Offer Registration Statement") relating
to the Company's 9 1/4% Series B Senior Subordinated Notes due 2007 (the "Series
B Notes" and, together with the Series A Notes, the "Notes") to be offered in
exchange for the Series A Notes (such offer to exchange being referred to
collectively as the "Registered Exchange Offer") and (ii) a shelf registration
statement pursuant to Rule 415 under the Act (the "Shelf Registration Statement"
and together with the Exchange Offer Registration Statement, the "Registration
Statements") relating to the resale by certain holders of the Series A Notes,
and to use its best efforts to cause such Registration Statements to be declared
effective. This Agreement, the Indenture and the Registration Rights Agreement
are hereinafter referred to collectively as the "Operative Documents." This is
to confirm the agreements concerning the purchase of the Series A Notes from the
Company by you.
1. Representations, Warranties and Agreements of the Company. The
Company represents, warrants and agrees as follows:
(a) The Offering Documents have been prepared by the Company for use
by the Initial Purchasers in connection with the Exempt Resales. No order or
decree preventing the use of the Offering Documents, or any order asserting that
the transactions contemplated by this Agreement are subject to the registration
requirements of the Act has been issued and no proceeding for that purpose has
commenced or is pending or, to the knowledge of the Company, is contemplated.
(b) The Preliminary Offering Memorandum and the Offering Memorandum
as of their respective dates and the Offering Memorandum as of the Closing Date,
did not and will not at any time
3
<PAGE> 4
contain an untrue statement of a material fact or omit to state a material fact
necessary, in order to make the statements, in light of the circumstances under
which they were made, not misleading, except that this representation and
warranty does not apply to statements in or omissions from the Offering
Documents made in reliance upon and in conformity with information relating to
the Initial Purchasers furnished to the Company in writing by or on behalf of
the Initial Purchasers expressly for use therein.
(c) Each of the Company and its Subsidiaries (as defined below) has
been duly organized and is validly existing and in good standing under the laws
of its respective jurisdiction of incorporation, is duly qualified to do
business as a foreign corporation, and is a corporation in good standing in each
jurisdiction in which its ownership or leasing of property or the conduct of its
business requires such qualification (except where the failure to be so
qualified and in good standing would not have a Material Adverse Effect), and
has all necessary corporate power and authority necessary to own or hold its
properties and to conduct the business in which it is engaged. As used herein,
"Material Adverse Effect" means a material adverse effect on the condition
(financial or otherwise), results of operations, business or prospects of the
Company and its Subsidiaries taken as a whole. The term "Subsidiaries" as used
herein shall refer only to Aircraft Braking Systems Corporation ("ABS") and
Engineered Fabrics Corporation ("EFC"). The Subsidiaries are the only
"significant subsidiaries" of the Company within the meaning of Rule 1-02(v) of
Regulation S-K.
(d) Assuming (i) that your representations and warranties in Section
2 are true, (ii) that the representations of the Accredited Investors set forth
in the certificates of such Accredited Investors in the form set forth in Annex
A to the Offering Memorandum are true, (iii) compliance by you with your
covenants set forth in Section 2 and (iv) that each of the Eligible Purchasers
is a QIB, an Accredited Investor or a person who is not a "U.S. person" who
acquires the Series A Notes outside the United States in an "offshore
transaction" (within the meaning of Rule 904 of Regulation S) (A) registration
under the Securities Act of the Notes or qualification of the Indenture in
respect of the Notes under the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), is not required in connection with the offer and sale of
the Notes to the Initial Purchasers in the manner contemplated by the Offering
Memorandum or this Agreement and (B) initial resales of the Notes by the Initial
Purchasers on the terms and in the manner set forth in the Offering Memorandum
and Section 2 hereof are exempt from the registration requirements of the
Securities Act.
(e) The authorized and outstanding capital stock of the Company at
June 30, 1997 was as set forth in the unaudited balance sheet of the Company as
of June 30, 1997 included in the Offering Memorandum. All of the shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable.
(f) Except as described in the Offering Memorandum, the Company owns
100% of the outstanding shares of capital stock of its Subsidiaries and all of
such shares of capital stock are duly authorized and validly issued and are
fully paid and nonassessable. Except as described in the Offering Memorandum,
all of the shares of capital stock of the Company's Subsidiaries are owned by
the Company free and clear of any security interest, claim, lien or encumbrance.
Except as described in or expressly contemplated by the Offering Memorandum,
there are no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, the shares of capital stock of the
Company.
(g) The Company has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement, the Indenture, the
Notes and the Registration Rights Agreement.
(h) This Agreement has been duly and validly authorized, executed
and delivered by the Company and, assuming due authorization, execution and
delivery by the Initial Purchasers, constitutes
4
<PAGE> 5
the valid and binding agreement of the Company, enforceable against the Company
in accordance with its terms, except that (i) enforcement thereof may be subject
to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (B) general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at law) and
(ii) the enforceability of any indemnification or contribution provisions
thereof may be limited under applicable securities laws or the public policies
underlying such laws.
(i) The Indenture has been duly and validly authorized by the
Company, and upon its execution and delivery and, assuming due authorization,
execution and delivery by the Trustee, will constitute the valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except that (i) enforcement thereof may be subject to (A) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally and (B) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law) and (ii) the
enforceability of any indemnification or contribution provisions thereof may be
limited under applicable securities laws or the public policies underlying such
laws.
(j) The Series A Notes have been duly and validly authorized by the
Company and when duly executed by the Company in accordance with the terms of
the Indenture and, assuming due authentication of the Series A Notes by the
Trustee, upon delivery to the Initial Purchasers against payment therefor in
accordance with the terms hereof, will have been validly issued and delivered,
and will constitute valid and binding obligations of the Company entitled to the
benefits of the Indenture, enforceable against the Company in accordance with
their terms, except that (i) enforcement thereof may be subject to (A)
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (B) general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at law) and
(ii) the enforceability of any indemnification or contribution provisions
thereof may be limited under applicable securities laws or the public policies
underlying such laws.
(k) The Series B Notes have been duly and validly authorized by the
Company and if and when duly issued and authenticated in accordance with the
terms of the Indenture and delivered in accordance with the Exchange Offer
provided for in the Registration Rights Agreement, will constitute valid and
binding obligations of the Company entitled to the benefits of the Indenture,
enforceable against the Company in accordance with their terms, except that (i)
enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws now or hereafter
in effect relating to or affecting creditors' rights generally and (B) general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law) and (ii) the enforceability of any
indemnification or contribution provisions thereof may be limited under
applicable securities laws or the public policies underlying such laws.
(l) The Registration Rights Agreement has been duly and validly
authorized by the Company and, upon its execution and delivery by the Company
and, assuming due authorization, execution and delivery by the Initial
Purchasers, will constitute the valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except that (i)
enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws now or hereafter
in effect relating to or affecting creditors' rights generally and (B) general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law) and (ii) the enforceability of any
indemnification or contribution provisions thereof may be limited under
applicable securities laws or the public policies underlying such laws.
5
<PAGE> 6
(m) Each of the Company and its Subsidiaries, as applicable, has all
requisite corporate power and authority to consummate the Recapitalization and
to enter into and perform its obligations under (i) the New Credit Facility and
(ii) the Stock Purchase Agreement.
(n) Each of the New Credit Facility and the Stock Purchase Agreement
has been duly and validly authorized, executed and delivered by the Company and
each of the Subsidiaries, as applicable, and, assuming due authorization,
execution and delivery by the other parties thereto, constitutes the valid and
binding agreement of the Company and each of the Subsidiaries, as applicable,
enforceable against the Company and each of the Subsidiaries, as applicable, in
accordance with its terms, except that (x) enforcement thereof may be subject to
(A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (B) general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at law) and
(y) the enforceability of any indemnification or contribution provisions thereof
may be limited under applicable securities laws or the public policies
underlying such laws.
(o) None of the issuance, offer or sale of the Notes, the execution,
delivery or performance by the Company of this Agreement or the other Operative
Documents, compliance by the Company and the Subsidiaries with the provisions
hereof or thereof, as applicable, nor consummation by the Company of the
transactions contemplated hereby or thereby; and none of the execution, delivery
or performance by the Company and the Subsidiaries, as applicable, of the New
Credit Facility or the Stock Purchase Agreement, compliance by the Company and
the Subsidiaries, as applicable, with the provisions thereof nor consummation by
the Company and the Subsidiaries, as applicable, of the transactions
contemplated thereby will conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan or credit agreement or other agreement or
instrument to which either the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries is bound or to which any of the
properties or assets of the Company or any of its Subsidiaries are subject, nor
will such actions result in any violation of the provisions of the charter or
by-laws of the Company or any of its Subsidiaries or any statute to which it or
its properties may be subject or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
Subsidiaries or any of their properties or assets (except to the extent any such
conflict, breach, violation or default does not or will not, as the case may be,
have a Material Adverse Effect); and except for such consents, approvals,
authorizations, registrations or qualifications as may be required under
applicable state securities and Blue Sky laws in connection with the purchase
and distribution of the Notes by the Initial Purchasers or as set forth in the
Registration Rights Agreement, no consent, approval, authorization or order of,
or filing or registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement, the
Indenture and the Registration Rights Agreement by the Company, the consummation
of the transactions contemplated hereby and thereby (including the
Recapitalization), and the issuance and sale of the Notes by the Company.
(p) Neither the Company nor any of its Subsidiaries is in breach or
violation of any of the terms or provisions of any indenture, mortgage, deed of
trust, loan agreement or other 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 or to which any of the properties or assets of the Company
or any of its Subsidiaries are subject, nor is the Company or any of its
Subsidiaries in violation of the provisions of its respective charter or by-laws
or any statute or any judgment, order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company, any of its
Subsidiaries or any of their properties or assets (except to the extent any such
conflict, breach, violation or default is cured at or prior to the Closing Date
and within the grace period applicable thereto or would not have a Material
Adverse Effect).
6
<PAGE> 7
(q) The Notes, the Indenture and the Registration Rights Agreement
conform or will conform, as applicable, in all material respects to the
descriptions thereof contained in the Offering Memorandum.
(r) There are no legal or governmental proceedings pending or, to
the knowledge of the Company or any Subsidiary, threatened, against the Company
or any Subsidiary or to which any of the properties of the Company or any
Subsidiary is subject, that are not disclosed in the Offering Memorandum and
which, if adversely decided, are reasonably likely to cause a Material Adverse
Effect or to materially affect the issuance of the Notes or the consummation of
the other transactions contemplated by the Operative Documents. The Offering
Memorandum contains accurate summaries of all material agreements, contracts,
indentures, leases or other instruments. The Company is not involved in any
strike, job action or labor dispute with any group of employees, and, to the
Company's knowledge, no such action or dispute is threatened.
(s) Except as described in the Offering Memorandum, there are no
contracts, agreements or understandings between the Company or any of its
Subsidiaries and any person granting such person the right to require the
Company or any of its Subsidiaries to file a registration statement under the
Securities Act with respect to any securities owned or to be owned by such
person or to require the Company or any of its Subsidiaries to include such
securities in the securities registered pursuant to the Exchange Offer
Registration Statement, the Shelf Registration Statement or in any securities
being registered pursuant to any other registration statement filed by the
Company or any of its Subsidiaries under the Securities Act.
(t) Neither the Company nor any of its Subsidiaries has sustained,
since the date of the latest audited financial statements included in the
Offering Memorandum, any material losses or interferences with its business from
fire, explosion, flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or decree,
other than as set forth or contemplated in the Offering Memorandum; and, since
such date, there have not been any material changes in the capital stock or
long-term debt of the Company or any of its Subsidiaries or any material adverse
changes in the condition (financial or otherwise), results of operations,
business or prospects of the Company or any of its Subsidiaries, taken as a
whole (a "Material Adverse Change"), or any developments that could reasonably
be expected to involve a prospective Material Adverse Change, other than as set
forth or contemplated in the Offering Memorandum.
(u) The consolidated historical and pro forma financial statements,
together with related notes, set forth in the Offering Memorandum comply as to
form in all material respects with the requirements of Regulation S-X under the
Act applicable to registration statements on Form S-1 under the Act. Such
historical financial statements fairly present the financial position of the
Company at the respective dates indicated and the results of operations and cash
flows for the respective periods indicated, in accordance with GAAP consistently
applied throughout such periods. Such pro forma financial statements have been
prepared on a basis consistent with such historical statements, except for the
pro forma adjustments specified therein, and give effect to assumptions made on
a reasonable basis and in good faith and present fairly the historical and
proposed transactions contemplated by the Offering Memorandum and this
Agreement. The other financial and statistical information and data included in
the Offering Memorandum, historical and pro forma, are, in all material
respects, accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Company.
(v) The accountants, Deloitte & Touche, LLP, who have certified
certain of the financial statements included as part of the Offering Memorandum,
are independent public accountants under Rule 101 of the AICPA's Code of
Professional Conduct, and its interpretation and rulings.
7
<PAGE> 8
(w) The Company and each of its Subsidiaries has good and marketable
title in fee simple to all real property and good title to all personal property
owned by each of them, in each case free and clear of all liens, encumbrances
and defects except (i) such as are described in the Offering Memorandum or (ii)
such as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company and its Subsidiaries; and all real property and buildings held
under lease by the Company and its Subsidiaries are held by them under valid,
subsisting and enforceable leases, with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries. The Company and its Subsidiaries
enjoy peaceful and undisturbed possession under all leases to which they are
parties as lessee, except for such leases that, singly or in the aggregate,
would not have a Material Adverse Effect. The Company and each of its
Subsidiaries maintains such insurance as may be required by law and such other
insurance, to such extent and against such hazards and liabilities, as is
customarily maintained by companies similarly situated (which may include
self-insurance in the same form as is customarily maintained by companies
similarly situated).
(x) Except as described in the Offering Memorandum, the Company and
its Subsidiaries own or possess adequate rights to use all material patents,
patent applications, trademarks, service marks, tradenames, trademark
registrations, service mark registrations, copyrights and licenses necessary for
the conduct of their businesses, and to the Company's knowledge, the conduct of
their businesses will not conflict with, and neither the Company nor any of its
Subsidiaries has received any notice of any claim of conflict with, any such
rights of others (except in any such case for any conflict that would not have a
Material Adverse Effect).
(y) Except as described in the Offering Documents, the Company and
each of its Subsidiaries owns or has the right to use in accordance with the
terms thereof all necessary franchises, licenses, permits, consents, approvals
or authorizations of any public or governmental agency, including any permits
required by the Department of Defense (the "DOD") and the Federal Aviation
Administration (the "FAA") that are in a material respect necessary for the
ownership, maintenance and operation of its properties, assets and business
operations, and that, if not obtained, could have a Material Adverse Effect on
the Company and its Subsidiaries, taken as a whole. Each of the foregoing is
valid and in full force and effect and, except as disclosed in the Offering
Documents, no event has occurred and is continuing which permits, or after
notice or lapse of time or both would permit, modifications or terminations of
the foregoing which, in the aggregate, would have a Material Adverse Effect. The
Company and its Subsidiaries are presently conducting their respective
businesses in substantial compliance with the rules and regulations of the DOD
and the FAA and all other material applicable laws.
(z) The Company and its Subsidiaries are (i) in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a Material
Adverse Effect.
(aa) In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business, operations
and properties of the Company and its Subsidiaries, in the course of which it
identifies and evaluates associated costs and liabilities (including, without
limitation, any capital or operating expenditures required for clean-up, closure
of properties or
8
<PAGE> 9
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties). On the basis of such review, the Company has reasonably
concluded that such associated costs and liabilities would not, singly or in the
aggregate, have a Material Adverse Effect.
(ab) Except as described in the Offering Memorandum, the Company and
its Subsidiaries are in compliance in all material respects with all presently
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended, including the regulations and published interpretations thereunder
("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect
to any "pension plan" (as defined in ERISA) for which the Company or any of its
Subsidiaries would have any liability; neither the Company nor any of its
Subsidiaries has incurred or expects to incur liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Section 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the "Code");
and each "pension plan" for which the Company and its Subsidiaries would have
any liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification.
(ac) The Company and each of its Subsidiaries (i) make and keep
accurate books and records and (ii) maintain internal accounting controls which
provide reasonable assurance that (A) transactions are executed in accordance
with management's general or specific authorization, (B) transactions are
recorded as necessary to permit preparation of their consolidated financial
statements in accordance with GAAP and to maintain accountability for their
assets, (C) access to their assets is permitted only in accordance with
management's general or specific authorization and (D) the reported
accountability for their assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(ad) No relationship, direct or indirect, exists between or among
the Company or any of its Subsidiaries on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Company or any of its
Subsidiaries on the other hand, which would be required by the Act or by the
Rules and Regulations to be described in the Offering Documents, if the Act and
the rules and regulations were applicable thereto, which is not so described.
(ae) Except as described in the Offering Documents, no labor problem
or disturbance with the employees of the Company or any of its Subsidiaries
exists or, to the knowledge of the Company, is threatened which might reasonably
be expected to have a Material Adverse Effect.
(af) Neither the Company nor any of its Subsidiaries, nor, to the
Company's or any Subsidiary's knowledge, any director, officer, agent, employee
or other person associated with or acting on behalf of the Company or any of its
Subsidiaries, has used any corporate funds during the last five years for any
unlawful contribution, gift, entertainment or other unlawful expense relating to
political activity; made any unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977; or made
any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment.
(ag) Neither the Company nor any of its Subsidiaries is (i) an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or (ii) a "holding company" or a "subsidiary company" or an
"affiliate" of a holding company within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
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<PAGE> 10
(ah) No securities of the same class (within the meaning of Rule
144A(d)(3) under the Securities Act) as the Notes are listed on any national
securities exchange registered under Section 6 of the Exchange Act or quoted on
an automated inter-dealer quotation system.
(ai) Neither the Company nor any affiliate (as defined in Rule
501(b) of Regulation D ("Regulation D") under the Act) of the Company has
directly, or through any agent (provided that no representation is made as to
the Initial Purchasers or any person acting on its behalf), (i) sold, offered
for sale, solicited offers to buy or otherwise negotiated in respect of, any
security (as defined in the Act) which is or could be integrated with the
offering and sale of the Notes in a manner that would require the registration
of the Series A Notes under the Act or (ii) engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D,
including, but not limited to, advertisements, articles, notices or other
communications published in any newspaper, magazine, or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising) in
connection with the offering of the Series A Notes. No securities of the same
class as the Series A Notes have been issued and sold by the Company within the
six-month period immediately prior to the date hereof.
(aj) Neither the Company nor any of its Subsidiaries has taken, nor
will any of them take, directly or indirectly, any action designed to, or that
could reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Notes to facilitate the sale and resale of the
Notes.
(ak) The Offering Documents and each amendment or supplement
thereto, as of its date, contains the information specified in Rule 144A(d)(4)
under the Act.
(al) Neither the Company nor any of its Subsidiaries has taken, and
none of them will take, any action that might cause this Agreement or the
issuance or sale of the Notes to violate Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System or analogous foreign laws and
regulations.
(am) The Company and each of its Subsidiaries has complied with all
provisions of Section 517.075, Florida Statutes (Chapter 92-198, Laws of
Florida).
(an) None of the Company or any of its affiliates or any person
acting on its or their behalf has engaged or will engage in any directed selling
efforts within the meaning of Rule 902(b) of Regulation S with respect to the
Notes, and the Company and its affiliates and all persons acting on its of their
behalf have complied with and will comply with the offering restrictions
requirements of Regulation S in connection with the offering of the Notes
outside of the United States.
(ao) Any sales of the Series A Notes pursuant to, and in accordance
with, Regulation S are "offshore transactions" and are not part of a plan or
scheme to evade the registration provision of the Act.
2. Representations, Warranties and Agreements of the Initial
Purchasers. Each Initial Purchaser represents and warrants with respect to
itself that:
(a) Such Initial Purchaser is either a QIB or an Accredited
Investor, in either case with such knowledge and experience in financial and
business matters as are necessary in order to evaluate the merits and risks of
an investment in the Series A Notes.
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<PAGE> 11
(b) Such Initial Purchaser (i) is not acquiring the Series A Notes
with a view to any distribution thereof or with any present intention of
offering or selling any of the Series A Notes in a transaction that would
violate the Act or the securities laws of any State of the United States or any
other applicable jurisdiction; (ii) in connection with the Exempt Resales, will
solicit offers to buy the Notes only from, and will offer to sell the Notes only
to, the Eligible Purchasers in accordance with this Agreement and on the terms
contemplated by the Offering Memorandum; and (iii) will not offer or sell the
Notes, nor has it offered or sold the Notes by, or otherwise engaged in, any
form of general solicitation or general advertising (within the meaning of
Regulation D; including, but not limited to, advertisements, articles, notices
or other communications published in any newspaper, magazine, or similar medium
or broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising) in
connection with the offering of the Series A Notes.
(c) The Notes have not been and will not be registered under the Act
and may not be offered or sold within the United States or to, or for the
account or benefit of, U.S. persons except in accordance with Regulation S under
the Act or pursuant to an exemption from the registration requirements of the
Act. The Initial Purchasers represent that they have not offered, sold or
delivered the Notes, and will not offer, sell or deliver the Notes (i) as part
of its distribution at any time or (ii) otherwise until 40 days after the later
of the commencement of the offering and the Closing Date (such period, the
"Restricted Period"), within the United States or to, or for the account or
benefit of U.S. persons, except in accordance with Rule 144A under the Act, or
to Accredited Investors in transactions that are exempt from the registration
requirements of the Act. Accordingly, each Initial Purchaser represents and
agrees that neither it, its affiliates nor any persons acting on its or their
behalf has engaged or will engage in any directed selling efforts within the
meaning of Rule 902(b) of Regulation S with respect to the Notes, and it, its
affiliates and all persons acting on its behalf have complied and will comply
with the offering restrictions requirements of Regulation S.
(d) Such Initial Purchaser agrees that, at or prior to confirmation
of a sale of Notes (other than a sale pursuant to Rule 144A or to Accredited
Investors in transactions that are exempt from the registration requirements of
the Act), it will have sent to each distributor, dealer or person receiving a
selling concession, fee or other remuneration that purchases Notes from it
during the Restricted Period a confirmation or notice substantially to the
following effect:
"The Notes covered hereby have not been registered under the U.S.
Securities Act of 1933 (the "Securities Act) and may not be offered and
sold within the United States or to, or for the account or benefit of,
U.S. persons (i) as part of their distribution at any time or (ii)
otherwise until 40 days after the later of the commencement of the
offering or the closing date, except in either case in accordance with
Regulation S (or Rule 144A if available) under the Securities Act. Terms
used above have the meanings assigned to them in Regulation S."
Such Initial Purchaser further agrees that it has not entered and
will not enter into any contractual arrangement with respect to the distribution
or delivery of the Notes, except with its affiliates or with the prior written
consent of the Company.
(e) Such Initial Purchaser further represents and agrees that (i) it
has not offered or sold and will not offer or sell any Notes to persons in the
United Kingdom prior to the expiry of the period of six months from the issue
date of the Notes, except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995, (ii)
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<PAGE> 12
it has complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the Notes
in, from or otherwise involving the United Kingdom, and (iii) it has only issued
or passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issuance of the Notes to a person who is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1995 or is a person to whom the
document may otherwise lawfully be issued or passed on.
(f) Such Initial Purchaser agrees not to cause any advertisement of
the Notes to be published in any newspaper or periodical or posted in any public
place and not to issue any circular relating to the Notes, except such
advertisements as include the statements required by Regulation S.
(g) The sale of the Series A Notes pursuant to Regulation S are
"offshore transactions" and are not part of a plan or scheme to evade the
registration provisions of the Act.
(h) Such Initial Purchaser understands that the Company and, for
purposes of the opinions to be delivered to you pursuant to Section 7 hereof,
counsel to the Company, General Counsel to the Company and counsel to the
Initial Purchasers, will rely upon the accuracy and truth of the foregoing
representations and you hereby consent to such reliance.
The terms used in this Section 2 that have meanings assigned to them
in Regulation S are used herein as so defined.
Each Initial Purchaser further agrees that, in connection with the
Exempt Resales, it will solicit offers to buy the Series A Notes only from, and
will offer to sell the Series A Notes only to, the Eligible Purchasers in Exempt
Resales.
3. Purchase of the Notes by the Initial Purchasers. On the basis of
the representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell $185.0 million in
aggregate principal amount of Series A Notes to the several Initial Purchasers
and each of the Initial Purchasers, severally and not jointly, agrees to
purchase the aggregate principal amount of Series A Notes set opposite that
Initial Purchaser's name in Schedule 1 hereto. Each Initial Purchaser will
purchase such aggregate principal amount of Series A Notes at an aggregate
purchase price equal to 97.25% of the principal amount thereof (the "Purchase
Price"). Unterberg Harris hereby agrees to act as a "qualified independent
underwriter," within the meaning of, and in accordance with, Section (b)(15) of
Rule 2720 of the Conduct Rules of the National Association of Securities
Dealers, Inc. with respect to the offering and sale of the Notes and will not be
paid a fee in connection therewith. Therefore, in accordance with Rule 2720 of
the Conduct Rules, the price at which the Series A Notes will be sold shall not
be higher than the maximum price recommended by Unterberg Harris.
The Company shall not be obligated to deliver any of the Series A
Notes to be delivered, except upon payment for all the Series A Notes to be
purchased on such Closing Date as provided herein.
4. Delivery of and Payment.
(a) Delivery to the Initial Purchasers of and payment for the Series
A Notes shall be made at 9:00 a.m., New York City time, on the Closing Date at
the offices of Latham & Watkins, 885 Third Avenue, New York, New York 10022, or
such other time or place as you and the Company shall designate.
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<PAGE> 13
(b) One or more Series A Notes in definitive form, registered in the
name of Cede & Co., as nominee of the Depository Trust Company ("DTC"), or such
other names as the Initial Purchasers may request upon at least one business
days' notice to the Company, having an aggregate principal amount corresponding
to the aggregate principal amount of Series A Notes sold pursuant to Eligible
Resales (collectively, the "Global Note"), shall be delivered by the Company to
the Initial Purchasers, against payment by the Initial Purchasers of the
purchase price thereof by wire transfer of immediately available funds as the
Company may direct by written notice delivered to you two business days prior to
the Closing Date. The Global Note in definitive form shall be made available to
you for inspection not later than 9:30 a.m. on the business day immediately
preceding the Closing Date.
(c) Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation of
each Initial Purchaser hereunder.
5. Further Agreements of the Company. The Company agrees:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, of (i) the issuance by any state securities commission of any
stop order suspending the qualification or exemption from qualification of any
Series A Notes for offering or sale in any jurisdiction, or the initiation of
any proceeding for such purpose by the Commission or any state securities
commission or other regulatory authority, and (ii) the happening of any event
that makes any statement of a material fact made in the Offering Documents
untrue or which requires the making of any additions to or changes in the
Offering Documents in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company shall use
its reasonable best efforts to prevent the issuance of any stop order or order
suspending the qualification or exemption of the Series A Notes under any state
securities or Blue Sky laws and, if at any time any state securities commission
shall issue any stop order suspending the qualification or exemption of the
Series A Notes under any state securities or Blue Sky laws, the Company shall
use every reasonable effort to obtain the withdrawal or lifting of such order at
the earliest possible time.
(b) To furnish to you, without charge, as many copies of the
Offering Documents, and any amendments or supplements thereto, as you may
reasonably request. The Company consents to the use of the Offering Documents,
and any amendments and supplements thereto required pursuant to this Agreement,
by you in connection with the Exempt Resales that are in compliance with this
Agreement.
(c) Prior to making any amendment or supplement to the Offering
Memorandum, the Company shall furnish a copy thereof to the Initial Purchasers
and counsel to the Initial Purchasers and will not effect any such amendment or
supplement to which the Initial Purchasers shall reasonably object by notice to
the Company after a reasonable period to review, which shall not in any case be
longer than five business days after receipt of such copy.
(d) If, at any time prior to completion of the distribution of the
Notes by the Initial Purchasers to eligible purchasers, any event shall occur or
condition exist as a result of which it is necessary, in the opinion of counsel
for the Initial Purchasers or counsel for the Company, to amend or supplement
the Offering Memorandum in order that 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 not misleading in light of the
circumstances existing at the time it is delivered to a purchaser, or if it is
necessary to amend or supplement the Offering Memorandum to comply with
applicable law, to promptly prepare such amendment or supplement as may be
necessary to correct such untrue statement or omission or so that the Offering
Memorandum, as so amended or supplemented, will comply with applicable law
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<PAGE> 14
and to furnish to the Initial Purchasers such number of copies of such amendment
or supplement as they may reasonably request.
(e) So long as any Notes are outstanding and are "Restricted
Securities" within the meaning of Rule 144(a)(3) under the Securities Act and
during any period in which the Company is not subject to Section 13 or 15(d) of
the Exchange Act, to furnish to holders of the Notes and prospective purchasers
of Notes designated by such holders, upon request of such holders or such
prospective purchasers, the information, if any, required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
(f) So long as the Notes are outstanding, to furnish to the Initial
Purchasers copies of any annual reports, quarterly reports and current reports
filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar
forms as may be designated by the Commission, and such other documents, reports
and information as shall be furnished by the Company to the Trustee or to the
holders of the Notes pursuant to the Indenture.
(g) To use its reasonable best efforts to qualify the Notes for sale
under the securities or Blue Sky laws of such jurisdictions as the Initial
Purchasers reasonably designate and to continue such qualifications in effect so
long as reasonably required for the distribution of the Notes. The Company will
also arrange for the determination of the eligibility for investment of the
Notes under the laws of such jurisdictions as the Initial Purchasers reasonably
request. Notwithstanding the foregoing, the Company shall not be obligated to
qualify as a foreign corporation in any jurisdiction in which it is not so
qualified or to file a general consent to service of process or to subject
itself to taxation in respect of doing business in any jurisdiction in which it
is not otherwise subject.
(h) To use its best efforts to permit the Notes to be designated
Private Offerings, Resales and Trading through Automated Linkages Market
("PORTAL") securities in accordance with the rules and regulations adopted by
the National Association of Securities Dealers, Inc. relating to trading in the
PORTAL market and to permit the Notes to be eligible for clearance and
settlement through DTC.
(i) Not to, and will cause its affiliates not to, sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any security
(as defined in the Securities Act) in a transaction that could be integrated
with the sale of the Notes in a manner which would require the registration
under the Securities Act of the Notes.
(j) Except following the effectiveness of any Registration Statement
(as defined in the Registration Rights Agreement) and except for such offers as
may be made as a result of, or subsequent to, filing such Registration Statement
or amendments thereto prior to the effectiveness thereof, not to, and will cause
its affiliates not to, solicit any offer to buy or offer to sell the Notes by
means of any form of general solicitation or general advertising (as those terms
are used in Regulation D under the Securities Act) or in any manner involving a
public offering within the meaning of Section 4(2) of the Securities Act.
(k) To consummate the Recapitalization and to apply the net proceeds
from the sale of the Notes, in each case, as set forth in the Offering
Memorandum.
(l) To take such steps as shall be necessary to ensure that neither
the Company nor any of its Subsidiaries shall become an "investment company"
within the meaning of the Investment Company Act of 1940, as amended, or (ii) a
"holding company" or a "subsidiary company" or an "affiliate" of a holding
company within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
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<PAGE> 15
(m) Not to, and will cause its affiliates not to, take any actions
which would require the registration under the Securities Act of the Notes.
(n) Prior to the consummation of the Exchange Offer or the
effectiveness of an applicable shelf registration statement if, in the
reasonable judgment of the Initial Purchasers, the Initial Purchasers or any of
their affiliates (as such term is defined in the rules and regulations under the
Securities Act) are required to deliver an offering memorandum in connection
with sales of, or market-making activities with respect to, the Notes, (A) to
periodically amend or supplement the Offering Documents so that the information
contained in the Offering Documents complies with the requirements of Rule 144A
of the Securities Act, (B) to amend or supplement the Offering Documents when
necessary to reflect any material changes in the information provided therein so
that the Offering Documents will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances existing as of the date the
Offering Documents are so delivered, not misleading and (C) to provide the
Initial Purchasers with copies of each such amended or supplemented Offering
Documents, as the Initial Purchasers may reasonably request.
The Company hereby expressly acknowledges that the indemnification
and contribution provisions of Section 8 hereof are specifically applicable and
relate to each offering memorandum, registration statement, prospectus,
amendment or supplement referred to in this Section 5(n).
(o) To do all things necessary to satisfy the closing conditions set
forth in Section 7 hereof.
(p) Not to voluntarily claim, and to actively resist any attempts to
claim, the benefit of any usury laws against the holders of the Series A Notes.
(q) For so long as any of the Notes remain outstanding and during
any period in which the Company is not subject to Section 13 or 15(d) of the
Exchange Act, to make available to any registered holder or beneficial owner of
Series A Notes in connection with any sale thereof and any prospective purchaser
of such Series A Notes from such registered holder or beneficial owner, the
information required by Rule 144A(d)(4) under the Act.
6. Expenses. The Company agrees that, whether or not the
transactions contemplated by this Agreement are consummated or this Agreement
becomes effective or is terminated, to pay all costs, expenses, fees and taxes
incident to and in connection with: (i) the preparation, printing, filing and
distribution of the Offering Documents (including, without limitation, financial
statements) and all amendments and supplements thereto (but not, however, legal
fees and expenses of your counsel incurred in connection therewith), (ii) the
preparation, printing (including, without limitation, word processing and
duplication costs) and delivery of this Agreement, the Indenture, all Blue Sky
Memoranda and all other agreements, memoranda, correspondence and other
documents printed and delivered in connection herewith and with the Exempt
Resales (but not, however, legal fees and expenses of your counsel incurred in
connection with any of the foregoing other than reasonable fees of such counsel
plus reasonable disbursements incurred in connection with the preparation,
printing and delivery of such Blue Sky Memoranda), (iii) the issuance and
delivery by the Company of the Notes, (iv) the qualification of the Notes for
offer and sale under the securities or Blue Sky laws of the several states
(including, without limitation, the reasonable fees and disbursements of your
counsel relating to such registration or qualification), (v) furnishing such
copies of the Offering Documents, and all amendments and supplements thereto, as
may be reasonably requested for use in connection with the Exempt Resales, (vi)
the preparation of certificates for the Notes (including, without limitation,
printing and engraving thereof), (vii) the fees, disbursements and expenses of
the Company's counsel and accountants, (viii) all expenses and listing fees
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<PAGE> 16
in connection with the application for quotation of the Series A Notes in
PORTAL, (ix) all fees and expenses (including fees and expenses of counsel) of
the Company in connection with approval of the Notes by DTC for "book-entry"
transfer and (x) the performance by the Company of their other obligations under
this Agreement.
7. Conditions of Initial Purchasers' Obligations. The respective
obligations of the Initial Purchasers hereunder are subject to the accuracy,
when made and again on the Closing Date (as if made again on and as of such
date), of the representations and warranties of the Company contained herein, to
the performance by the Company of its obligations hereunder, and to each of the
following additional terms and conditions:
(a) The Initial Purchasers shall not have discovered and disclosed
to the Company on or prior to the Closing Date that the Offering Documents or
any amendment or supplement thereto contains an untrue statement of a fact
which, in the opinion of Latham & Watkins, counsel for the Initial Purchasers,
is material or omits to state a fact which, in the opinion of such counsel, is
material and is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) All of the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
on the date hereof and on the Closing Date with the same force and effect as if
made on and as of the date hereof and the Closing Date, respectively. The
Company shall have performed or complied in all material respects with all of
the agreements herein contained and required to be performed or complied with by
it at or prior to the Closing Date.
(c) The Offering Memorandum shall have been printed and copies
distributed to the Initial Purchasers on the next Business Day following the
date of this Agreement or at such later date and time as to which the Initial
Purchasers may agree, and no stop order suspending the qualification or
exemption from qualification of the Notes in any jurisdiction referred to in
Section 5(g) shall have been issued and no proceeding for that purpose shall
have been commenced or shall be pending or threatened.
(d) Except as described in the Offering Memorandum, no action shall
have been taken and no statute, rule, regulation or order shall have been
enacted, adopted or issued by any governmental agency which would, as of the
Closing Date, have a Material Adverse Effect; no action, suit or proceeding
shall have been commenced and be pending against or affecting or, to the best
knowledge of the Company, threatened against, the Company or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency or
official that, if adversely determined, could reasonably be expected to result
in a Material Adverse Effect; and no stop order shall have been issued by the
Commission or any governmental agency of any jurisdiction referred to in Section
5(g) preventing the use of the Offering Memorandum, or any amendment or
supplement thereto, or which could reasonably be expected to have a Material
Adverse Effect.
(e) Since the dates as of which information is given in the Offering
Memorandum and other than as set forth in the Offering Memorandum, (i) there
shall not have been any Material Adverse Change, or any development that is
reasonably likely to result in a Material Adverse Change, or any material change
in the long-term debt, or material increase in the short-term debt, from that
set forth in the Offering Memorandum; (ii) except as disclosed in the Offering
Memorandum, no dividend or distribution of any kind shall have been declared,
paid or made by the Company on any class of its capital stock; (iii) the Company
and its Subsidiaries shall not have incurred any liabilities or obligations,
direct or contingent, that are material, individually or in the aggregate, to
the Company and its Subsidiaries, taken as a whole, and that are required to be
disclosed on a balance sheet or notes thereto in accordance with
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<PAGE> 17
generally accepted accounting principles and are not disclosed on the latest
balance sheet or notes thereto included in the Offering Memorandum.
(f) The Initial Purchasers shall have received a certificate, dated
the Closing Date, signed on behalf of the Company by (i) Kenneth M. Schwartz,
Executive Vice President and (ii) Dirkson Charles, Chief Financial Officer,
confirming that (A) such officers, have participated in conferences with other
officers and representatives of the Company, representatives of the independent
public accountants of the Company and representatives of counsel to the Company
at which the contents of the Offering Memorandum and related matters were
discussed and (B) the matters set forth in paragraphs (b), (c), (d) and (e) of
this Section 7 are true and correct as of the Closing Date.
(g) All corporate proceedings and other legal matters incident to
the authorization, form and validity of this Agreement, the Notes, the
Indenture, the Registration Rights Agreement, the Offering Documents, the New
Credit Facility and all other legal matters relating to this Agreement and the
transactions contemplated hereby (including, without limitation, the
Recapitalization), shall be satisfactory in all material respects to counsel for
the Initial Purchasers, and the Company shall have furnished to such counsel all
documents and information that they may reasonably request to enable them to
pass upon such matters.
(h) O'Sullivan Graev & Karabell, LLP, counsel for the Company, shall
have furnished to the Initial Purchasers its written opinion, as counsel to the
Company, addressed to the Initial Purchasers and dated the Closing Date, in form
and substance reasonably satisfactory to the Initial Purchasers, to the effect
that:
(i) The Company and each of its Subsidiaries is validly existing as
a corporation and in good standing under the laws of its jurisdiction of
incorporation. Each of ABS and EFC is qualified to do business and is in
good standing as a foreign corporation in the States of Ohio and Georgia.
(ii) Assuming, without independent investigation, (i) that the Notes
are sold to the Initial Purchasers, and initially resold by the Initial
Purchasers, in accordance with the terms of, and in the manner
contemplated by, this Agreement and the Offering Memorandum, (ii) the
accuracy of the representations, warranties and covenants of the Company
set forth in this Agreement, (iii) the accuracy of the Initial Purchasers'
representations and warranties set forth in this Agreement, (iv) the due
performance by the Company of the covenants and agreements set forth in
this Agreement, (v) the Initial Purchasers' compliance with the offering
and transfer procedures and restrictions described in the Offering
Memorandum, (vi) the accuracy of the representations and warranties made
in accordance with this Agreement and the Offering Memorandum by each
purchaser to whom the Initial Purchasers initially resell the Notes and
(vii) that each purchaser to whom the Initial Purchasers initially resell
the Notes receives a copy of the Offering Memorandum if requested by such
purchaser prior to such sale, the offer, issuance, sale and delivery of
the Notes to the Initial Purchasers, and the initial reoffer, resale and
delivery of the Notes by the Initial Purchasers, as contemplated by this
Agreement and the Offering Memorandum, do not require registration under
the Act, or qualification of the Indenture under the TIA, it being
understood that no opinion is expressed as to any subsequent resale of
Notes or any resale of Notes by any person other than the Initial
Purchasers.
(iii) The Company has the corporate power and authority to execute
and deliver, and to consummate the transactions contemplated by, this
Agreement, the Indenture and the
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Registration Rights Agreement; and the Company has the corporate power and
authority to issue, sell and deliver the Notes as contemplated by this
Agreement.
(iv) The execution and delivery of this Agreement have been duly
authorized by all requisite corporate action of the Company, and this
Agreement has been duly executed and delivered by the Company.
(v) The execution and delivery of the Indenture have been duly
authorized by all requisite corporate action of the Company; and the
Indenture has been duly executed and delivered by the Company, and
assuming due authorization, execution and delivery by the Trustee, is a
valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except that (i) enforcement thereof
may be subject to (A) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally and (B)
general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law) and (ii) the
enforceability of any indemnification or contribution provisions thereof
may be limited under applicable securities laws or the public policies
underlying such laws.
(vi) The execution and delivery of the Notes have been duly
authorized by all requisite corporate action of the Company; and the Notes
have been duly executed and delivered by the Company and, assuming due
authentication by the Trustee, are valid and binding obligations of the
Company, entitled to the benefits of the Indenture, enforceable against
the Company in accordance with their terms, except that (i) enforcement
thereof may be subject to (A) bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally
and (B) general principles of equity (regardless of whether enforceability
is considered in a proceeding in equity or at law) and (ii) the
enforceability of any indemnification or contribution provisions thereof
may be limited under applicable securities laws or the public policies
underlying such laws.
(vii) The execution and delivery of the Series B Notes have been
duly authorized by all requisite corporate action of the Company; and,
when duly executed and delivered by the Company and duly authenticated by
the Trustee, will be valid and binding obligations of the Company,
entitled to the benefits of the Indenture, enforceable against the Company
in accordance with their terms, except that (i) enforcement thereof may be
subject to (A) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally and (B)
general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law) and (ii) the
enforceability of any indemnification or contribution provisions thereof
may be limited under applicable securities laws or the public policies
underlying such laws.
(viii) The execution and delivery of the Registration Rights
Agreement have been duly authorized by all requisite corporate action of
the Company; the Registration Rights Agreement has been duly executed and
delivered by the Company and, assuming due authorization, execution and
delivery by the Initial Purchasers, the Registration Rights Agreement
(other than the indemnification and contribution provisions thereof, as to
which such counsel need express no opinion) is a valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except that (i) enforcement thereof may be subject to (A)
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (B) general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law) and
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(ii) the enforceability of any indemnification or contribution provisions
thereof may be limited under applicable securities laws or the public
policies underlying such laws.
(ix) Each of the Company and the Subsidiaries has all requisite
corporate power and authority to enter into the New Credit Facility. The
execution and delivery of the New Credit Facility have been duly
authorized by all requisite corporate action of the Company and the
Subsidiaries; and the New Credit Facility has been duly executed and
delivered by the Company and the Subsidiaries and, assuming the due
authorization, execution and delivery by the lenders party thereto, is a
valid and binding agreement of the Company and the Subsidiaries,
enforceable against each of them in accordance with its terms, except that
(i) enforcement thereof may be subject to (A) bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
now or hereafter in effect relating to or affecting creditors' rights
generally and (B) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law) and (ii)
the enforceability of any indemnification or contribution provisions
thereof may be limited under applicable securities laws or the public
policies underlying such laws.
(x) The Company is the record owner of 100 shares of the common
stock, $.01 par value, of ABS (the "ABS Shares") and 100 shares of the
common stock, $.01 par value, of EFC (the "EFC Shares" and the EFC shares
collectively with the ABS shares, the "Shares"). The Shares have been duly
authorized and validly issued, are fully paid and nonassessable and to the
knowledge of such counsel constitute all of the issued and outstanding
shares of capital stock of the Subsidiaries. Except as disclosed in the
Offering Documents, to the knowledge of such counsel, the shares are owned
by the Company free and clear of any security interests, liens, pledges or
encumbrances.
(xi) The execution, delivery or performance by the Company of this
Agreement or the other Operative Documents, compliance by the Company with
the provisions hereof or thereof nor consummation by the Company of the
transactions contemplated hereby or thereby, the issuance, offer and sale
of the Notes by the Company, the consummation by the Company and the
Subsidiaries (as applicable) of the transactions contemplated by the New
Credit Facility, the repurchase by the Company of certain shares of its
issued and outstanding capital stock in accordance with the terms of the
Stock Purchase Agreement, the repurchase by the Company of its 10 3/8%
Senior Subordinated Notes due 2004 and the redemption by the Company of
its 11 7/8% Senior Secured Notes due 2003, will not (A) to the knowledge
of such counsel, and subject to the following paragraph, result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any agreement or instrument listed on Exhibit A to the
opinion or (B) result in any violation of the provisions of the charter or
bylaws of the Company or, to the knowledge of such counsel, any Applicable
Law with respect to the Company, except for such violations that would
not, singly or in the aggregate, have a Material Adverse Effect; and
except for such consents, approvals or authorizations of, or registrations
or qualifications with, Governmental Authorities as may be required under
the Securities Act and the rules and regulations thereunder or applicable
states securities or Blue Sky laws in connection with the purchase and
distribution of the Notes by the Initial Purchasers and as set forth in
the Registration Rights Agreement, no consent, approval, authorization or
order of, or filing or registration with, any Governmental Authority, is
required in connection with the execution and delivery by the Company of
this Agreement, the Indenture and the Registration Rights Agreement, the
consummation by the Company of the transactions contemplated hereby and
thereby, and the issuance and sale of the Notes by the Company; provided,
however, that the foregoing opinion with respect to Governmental
Authorities is limited to such consents, approvals, authorizations, orders
and filings which are actually known to such counsel and which, in such
counsel's experience, are
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<PAGE> 20
typically applicable to offerings of the type contemplated by this
Agreement. The term "Applicable Laws" means those statutes, judgments,
rules, regulations, orders or decrees of any Governmental Authority of the
State of Delaware, the State of New York and the United States of America
by which the Company is bound, the existence of which is actually known to
such counsel and which,in such counsel's experience, are typically
applicable to offerings of the type contemplated by this Agreement. The
term "Governmental Authority" means any governmental, legislative,
judicial, administrative or regulatory body of the State of Delaware, the
State of New York or the United States of America.
(xii) The Indenture, the Notes, and the Registration Rights
Agreement conform in all material respects to the descriptions thereof
contained in the Offering Memorandum.
(xiii) To such counsel's knowledge, no legal or governmental
proceedings are pending to which the Company is a party that would be
required under the Securities Act to be described in a registration
statement or a prospectus delivered at the time of the confirmation of the
sale of an offering of securities registered under the Securities Act and
are not described in the Offering Memorandum, or, to such counsel's
knowledge, which seek to restrain, enjoin, prevent the consummation of or
otherwise challenge the issuance or sale of the Notes to the Initial
Purchasers or the consummation of the transactions described in the
Offering Memorandum under the caption "The Recapitalization."
(xiv) Neither the Company nor any of its Subsidiaries is (i) subject
to registration and regulation as an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, or (ii) a
"holding company" or a "subsidiary company" or, to the knowledge of such
counsel, an "affiliate" of a holding company within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
(xv) When the Notes are issued and delivered pursuant to this
Agreement, such Notes will not be of the same class (within the meaning of
Rule 144A(d)(3) under the Securities Act) as securities of the Company
that are listed on a national securities exchange registered under Section
6 of the Exchange Act or quoted on an automated inter-dealer quotation
system.
(xvi) Assuming the Initial Purchasers purchase the Notes in
accordance with Rule 144A under the Securities Act, neither the issuance
or sale of the Notes nor the application by the Company of the net
proceeds thereof as set forth in the Offering Memorandum will violate
Regulation G, T, U or X of the Board of Governors of the Federal Reserve
System.
(xvii) To the knowledge of such counsel, except as disclosed in the
Offering Memorandum, there are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Securities
Act with respect to any securities of the Company owned or to be owned by
such person or to require the Company to include such securities in the
securities registered pursuant to the Exchange Offer Registration
Statement, the Shelf Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Securities Act.
(xviii) The Company is not required to obtain stockholder consent
for the issuance or offering of the Notes.
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<PAGE> 21
(xix) The statements under the captions "Certain United States
Federal Tax Consequences for Non-United States Holders" and "Description
of Certain Indebtedness" in the Offering Memorandum, insofar as they are
descriptions of contracts, agreements or other legal documents, or refer
to statements of law or legal conclusions, are accurate in all material
respects.
In addition, such counsel shall state that it has participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants of the Company,
representatives of the Initial Purchasers and representatives of counsel
for the Initial Purchasers at which the contents of the Offering
Memorandum and related matters were discussed and, although such counsel
has not undertaken to investigate or verify independently, and does not
assume any responsibility for, the accuracy, completeness or fairness of
the statements contained in the Offering Memorandum, on the basis of the
foregoing (relying as to materiality upon the opinions of officers and
other representatives of the Company) no information has come to the
attention of such counsel that causes such counsel to believe that the
Offering Memorandum (except as to financial statements, including the
notes thereto and other financial, statistical and accounting data
included therein or omitted therefrom, as to which no belief need be
expressed), as of its date or the Closing Date, contained or contains an
untrue statement of a material fact or omitted or omits 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.
In rendering such opinion, such counsel may state that its opinion
is limited to matters governed by the federal laws of the United States of
America and the General Corporation Law of the State of Delaware.
(i) Ronald H. Kisner, General Counsel to the Company, shall have
furnished to the Initial Purchasers, his written opinion, as General Counsel to
the Company, addressed to the Initial Purchasers and dated the Closing Date, in
form and substance reasonably satisfactory to the Initial Purchasers, to the
effect that:
(i) The Company and each of its Subsidiaries are duly qualified to
do business and in good standing as foreign corporations in each
jurisdiction in which their respective businesses require such
qualification (except whether failure to so qualify would not have a
Material Adverse Effect.
(ii) To the best knowledge of such counsel, the Company and each of
its Subsidiaries are not in violation of its corporate charter or by-laws,
or in default under any agreement (including loan and credit agreements),
indenture or instrument known to such counsel, which default would have a
Material Adverse Effect; to the best knowledge of such counsel, the
Company is not in violation of any law, ordinance, governmental rule or
regulation or court decree to which it may be subject and has obtained
each license, permit, patent, certificate, franchise or other governmental
authorization or permit (collectively, "permits") necessary to the
ownership of its properties or to the conduct of its business as described
in the Offering Memorandum, other than permits being applied for in the
ordinary course of business of the Subsidiaries and other than permits
violation of or failure to obtain which would not have a Material Adverse
Effect; provided, however that to the extent of permits that have been
applied for, the ownership of such property and the conduct of such
business during the pendency of receipt of such permits would not to the
knowledge of such counsel, be expected to have a Material Adverse Effect.
(iii) The execution, delivery or performance by the Company of this
Agreement or the other Operative Documents, compliance by the Company with
the provisions hereof or thereof nor
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<PAGE> 22
consummation by the Company of the transactions contemplated hereby or
thereby, the issuance, offer and sale of the Notes by the Company, the
consummation by the Company and the Subsidiaries (as applicable) of the
transactions contemplated by the New Credit Facility, the repurchase by
the Company of certain shares of its issued and outstanding capital stock
in accordance with the terms of the Stock Purchase Agreement, the
repurchase by the Company of its 103/8% Senior Subordinated Notes due 2004
and the redemption by the Company of its 117/8% Senior Secured Notes due
2003, will not (A) to the knowledge of such counsel, conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
or credit agreement, or other agreement or instrument known to such
counsel to which the Company is a party or by which the Company or any of
its properties are subject, which conflict, breach, violation or default
has or would have a Material Adverse Effect, except as set forth below, or
(B) result in any violation of the provisions of the charter or bylaws of
the Company or, to the knowledge of such counsel, any statute, or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of its Subsidiaries or any of
their properties or assets, which violation has or would have a Material
Adverse Effect; and, except for such consents, approvals, authorizations,
registrations or qualifications as may be required under applicable states
or Blue Sky securities laws in connection with the purchase and
distribution of the Notes by the Initial Purchasers and as set forth in
the Registration Rights Agreement, no consent, approval, authorization or
order of, or filing or registration with, any court or governmental agency
or body having jurisdiction over the Company or any of its Subsidiaries or
any of their properties or assets, is required in connection with the
execution and delivery by the Company of this Agreement, the Indenture and
the Registration Rights Agreement, the consummation by the Company of the
transactions contemplated hereby and thereby, and the issuance and sale of
the Notes by the Company.
(iv) To the knowledge of such counsel, and except as set forth or
referred to in the Offering Memorandum, no legal or governmental
proceedings are pending or threatened against the Company or any of its
Subsidiaries is party or of which any property or asset of the Company or
any of its Subsidiaries which would affect the subject matter of this
Agreement or would be required under the Securities Act to be described in
a registration statement or a prospectus delivered at the time of the
confirmation of an offering of securities registered under the Securities
Act and are not described in the Offering Memorandum.
(v) To the knowledge of such counsel, the statements made in the
Offering Documents under the headings "Risk Factors -- Certain Collective
Bargaining Matters," "Risk Factors -- Litigation," "Business -- Government
Contracts," "Business -- Patents and Licenses," "Business -- Legal
Proceedings" and "Business -- Environmental Matters" to the extent they
constitute matters of law or legal conclusions, have been reviewed by such
counsel and fairly present the information disclosed therein.
(j) You shall have received on the Closing Date an opinion of Latham &
Watkins, counsel for the Initial Purchasers, dated the Closing Date and
addressed to you, in form and substance reasonably satisfactory to you.
(k) With respect to the letter of Deloitte & Touche LLP delivered to the
Initial Purchasers concurrently with the execution of this Agreement (the
"initial letter"), the Company shall have furnished to the Initial Purchasers a
letter (as used in this paragraph, the "bring-down letter") of such accountant,
addressed to the Initial Purchasers and dated such Closing Date (i) confirming
that it is an independent public accountant under the Securities Act, (ii)
stating, as of the date of the bring-down letter (or, with respect to matters
involving changes or developments since the respective dates as of which
specified
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financial information is given in the Offering Memorandum, as of a date not more
than two days prior to the date of the bring-down letter), the conclusions and
findings of such firm with respect to the financial information and other
matters covered by the initial letter and (iii) confirming in all material
respects the conclusions and findings set forth in the initial letter.
(l) The Company and the Trustee shall have entered into the Indenture and
the Initial Purchasers shall have received counterparts, conformed as executed,
thereof.
(m) The Company and the Initial Purchasers shall have entered into the
Registration Rights Agreement and the Initial Purchasers shall have received
counterparts, conformed as executed, thereof.
(n) Prior to or simultaneously with the closing of the transactions
contemplated by the Operative Documents, the Company shall have closed the
transactions contemplated by the Recapitalization, including, without
limitation, the closing of the New Credit Facility and the Stock Purchase
Agreement, the repayment of all indebtedness under the Existing Credit Agreement
and the consummation of the Tender Offer and Consent Solicitation.
(o) Latham & Watkins shall have been furnished with executed copies of the
New Credit Facility and such other documents and opinions, in addition to those
set forth above, as they may reasonably require for the purpose of enabling them
to review or pass upon the matters referred to in this Agreement and in order to
evidence the accuracy, completeness or satisfaction in all material respects of
any of the representations, warranties or conditions herein contained.
(p) The Company shall have furnished to the Initial Purchasers a
certificate, dated such Closing Date, of its Chief Financial Officer as to the
solvency of the Company following consummation of the transactions contemplated
hereby.
(q) (i) Neither the Company nor its Subsidiaries shall have sustained
since the date of the latest audited financial statements included in the
Offering Memorandum losses or interferences with their businesses, taken as a
whole, from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the Offering Memorandum
or (ii) since such date there shall not have been any change in the capital
stock or long-term debt of the Company or any of its Subsidiaries or any change,
or any development involving a prospective change, in or affecting the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company or its Subsidiaries, taken as a whole, otherwise than
as set forth or contemplated in the Offering Memorandum, the effect of which, in
any such case described in clause (i) or (ii), is, in the reasonable judgment of
the Initial Purchasers, so material and adverse as to make it impracticable or
inadvisable to proceed with the offering or the delivery of the Notes being
delivered on the Closing Date on the terms and in the manner contemplated herein
and in the Offering Memorandum.
(r) Subsequent to the execution and delivery of this Agreement there shall
not have occurred any of the following: (i) trading in securities generally on
the New York Stock Exchange or The Nasdaq Stock Market's National Market or in
the over-the-counter market shall have been suspended or materially limited, or
minimum prices shall have been established on such exchange by the Commission,
or by such exchange or by any other regulatory body or governmental authority
having jurisdiction, (ii) a banking moratorium shall have been declared by
Federal or state authorities, (iii) the United States shall have become engaged
in hostilities, there shall have been an escalation in hostilities involving the
United States or there shall have been a declaration of a national emergency or
war by the United States or (iv) there shall have occurred such a material
adverse change in general economic, political or financial conditions
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(or the effect of international conditions on the financial markets in the
United States shall be such) as to make it, in the reasonable judgment of the
Initial Purchasers, impracticable or inadvisable to proceed with the offering or
delivery of the Notes being delivered on the Closing Date on the terms and in
the manner contemplated herein and in the Offering Memorandum.
(s) Subsequent to the execution and delivery of this Agreement, (i) no
downgrading shall have occurred in the rating accorded the Notes or any other
Indebtedness of the Company by a nationally recognized statistical rating
organization, as that term is defined by the Commission for purposes of Rule
436(g)(2) under the Securities Act, and (ii) no such organization shall have
publicly announced that it has under surveillance or review, with possible
negative implications, its rating of any of the Notes or any other Indebtedness
of the Company.
(t) There shall exist at and as of the Closing Date no conditions that
would constitute a default (or an event that with notice or the lapse of time,
or both, would constitute a default) under the New Credit Facility. On the
Closing Date, the New Credit Facility shall be in full force and effect and
shall not have been modified.
(u) Latham & Watkins shall have been furnished with such documents, in
addition to those set forth above, as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in this
Section 7 and in order to evidence the accuracy, completeness or satisfaction in
all material respects of any of the representations, warranties or conditions
herein contained.
(v) Prior to the Closing Date, the Company shall have furnished to the
Initial Purchasers such further information, certificates and documents as the
Initial Purchasers may reasonably request.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Initial Purchasers.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the
Initial Purchasers, their officers and employees and each person, if any,
who controls an Initial Purchaser within the meaning of the Securities
Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof (including, but not limited to,
any loss, claim, damage, liability or action relating to purchases and
sales of Notes), to which the Initial Purchasers, their respective
officers and employees or any such controlling person may become subject,
under the Securities Act or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained
in the Offering Documents or in any amendment or supplement thereto or in
any blue sky application or other document prepared or executed by the
Company (or based upon any written information furnished by the Company)
specifically for the purpose of qualifying any or all of the Series A
Notes under the securities laws of any state or other jurisdiction (any
such application, document or information being hereinafter called a "Blue
Sky Application"), the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any act or failure to act or
any alleged act or failure to act by any Initial Purchaser in connection
with, or relating in any manner to, the Notes or the offering contemplated
hereby, and which is included as part of or referred to in any loss,
claim, damage, liability or action arising out of or based upon matters
covered by clause (i) or (ii) above (provided that the Company shall not
be liable under this clause (iii) to the
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extent that it is determined in a final judgment by a court of competent
jurisdiction that such loss, claim, damage, liability or action resulted
directly from any such acts or failures to act undertaken or omitted to be
taken by such Initial Purchaser through its gross negligence or willful
misconduct), and shall reimburse the Initial Purchasers and each such
officer, employee or controlling person on a quarterly basis for any legal
or other expenses reasonably incurred by the Initial Purchasers or
officer, employee or controlling person in connection with investigating
or defending or preparing to defend against any such loss, claim, damage,
liability or action as such expenses are incurred; provided, however, that
the Company shall not be liable to an Initial Purchaser, officer, employee
or controlling person of such Initial Purchaser in any such case to the
extent that any such loss, claim, damage, liability or action arises out
of, or is based upon, any untrue statement or alleged untrue statement or
omission or alleged omission made in the Offering Documents or in any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Initial
Purchaser specifically for inclusion therein; and provided further that
with respect to any such untrue statement or omission made in the
Preliminary Offering Memorandum, the indemnity agreement contained in this
Section 8(a) shall not inure to the benefit of an Initial Purchaser from
whom the person asserting any such losses, claims, damages, liabilities,
judgments, actions or expenses purchased Notes, or any controlling person
of such Initial Purchaser, if a copy of the Offering Memorandum was not
sent or given by or on behalf of such Initial Purchaser to such person at
or prior to the written confirmation of the sale of Notes to such person,
and the Offering Memorandum cured the defect giving rise to such losses,
claims, damages, liabilities, judgments, actions or expenses, unless, such
failure to deliver the Offering Memorandum was a result of non-compliance
by the Company with Section 5(d) hereof. The foregoing indemnity agreement
is in addition to any liability which the Company may otherwise have to
the Initial Purchasers or to any controlling person of the Initial
Purchasers.
(b) Each Initial Purchaser, severally but not jointly, shall
indemnify and hold harmless the Company, its respective directors,
employees, officers and each person, if any, who controls the Company
within the meaning of the Securities Act, from and against any loss,
claim, damage or liability, joint or several, or any action in respect
thereof, to which the Company or any such director, employee, officer, or
controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises
out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in the Offering Documents, or in
any amendment or supplement thereto or in any Blue Sky Application or (ii)
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, but in each case only to the extent that the untrue statement
or alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such Initial Purchaser specifically for
inclusion therein, and shall reimburse the Company and any such director,
employee, officer or controlling person on a quarterly basis for any legal
or other expenses reasonably incurred by the Company or any such director,
employee, officer or controlling person in connection with investigating
or defending or preparing to defend against any such loss, claim, damage,
liability or action as such expenses are incurred. The foregoing indemnity
agreement is in addition to any liability which the Initial Purchasers may
otherwise have to the Company or any such director, employee, officer or
controlling person.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under this Section 8, notify the
indemnifying party in writing of the claim or the commencement of that
action; provided, however,
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<PAGE> 26
that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have under this Section 8 except to the
extent it has been materially prejudiced by such failure and, provided
further, that the failure to notify the indemnifying party pursuant to
this Section 8 shall not relieve it from any liability which it may have
to an indemnified party otherwise than under this Section 8. If any such
claim or action shall be brought against an indemnified party, and it
shall notify the indemnifying party thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it wishes,
jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the indemnified
party under this Section 8 for any legal or other expenses subsequently
incurred by the indemnified party in connection with the defense thereof
other than reasonable costs of investigation; provided, however, that any
indemnified party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment thereof has been specifically authorized by the
indemnifying party in writing, (ii) such indemnified party shall have been
advised by such 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 and in the reasonable judgment of such counsel
it is advisable for such indemnified party to employ separate counsel or
(iii) the indemnifying party has failed to assume the defense of such
action and employ counsel reasonably satisfactory to the indemnified
party, in which case, if such indemnified party notifies the indemnifying
party in writing that it elects to employ separate counsel at the expense
of the indemnifying party, the indemnifying party shall not have the right
to assume the defense of such action on behalf of such indemnified party,
it being understood, however, that the indemnifying party shall not, in
connection with any one such 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 reasonable fees
and expenses of more than one separate firm of attorneys at any time for
all such indemnified parties, which firm shall be designated in writing by
the Initial Purchasers, if the indemnified parties under this Section 8
consist of the Initial Purchasers or any of its controlling persons, or by
the Company, if the indemnified parties under this Section 8 consist of
the Company or any of its respective directors, employees, officers or
controlling persons. Each indemnified party, as a condition of the
indemnity agreements contained in Sections 8(a) and 8(b), shall use its
best efforts to cooperate with the indemnifying party in the defense of
any such action or claim. No indemnifying party shall be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its
written consent or if there be a final judgment for the plaintiff in any
such action, the indemnifying party agrees to indemnify and hold harmless
any indemnified party from and against any loss or liability by reason of
such settlement or judgment.
(d) If the indemnification provided for in this Section 8
shall for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a) or 8(b) in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate
to reflect the relative benefits received by the Company on the one hand
and the Initial Purchasers on the other from the offering of the Notes or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and the Initial Purchasers
on the other with respect to the statements or omissions which resulted
26
<PAGE> 27
in such loss, claim, damage or liability, or action in respect thereof, as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Initial Purchasers on the
other with respect to such offering shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Notes
purchased under this Agreement (before deducting expenses) received by the
Company, on the one hand, and the total discounts and commissions received
by the Initial Purchasers with respect to the Notes purchased under this
Agreement, on the other hand, bear to the total gross proceeds from the
offering of the Notes under this Agreement, in each case as set forth in
the table on the cover page of the Offering Memorandum. The relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company, on the one
hand, or the Initial Purchasers, on the other hand, the intent of the
parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company
and the Initial Purchasers agree that it would not be just and equitable
if contributions pursuant to this Section 8(d) were to be determined by
pro rata allocation or by any other method of allocation which does not
take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the loss,
claim, damage or liability, or action in respect thereof, referred to
above in this Section 8(d) shall be deemed to include, for purposes of
this Section 8(d), any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8(d), the
Initial Purchasers shall not be required to contribute any amount in
excess of the amount by which the total discounts and commissions with
respect to the Notes purchased by it and distributed to the public was
offered to the public exceeds the amount of any damages which the Initial
Purchasers has otherwise paid or become liable to pay by reason of any
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 Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
The Initial Purchasers' obligation to contribute as provided in this
Section 8(d) are several in proportion to their respective underwriting
obligations and not joint.
(e) The Initial Purchasers severally confirm and the Company
acknowledges that the last paragraph on the cover page and the
stabilization legend on page ii of the Offering Memorandum are correct and
constitute the only information furnished in writing to the Company by or
on behalf of the Initial Purchasers specifically for inclusion in the
Offering Memorandum.
9. Termination. The obligations of the Initial Purchasers hereunder
may be terminated by Lehman Brothers Inc. by notice given to the Company prior
to delivery of and payment for the Series A Notes if, prior to that time, any of
the events described in Sections 7(n), 7(o) or 7(p), shall have occurred or if
the Initial Purchasers shall decline to purchase the Series A Notes for any
reason permitted under this Agreement.
If on the Closing Date, any one or more of the Initial Purchasers
shall fail or refuse to purchase the Notes which it or they have agreed to
purchase hereunder on such date and the aggregate principal amount of Notes
which such defaulting Initial Purchaser or Initial Purchasers, as the case may
be, agreed but failed or refused to purchase is not more than one-tenth of the
aggregate principal amount of Notes to be purchased on such date by all Initial
Purchasers, each nondefaulting Initial Purchaser shall be obligated severally,
in the proportion which the principal amount of Notes set forth opposite its
name in Schedule I bears to the principal amount of Notes which all the
non-defaulting Initial Purchasers have agreed to purchase, or in such other
proportion as you may specify, to purchase the Notes which such defaulting
Initial Purchaser or Initial Purchasers, as the case may be, agreed but failed
or refused to
27
<PAGE> 28
purchase on such date; provided that in no event shall the principal amount of
Notes which any Initial Purchaser has agreed to purchase pursuant to Section 3
hereof be increased pursuant to this Section 9 by an amount in excess of
one-ninth of such principal amount of Notes without the written consent of such
Initial Purchaser. If on the Closing Date, any Initial Purchaser shall fail or
refuse to purchase Notes and the aggregate principal amount of Notes with
respect to which such default occurs is more than one-tenth of the aggregate
principal amount of Notes to be purchased on such date by all Initial Purchasers
in the event of a default by an Initial Purchaser and arrangements satisfactory
to you for purchase of such Notes are not made within 48 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Initial Purchaser. In any such case which does not result in
termination of this Agreement, you shall have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the Offering Memorandum or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Initial Purchaser from liability in respect of any
default of any such Initial Purchaser under this Agreement.
10. Reimbursement of Initial Purchasers' Expenses. If the Company
shall fail to tender the Series A Notes for delivery to the Initial Purchasers
by reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed, or because any other
condition of the Initial Purchasers' obligations hereunder required to be
fulfilled by the Company is not fulfilled, the Company will reimburse the
Initial Purchasers for all reasonable out-of-pocket expenses (including the fees
and disbursements of its counsel) incurred by the Initial Purchasers in
connection with this Agreement and the proposed purchase of the Series A Notes,
and upon demand the Company shall pay the full amount thereof to Lehman Brothers
Inc.
11. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Initial Purchasers, shall be delivered or sent
by mail, telex or facsimile transmission to Lehman Brothers Inc.,
Three World Financial Center, New York, New York 10285, Attention:
Syndicate Department (Fax: 212-528-8822), with a copy to Latham &
Watkins, 885 Third Avenue, New York, New York 10022, Attention:
Raymond Y. Lin (Fax: 212-751-4864);
(b) if to the Company, shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Company set
forth in the Offering Memorandum, Attention: Kenneth M. Schwartz
(Fax: 212-867-1182), with a copy to O'Sullivan Graev & Karabell,
LLP, 30 Rockefeller Plaza, New York, New York 10112, Attention:
Robert Seber (Fax: 212-405-2420);
Any such statements, requests, notices or agreements shall take
effect at the time of receipt thereof. The Company shall be entitled to act and
rely upon any request, consent, notice or agreement given or made on behalf of
the Initial Purchasers by Lehman Brothers Inc.
12. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Initial Purchasers, the Company,
and their respective personal representatives and successors. This Agreement and
the terms and provisions hereof are for the sole benefit of only those persons,
except that the representations, warranties, indemnities and agreements of the
Company contained in this Agreement shall also be deemed to be for the benefit
of the person or persons, if any, who control any Initial Purchaser within the
meaning of Section 15 of the Securities Act.
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<PAGE> 29
13. Survival. The respective indemnities, representations,
warranties and agreements of the Company and the Initial Purchasers contained in
this Agreement or made by or on behalf on them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Notes and shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any of them or any person controlling any of them.
14. Definition of the Term "Business Day." For purposes of this
Agreement, "business day" means any day on which the New York Stock Exchange,
Inc. is open for trading.
15. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of New York.
16. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
17. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
[signature pages follow]
29
<PAGE> 30
If the foregoing correctly sets forth the agreement between the
Company and the Initial Purchasers, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
K & F INDUSTRIES, INC.
By: /s/ KENNETH M. SCHWARTZ
------------------------------------
Name: Kenneth M. Schwartz
Title: Executive Vice President
Accepted:
LEHMAN BROTHERS INC.
By: /s/ Steven Mehos
-----------------------------------
Name: Steven Mehos
Title: Vice President
UNTERBERG HARRIS
By: /s/ A. Robert Towbin
-----------------------------------
Name: A. Robert Towbin
Title: Managing Director
<PAGE> 31
SCHEDULE 1
Principal Amount of
Initial Purchaser Notes
----------------- -------------
Lehman Brothers Inc...................................... 166,500,000
Unterberg Harris......................................... 18,500,000
-----------
Total 185,000,000
===========
S - 1
<PAGE> 1
Exhibit 2.02
================================================================================
STOCK PURCHASE AGREEMENT
dated September 15, 1997,
among
K & F INDUSTRIES, INC.
and
THE STOCKHOLDERS OF
K & F INDUSTRIES, INC.
================================================================================
<PAGE> 2
STOCK PURCHASE AGREEMENT dated as of September 15, 1997, among (i) K
& F INDUSTRIES, INC., a Delaware corporation (the "Company"), and (ii) the
securityholders of the Company listed on Schedule I (the "Selling
Stockholders").
Each Selling Stockholder listed under Part A of Schedule I
(collectively, the "Existing Stockholders") is the owner of the number of shares
of (i) Common Stock, $.01 par value (the "Common Stock"), of the Company set
forth opposite the name of such Selling Stockholder under column (1) on Schedule
I or (ii) Preferred Stock, $.01 par value (the "Preferred Stock"), of the
Company set forth opposite the name of such Selling Stockholder under column (2)
on Schedule I. Each Selling Stockholder listed under Part B of Schedule I
(collectively, the "Company Optionholders") is the owner of an option or options
(collectively, the "Company Options") granted by the Company to purchase from
the Company the number of shares of Common Stock set forth opposite the name of
such Selling Stockholder under column (1) on Schedule I. Each Selling
Stockholder listed under Part C of Schedule I (collectively, the "BLS
Optionholders") is the owner of an option or options (collectively, the "BLS
Options") granted by Bernard L. Schwartz ("BLS") to purchase from BLS the number
of shares of Common Stock set forth opposite the name of such Selling
Stockholder under column (1) on Schedule I. The Company Options and the BLS
Options are referred to as the "Options." The shares of Common Stock or
Preferred Stock owned, or subject to the Options owned, by the Selling
Stockholders are referred to as the "Shares." The Company and the Selling
Stockholders contemplate that the Company purchase certain of the Shares (the
"Purchase Shares"), all upon the terms and subject to the conditions of this
Agreement.
Accordingly, the parties agree as follows:
ARTICLE I
SALE AND PURCHASE OF PURCHASE SHARES
1.1. Sale and Purchase of Purchase Shares.
Upon the terms and subject to the conditions of this Agreement, at
the Closing, each Selling Stockholder shall sell, transfer, convey and assign to
the Company, and the Company shall purchase and acquire from such Selling
Stockholder, out of funds legally available therefor, the number of shares of
(i) Common Stock set forth, or determined in accordance with the formula set
1
<PAGE> 3
forth, opposite the name of such Selling Stockholder under column (3) on
Schedule I or (ii) Preferred Stock set forth, or determined in accordance with
the formula set forth, opposite the name of such Selling Stockholder under
column (4) on Schedule I.
1.2. Delivery of Purchase Shares.
At the Closing, in exchange for the delivery by the Company of the
purchase price referred to in Section 1.3, each Selling Stockholder shall
deliver or cause to be delivered to the Company a certificate or certificates
representing the Purchase Shares to be sold by him or it pursuant to this
Agreement, duly endorsed or accompanied by appropriate stock powers duly
executed in blank, with all necessary documentary or transfer tax stamps
affixed, and such other documents or instruments which may be necessary, or
which the Company may reasonably request, in order to vest in the Company good
and marketable title to such Purchase Shares, free and clear of all security
interests, liens, pledges, claims, charges, escrows, encumbrances, options,
rights of first refusal, mortgages, indentures, security agreements or other
agreements, arrangements, contracts, commitments, understandings or obligations
(collectively referred to as "Liens"), whether written or oral and whether or
not relating in any way to credit or the borrowing of money.
1.3. Purchase Price for Purchase Shares.
(a) The price per Share to be paid by the Company for the Purchase
Shares shall be an amount (the "Per Share Price") equal to the quotient obtained
by dividing (i) $625,000,000, plus the Cash Amount, as set forth in the
certificate referred to in paragraph (b) below, minus the Debt Amount, as set
forth in the certificate referred to in paragraph (b) below, minus the Brokerage
Fee (as defined in Section 4.5), by (ii) 2,051,223. "Cash Amount" means the
aggregate amount of cash and cash equivalents held by the Company or its
subsidiaries as of the date of the Closing; and "Debt Amount" means the
aggregate outstanding principal amount of indebtedness of the Company or its
subsidiaries for borrowed money as of the date of the Closing, plus the
aggregate amount of unpaid interest accrued through the date of the Closing on
such indebtedness.
(b) At the Closing, the Company shall deliver to the Selling
Stockholders a certificate setting forth accurately the Cash Amount and the Debt
Amount, as determined in accordance with generally accepted accounting
principles consistently applied.
1.4. Delivery of Purchase Price.
(a) At the Closing, the Company shall deliver or cause to be
delivered to:
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<PAGE> 4
(i) Each Existing Stockholder the aggregate purchase price
for the Purchase Shares sold by such Existing Stockholder;
(ii) each Company Optionholder the aggregate purchase price
for the Purchase Shares sold by such Company Optionholder, minus the sum of (x)
the aggregate exercise price payable by such Company Optionholder pursuant to
his Company Option or Company Options, as set forth opposite the name of such
Company Optionholder under column (5) on Schedule I and (y) any amounts required
to be withheld by the Company for income tax purposes; and
(iii) (A) each BLS Optionholder the aggregate purchase price
for the Purchase Shares sold by such BLS Optionholder, minus the sum of (x) the
aggregate exercise price payable by such BLS Optionholder pursuant to his BLS
Option or BLS Options, as set forth opposite the name of such BLS Optionholder
under column (5) on Schedule I and (y) any amounts required to be withheld by
the Company for income tax purposes, and (B) BLS such aggregate exercise price.
(b) The amount payable by the Company to each Selling Stockholder
shall be payable, at the election of such Selling Stockholder, by check or by
wire transfer to an account designated by such Selling Stockholder.
1.5. Certificate of Amendment; Stockholders' Agreement.
At the Closing, immediately following the sale and purchase of the
Purchase Shares contemplated by this Agreement:
(i) the Company shall file the Amended and Restated
Certificate of Incorporation of the Company (the "Restated Certificate") in the
form attached as Exhibit A with the Secretary of State of the State of Delaware,
which Restated Certificate provides for a reclassification of the outstanding
shares of capital stock of the Corporation into Common Stock;
(ii) (A) the Company, (B) BLS, and (C) Lehman Brothers Capital
Partners II, L.P., Lehman Brothers Merchant Banking Portfolio Partnership L.P.,
Lehman Brothers Offshore Investment Partnership L.P., and Lehman Brothers
Offshore Investment Partnership - Japan, L.P. (the "Lehman Investors"), shall
execute and deliver a Stockholders Agreement, in form and substance satisfactory
to the Company, BLS, and the Lehman Investors, reflecting the terms set forth on
Exhibit B; and
(iii) the Company shall deliver to BLS and each Lehman
Investor, in exchange for the surrender by such Selling
3
<PAGE> 5
Stockholder of all certificates representing Shares owned by such Selling
Stockholder that are not Purchase Shares (the "Retained Shares"), a certificate
representing a number of shares of Common Stock equal to the number of Retained
Shares of such Selling Stockholder.
ARTICLE II
CLOSING
The closing (the "Closing") for the consummation of the transactions
contemplated hereby shall take place at the offices of O'Sullivan Graev &
Karabell, LLP, 30 Rockefeller Plaza, New York, New York (or any other offices
designated by the Company), simultaneously with the satisfaction of the
conditions set forth in Article VI.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS
Each Selling Stockholder, severally and only with respect to himself
or itself, represents and warrants to the Company as follows:
3.1. Powers.
Such Selling Stockholder has full power and authority to execute and
deliver this Agreement and consummate the transactions contemplated hereby.
3.2. Authorization.
The execution and delivery by such Selling Stockholder of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all requisite corporate, partnership or other action on the
part of such Selling Stockholder. This Agreement constitutes a legal, valid and
binding obligation of such Selling Stockholder, enforceable in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
rights of creditors generally or by general equitable principles.
3.3. No Conflict.
Assuming satisfaction of, and compliance with, the matters referred
to in Article V, the execution and delivery by such Selling Stockholder of this
Agreement and the consummation
4
<PAGE> 6
by such Selling Stockholder of the transactions contemplated hereby (i) to the
knowledge of such Selling Stockholder, will not violate any law, statute, rule
or regulation, (ii) will not conflict with any provision of the certificate of
incorporation, partnership agreement, by-laws, or other organizational or
constitutive instruments, if any, of such Selling Stockholder, (iii) will not
require or make necessary any consent, approval or other action of, or notice
to, any person, except for those that have been obtained or made, and (iv) will
not conflict with, or result in a violation of, any agreement or other document
or instrument to which such Selling Stockholder is a party or by which he or it,
or any of his or its assets or properties, is bound.
3.4. Purchase Shares.
Such Selling Stockholder is, or upon exercise of his Option or
Options will be, the record and beneficial owner of the number of Shares set
forth opposite his or its name under column (1) or (2) on Schedule I. Such
Shares constitute all shares of Common Stock or Preferred Stock such Selling
Stockholder owns or has the right to acquire. The transfer to the Company by
such Selling Stockholder of the Purchase Shares to be sold by him or it pursuant
to this Agreement will pass to the Company good and marketable title to such
Purchase Shares, and all other incidents of record and beneficial ownership
pertaining thereto, free and clear of any Liens. None of such Purchase Shares is
subject to any voting trust agreement or other contract, agreement, arrangement,
commitment or understanding, written or oral, restricting or otherwise relating
to the voting or disposition of such Purchase Shares, other than (i) this
Agreement, (ii) in the case of the Existing Stockholders, the Amended and
Restated Stockholders Agreement dated as of September 2, 1994 (the "Stockholders
Agreement"), by and among the Company and its stockholders, (iii) in the case of
the Company Optionholders, the K & F Industries, Inc. 1989 Stock Option Plan
(the "Stock Option Plan"), and (iv) in the case of BLS and the BLS
Optionholders, the BLS Options. No proxies have been granted with respect to
such Purchase Shares which have not been revoked, expired or otherwise ceased to
be in effect as of the date hereof. Except as contemplated herein, there are no
outstanding warrants, options, agreements, convertible or exchangeable
securities or other commitments pursuant to which such Selling Stockholder is or
may become obligated to sell any of his or its Purchase Shares.
3.5. Litigation.
There are no actions, suits, claims, investigations, or other legal,
administrative or arbitration proceedings (collectively, "Proceedings") relating
to the transactions contemplated hereby pending or, to the knowledge of such
Selling Stockholder, threatened against such Selling Stockholder. There
5
<PAGE> 7
are no judgments, decrees, injunctions, or orders of any court, governmental
department, commission, agency, instrumentality or arbitrator (collectively
"Judgments") against such Selling Stockholder relating to the transactions
contemplated hereby.
3.6. No Brokers.
No broker or finder has acted for such Selling Stockholder in
connection with this Agreement or the transactions contemplated hereby, and no
broker or finder is entitled to any brokerage or finder's fee or other
commission in respect thereof based in any way on any agreement or arrangement
made by such Selling Stockholder.
3.7. Acknowledgment.
Such Selling Stockholder acknowledges that he or it has made its own
analysis of the fairness of the Per Share Price and has not relied on any advice
or recommendation by the Company or its directors, officers or affiliates with
respect to his or its decision to enter into this Agreement and to consummate
the transactions contemplated hereby. Such Selling Stockholder has had
sufficient opportunity to investigate and review the business, management and
financial affairs of the Company, and has had sufficient access to management of
the Company, before his or its decision to enter into this Agreement. Such
Selling Stockholder acknowledges that, in connection with his or its entry into
this Agreement and consummation of the transactions contemplated hereby, (i)
such Selling Stockholder has not relied on any representations or warranties of
the Company, any director, officer or representative of the Company, or any
other Selling Stockholder, except for the representations or warranties of the
Company set forth in Article IV or referred to in Section 6.3(d), and (ii) such
Selling Stockholder has made an independent decision to sell his or its Purchase
Shares pursuant to this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.1. Powers.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its formation and has full
power and authority to execute and deliver this Agreement and consummate the
transactions contemplated hereby.
6
<PAGE> 8
4.2. Authorization.
The execution and delivery by the Company of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all requisite corporate action on the part of the Company. This Agreement
constitutes a legal, valid and binding obligation of the Company, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the rights of creditors generally or by general equitable principles.
4.3. No Conflict.
Assuming compliance with, and satisfaction of, the matters referred
to in Article V, the execution and delivery by the Company of this Agreement and
the consummation of the transaction contemplated hereby (i) will not violate any
law, statute, rule or regulation, (ii) will not conflict with any provision of
the Certificate of Incorporation or By-laws of the Company, (iii) will not
require or make necessary any consent, approval or other action, or notice to,
any person, except for those that have been obtained or made or as set forth in
Section 6.2, and (iv) will not conflict with, or result in a violation of, any
agreement or other document or instrument to which the Company is a party or by
which it or any of its assets or properties is bound. The Company's surplus, as
determined in accordance with the General Corporation Law of the State of
Delaware, is sufficient to permit the purchase of the Purchase Shares
contemplated hereby.
4.4. Litigation.
There are no Proceedings seeking to enjoin the transactions
contemplated hereby pending or, to the knowledge of the Company, threatened
against the Company. There are no Judgments against the Company relating to the
transactions contemplated hereby.
4.5. No Brokers.
Except for a fee of $1,000,000 (the "Brokerage Fee") payable by the
Company to Unterberg Harris, no broker or finder has acted for the Company in
connection with this
7
<PAGE> 9
Agreement or the transactions contemplated hereby, and no broker or finder is
entitled to any brokerage or finder's fee or other commission in respect thereof
based in any way on any agreement or arrangement made by the Company.
4.6 Capital Stock.
Upon consummation of the transactions contemplated hereby, the
authorized capital stock of the Company will consist of 1,000,000 shares of
Common Stock, of which only the number of shares equal to the number of Retained
Shares will be issued and outstanding. All such outstanding shares of Common
Stock will have been duly authorized and validly issued and will be fully paid
and non-assessable. Except as set forth in this Section 4.6, upon consummation
of the transactions contemplated hereby, there will be no outstanding (i) shares
of capital stock of the Company, (ii) securities of the Company convertible into
or exchangeable for shares of capital stock of the Company, or (iii) options or
other rights to acquire from the Company, or other obligations of the Company to
issue, any capital stock or securities convertible into or exchangeable for
capital stock of the Company.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Stockholders Agreement; Consent.
Each of the Company and the Existing Stockholders hereby (i) waives
any rights he or it may have under the Stockholders Agreement with respect to
the transactions contemplated by this Agreement, (ii) agrees that the
Stockholders Agreement shall terminate automatically as of the Closing, and
(iii) otherwise consents to the transactions contemplated by the this Agreement
in all respects. Without limiting the generality of the foregoing, BLS and the
Lehman Investors, who will constitute all of the stockholders of the Corporation
immediately following the sale and repurchase of the Purchase Shares
contemplated by this Agreement, acting pursuant to Sections 228 and 242 of the
General Corporation Law of the State of Delaware, hereby approve and adopt the
form, terms and provisions of the Restated Certificate in all respects.
5.2 Exercise of Company Options.
Each Company Optionholder hereby exercises his Company Option or
Company Options in full, such exercise to become effective as of the Closing.
The Company hereby (i) agrees to issue the Shares to be issued upon such
exercise at the Closing, (ii) agrees that payment of the exercise price under
such Company Option or Company Options shall be made at the Closing, as provided
in Section 1.4(a), and (ii) waives any rights it may have under the Stock Option
Plan or such Company Option or Company Options with respect, and hereby
consents, to the sale by such Company Optionholder of his Purchase Shares
pursuant to this
8
<PAGE> 10
Agreement. Each Company Optionholder agrees that the consummation of the
transactions contemplated hereby with respect to his Company Options constitutes
full and complete satisfaction of his rights under the Stock Option Plan or such
Company Options.
5.3 Exercise of BLS Options.
Each BLS Optionholder hereby exercises his or its BLS Option or BLS
Options in full, such exercise to become effective as of the Closing. BLS hereby
(i) agrees that payment of the exercise price under such BLS Option or BLS
Options shall be made at the Closing, as provided in Section 1.4(a), and (ii)
waives any rights he may have under such BLS Option or BLS Options with respect,
and hereby consents, to the sale by such BLS Optionholder of his or its Purchase
Shares pursuant to this Agreement. Each BLS Optionholder agrees that the
consummation of the transactions contemplated hereby with respect to his or its
BLS Options constitutes full and complete satisfaction of his or its rights
under such BLS Options.
5.4 Efforts to Consummate.
Subject to the terms and conditions of this Agreement, each party
shall use his or its reasonable commercial efforts to take or cause to be taken
all action reasonably necessary, proper or advisable to consummate the
transactions contemplated by this Agreement, including the obtaining of all
consents, authorizations, orders and approvals of any third party, whether
private or governmental, required in connection with the consummation of such
transactions. Notwithstanding the foregoing, the conditions set forth in Section
6.1 and 6.2 may be asserted by the Company regardless of the circumstances
giving rise to any such condition, including any action or inaction by the
Company.
5.5 Equity Securities.
Except as contemplated by this Agreement, from the date hereof until
the Closing, the Company shall not declare, set aside, pay any dividend or make
any distribution in respect of its capital stock, issue or sell any shares of
any class of its capital stock, or issue or sell any securities convertible
into, exercisable or exchangeable for or options or warrants to purchase or
rights to subscribe for, any shares of any class of its capital stock, or enter
into any agreement, contract or other commitment to do any of the foregoing.
5.6 Conduct of Business.
From the date hereof until the Closing, the Company shall operate
its business
9
<PAGE> 11
in the ordinary course of business consistent with past custom and practice.
Without limiting the generality of the foregoing, the Company shall not
accelerate the payment of accounts payable or the incurrence of capital
expenditures other than in the ordinary course of business consistent with past
custom and practice.
5.7 Transfer of Shares.
Except as contemplated by this Agreement, from the date hereof until
the Closing, each Selling Stockholder shall not sell, transfer, convey, pledge
or assign any Shares.
5.8 Expenses.
Each party shall bear its own expenses in connection with the
execution, delivery and performance of this Agreement.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 Conditions to Obligations of the Company and the Selling Stockholders.
The obligations of the Company and each Selling Stockholder to
consummate the sale and purchase of the Purchase Shares contemplated hereby are
subject to the satisfaction of the following conditions, unless waived by the
Company and each Existing Stockholder:
(a) No Legal Proceedings. There shall not be (A) any Proceedings
pending by or before any governmental entity (including, without limitation, any
court) or threatened by any governmental entity (i) seeking to make illegal or
to restrain or prohibit the transactions contemplated by this Agreement, or (ii)
seeking to obtain damages from the Company or any of the Selling Stockholders in
connection with the transactions contemplated by this Agreement, (B) any action
taken, or any statute, rule, regulation or order proposed, enacted, enforced,
promulgated, issued or deemed applicable to the transactions contemplated by
this Agreement by any governmental entity which results in any of the
consequences referred to in subclauses (i) and (ii) of clause (A) above.
(b) Solvency Opinion. The Company shall have received a "bring-down"
opinion of Marshall & Stevens Incorporated, in form and substance satisfactory
to the Company and the Selling Stockholders, to the effect that the conclusions
set forth in the opinion dated September 9, 1997, of such firm are true and
correct on the date of the Closing.
10
<PAGE> 12
6.2 Conditions to Obligation of Company.
The obligation of the Company to consummate the sale and purchase of
the Purchase Shares contemplated hereby is subject to the satisfaction of the
following conditions, unless waived by the Company:
(a) Representations and Warranties. The representations and
warranties of each Selling Stockholder contained in Article III shall be true
and correct in all material respects on the date of the Closing as if made on
and as of such date.
(b) Performance of Obligations. The Selling Stockholders shall have
performed, in all material respects, all obligations required to be performed by
each of them under this Agreement.
(c) Required Consents. All consents, approvals and other actions of,
and notices and filings with, all governmental entities and other persons as may
be necessary or required with respect to the execution and delivery by each
Selling Stockholder of this Agreement and the consummation by each Selling
Stockholder of the transactions contemplated hereby shall have been obtained or
made.
(d) Credit Agreement. The Company shall have entered into definitive
financing documentation, with terms satisfactory to the Company, BLS, and the
Lehman Investors, implementing the terms of the commitment letter dated the date
hereof of Lehman Commercial Paper Inc., providing for a secured credit facility
of up to $372,000,000, and the closing under such documentation shall have
occurred.
(e) Notes Offering. The Company shall have issued $185,000,000
aggregate principal amount of senior subordinated notes (the "New Notes") upon
terms and pursuant to documentation satisfactory to the Company, BLS, and the
Lehman Investors.
(f) Tender Offer. The holders of the Company's 10 3/8% Senior
Subordinated Notes due 2004 shall have tendered, and the Company shall have
accepted for payment, a majority in principal amount of such Senior Subordinated
Notes in accordance with the Offer to Purchase and Consent Solicitation
Statement dated September 12, 1997.
(g) Loral Agreements. All agreements between the Company and Loral
or BLS relating to the provision of services to the Company shall have been
extended, renewed or confirmed upon terms satisfactory to the Company, BLS, and
the Lehman Investors.
(h) No Material Adverse Change. There shall not have occurred any
event that has a material adverse effect on the assets, properties, liabilities,
operations or business of the Company.
11
<PAGE> 13
6.3 Conditions to Obligation of Selling Stockholders.
The obligation of each Selling Stockholder to consummate the sale
and purchase of the Purchase Shares contemplated hereby is subject to the
satisfaction of the following conditions, unless waived by each Existing
Stockholder:
(a) Representations and Warranties. The representations and
warranties of the Company contained in Article IV shall be true and correct in
all material respects on the date of the Closing as if made on and as of such
date.
(b) Performance of Obligations. The Company shall have performed, in
all material respects, all obligations required to be performed by it under this
Agreement.
(c) Required Consents. All consents, approvals and other actions of,
and notices and filings with, all governmental entities and other persons as may
be necessary or required with respect to the execution and delivery by the
Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby shall have been obtained or made.
(d) Reliance on Representations. Such Selling Stockholder shall have
received a certificate or similar statement of the Company, in form and
substance satisfactory to such Selling Stockholder, that such Selling
Stockholder is entitled to rely on those representations and warranties provided
by the Company to the initial purchasers of the New Notes that relate to the
historical and pro forma financial statements, including the notes thereto, set
forth in the offering memorandum used in connection with the offering of the New
Notes.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification by Selling Stockholders.
Each Selling Stockholder shall severally indemnify the Company, the
other Selling Stockholders, and their respective affiliates, subsidiaries and
successors, from, against, for and in respect of all damages, losses,
obligations, liabilities, claims, actions, and reasonable costs and expenses
(including, without limitation, reasonable attorneys', accountants' and other
professional fees and expenses) sustained, suffered or incurred by the Company,
any other Selling Stockholder, or any of their respective affiliates,
subsidiaries or successors, as a result of a breach by such Selling Stockholder
of any representation, warranty or agreement of such Selling Stockholder
pursuant to or contained in this Agreement.
12
<PAGE> 14
7.2 Indemnification of Selling Stockholders.
The Company shall indemnify each Selling Stockholder, and its
affiliates, subsidiaries and successors, from, against, for and in respect of
all damages, losses, obligations, liabilities, claims, actions, and reasonable
costs and expenses (including, without limitation, reasonable attorneys',
accountants' and other professional fees and expenses) sustained, suffered
or incurred by such Selling Stockholder, or any of its affiliates, subsidiaries
or successors, as a result of a breach of any representation, warranty or
agreement of the Company contained in or made pursuant to this Agreement.
7.3 Survival.
All representations and warranties contained in this Agreement shall
survive the Closing.
7.4 Remedies Cumulative.
The remedies provided for in this Article VII shall be cumulative
and shall not preclude assertion by the indemnified parties of any other rights
or the seeking of any other remedies against the indemnifying parties.
ARTICLE VIII
TERMINATION
8.1 Termination.
(a) This Agreement may be terminated at any time prior to the
Closing, by:
(i) the mutual consent of the Company and the Existing
Stockholders holding a majority of the Shares held by all Existing Stockholders;
(ii) the Company or any Existing Stockholder, if the
conditions set forth in Section 6.1 shall not have been met on or prior to
October 31, 1997, except if such conditions have not been met solely as a result
of the failure of the party seeking to terminate to fulfill any material
obligation under this Agreement;
(iii) the Company, if the conditions set forth in Section 6.2
shall not have been met on or prior to October 31, 1997; and
13
<PAGE> 15
(iv) any Existing Stockholder, if the conditions set forth in
Section 6.3 shall not have been met on or prior to October 31, 1997.
(b) Any termination pursuant to paragraph (a) above shall be
effected by notice from the party or parties so terminating to the other
parties. Any such termination shall not relieve any party of any liability
arising from such party's breach of any representation, warranty, or agreement
contained herein prior to such termination.
ARTICLE IX
MISCELLANEOUS
9.1 Assignment.
Without the prior written consent of all other parties, this
Agreement and the rights hereunder shall not be assignable or transferable by
any party.
9.2 No Third-Party Beneficiaries.
This Agreement is for the sole benefit of the parties and nothing
herein, express or implied, shall give or be construed to give to any person or
entity, other than the parties, any legal or equitable rights hereunder.
9.3 Notices.
All notices, claims, certificates, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered or if sent by nationally-recognized overnight
courier, by telecopy, or by registered or certified mail, return receipt
requested and postage prepaid, addressed as follows:
14
<PAGE> 16
if to the Company:
K & F Industries, Inc.
600 Third Avenue
New York, New York 10016
Fax: (212) 867-1182
Telephone: (212) 297-0900
Attention: Kenneth M. Schwartz
Executive Vice President
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Fax: (212) 408-2420
Telephone: (212) 408-2400
Attention: Robert Seber, Esq.
if to any Selling Stockholder, to his or its address set forth on
Schedule II;
or to such other address as the party to whom notice is to be given may have
furnished to the other parties in writing in accordance herewith. Any such
notice or communication shall be deemed to have been received (a) in the case of
personal delivery, on the date of such delivery, (b) in the case of
nationally-recognized overnight courier, on the next business day after the date
when sent, (c) in the case of telecopy transmission, when received, and (d) in
the case of mailing, on the third business day following that on which the piece
of mail containing such communication is posted.
9.4 Entire Agreement; Amendments.
This Agreement contains the entire agreement, and supersedes all
prior agreements, between the parties with respect to the subject matter hereof.
This Agreement may be amended only by a written instrument duly executed by the
Company and the Existing Stockholders; provided, however, that any such
amendment shall not discriminate against any other Selling Stockholder without
his or its consent.
9.5 Governing Law.
15
<PAGE> 17
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without given effect to its principles
governing conflicts of laws, except to the extent the General Corporation Law of
the State of Delaware governs.
9.6 Headings.
The headings of this Agreement are for purposes of reference only
and shall not limit or otherwise affect any of the terms or provisions hereof.
9.7 Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
16
<PAGE> 18
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered on the date first above written.
K & F INDUSTRIES, INC.
By: /s/ KENNETH M. SCHWARTZ
--------------------------------------
Name: Kenneth M. Schwartz
Title: Executive Vice President
THE SELLING STOCKHOLDERS:
/s/ BERNARD L. SCHWARTZ
------------------------------------------
Bernard L. Schwartz
CBC CAPITAL PARTNERS, INC.
By: /s/ DONALD HOFFMAN
--------------------------------------
Name: Donald Hoffman
Title:
LORAL SPACE & COMMUNICATIONS
LTD.
By: /s/
--------------------------------------
Name:
Title:
LEHMAN BROTHERS CAPITAL PARTNERS II, L.P.
By: Lehman Brothers Holdings
Inc., General Partner
By: /s/ ALAN H. WASHKOWITZ
--------------------------------------
Name: Alan H. Washkowitz
Title: Vice President
17
<PAGE> 19
LEHMAN BROTHERS MERCHANT
BANKING PORTFOLIO PARTNERSHIP
L.P.
By: LB I Group Inc., General
Partner
By: /s/ ALAN H. WASHKOWITZ
----------------------------------
Name: Alan H. Washkowitz
Title: Senior Vice President
LEHMAN BROTHERS OFFSHORE
INVESTMENT PARTNERSHIP L.P.
By: Lehman Brothers Offshore
Partners Ltd., General
Partner
By: /s/ ALAN H. WASHKOWITZ
----------------------------------
Name: Alan H. Washkowitz
Title: Authorized Signatory
LEHMAN BROTHERS OFFSHORE
INVESTMENT PARTNERSHIP - JAPAN L.P.
By: Lehman Brothers Offshore
Partners Ltd., General
Partner
By: /s/ ALAN H. WASHKOWITZ
----------------------------------
Name: Alan H. Washkowitz
Title: Authorized Signatory
/s/ *
----------------------------------
Harold Booher
/s/ *
----------------------------------
Dirkson Charles
/s/ *
----------------------------------
Frank Crampton
18
<PAGE> 20
/s/ *
----------------------------------
Glenn D'Alessandro
/s/ *
----------------------------------
Bruce DeYoung
/s/ *
----------------------------------
Donald Fogelsanger
/s/ *
----------------------------------
Richard Johnson
/s/ *
----------------------------------
Terry Lindsey
/s/ *
----------------------------------
Roger Martin
/s/ *
----------------------------------
Hal Miller
/s/ *
----------------------------------
Gregory Much
/s/ *
----------------------------------
Thomas Nemcheck
/s/ KENNETH M. SCHWARTZ
----------------------------------
Kenneth Schwartz
/s/ *
----------------------------------
Edward Searle
/s/ *
----------------------------------
John Skubina
/s/ *
----------------------------------
R. Welsch
19
<PAGE> 21
/s/ *
----------------------------------
Jerry Wisener
/s/ MICHAEL P. DEBLASIO
----------------------------------
Michael P. DeBlasio
/s/ *
----------------------------------
B. LaPenta
/s/ *
----------------------------------
F. Lanza
/s/ MICHAEL B. TARGOFF
----------------------------------
Michael B. Targoff
MICHAEL B. TARGOFF TRUST DATED
05/10/80
/s/ RICHARD RAYNER
----------------------------------
Name: Richard Rayner
Title: Trustee
*Signed for by Dirkson R. Charles, Attorney in Fact.
20
<PAGE> 22
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
Shares Purchase Shares
----------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Common Preferred Stock Common Stock Preferred Stock Exercise Price
Stock
Name
PART A:
Bernard L. Schwartz 553,343 - 482,843 - N/A
minus 50% of the
Retained Number (as
defined below)
CBC Capital Partners, 1 44,999 1 44,999 N/A
Inc.
Loral Space &
Communications Ltd. 458,994 -- 458,994 -- N/A
Lehman Brothers Capital
Partners II, L.P. -- 325,156 -- 325,156 N/A
minus 16.55% of
the Retained Number
Lehman Brothers Merchant
Banking Portfolio -- 478,387 -- 478,387 N/A
Partnership L.P.
minus 24.34% of
the Retained Number
Lehman Brothers Offshore
Investment Partnership -- 129,745 -- 129,745 N/A
L.P.
minus 6.60% of
the Retained Number
Lehman Brothers Offshore
Investment Partnership -- 49,348 -- 49,348 N/A
- Japan L.P.
minus 2.51% of
the Retained Number
</TABLE>
- --------------------------------------------------------------------------------
"Retained Number" means the quotient, rounded up to the next even integer,
obtained by dividing (i) $130,000,000 by (ii) the Per Share Price.
21
<PAGE> 23
<TABLE>
<CAPTION>
Shares Purchase Shares
----------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Common Preferred Stock Common Stock Preferred Stock Exercise Price
Stock
PART B:
Harold Booher 500 -- 500 -- $ 42,300
Dirkson Charles 850 -- 850 -- $ 71,910
Frank Crampton 300 -- 300 -- $ 25,380
Glenn D'Alessandro 250 -- 250 -- $ 21,150
Bruce DeYoung 300 -- 300 -- $ 25,380
Donald Fogelsanger 2,500 -- 2,500 -- $211,500
Richard Johnson 500 -- 500 -- $ 42,300
Terry Lindsey 400 -- 400 -- $ 33,840
Roger Martin 1,500 -- 1,500 -- $126,900
Hal Miller 500 -- 500 -- $ 42,300
Gregory Much 300 -- 300 -- $ 25,380
Thomas Nemcheck 500 -- 500 -- $ 42,300
Kenneth Schwartz 1,500 -- 1,500 -- $126,900
Edward Searle 300 -- 300 -- $ 25,380
John Skubina 150 -- 150 -- $ 12,690
R. Welsch 500 -- 500 -- $ 42,300
Jerry Wisener 400 -- 400 -- $ 33,840
- ------------------------------------------------------------------------------------------------------------------
Total 11,250 -- 11,250 -- $951,750
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
Shares Purchase Shares
----------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Common Preferred Stock Common Stock Preferred Stock Exercise Price
Stock
PART C:
Frank Crampton 1,000 -- 1,000 -- $ 40,000
Michael P. DeBlasio 10,000 -- 10,000 -- $ 400,000
Donald Fogelsanger 5,000 -- 5,000 -- $ 200,000
B. LaPenta 10,000 -- 10,000 -- $ 400,000
F. Lanza 10,000 -- 10,000 -- $ 400,000
Roger C. Martin 2,500 -- 2,500 -- $ 100,000
Kenneth M. Schwartz 12,000 -- 12,000 -- $ 480,000
Michael B. Targoff 10,000 -- 10,000 -- $ 400,000
Michael B. Targoff
Trust dated 05/10/80 10,000 -- 10,000 -- $ 400,000
- ------------------------------------------------------------------------------------------------------------------------
Total 70,500 -- 70,500 -- $2,820,000
</TABLE>
23
<PAGE> 25
SCHEDULE II
SELLING STOCKHOLDERS
Bernard L. Schwartz
Loral Space & Communications Ltd.
600 Third Avenue
New York, New York 10016
Fax: (212) 661-8988
CBC Capital Partners, Inc.
380 Madison Avenue
12th Floor
New York, New York 10017
Fax: (212) 622-3101
Attention: Jeffrey C. Walker
Loral Space & Communications Ltd.
600 Third Avenue
New York, New York 10016
Fax: (212) 661-8988
Attention: General Counsel
Lehman Brothers Capital Partners II, L.P.
Lehman Brothers Merchant Banking Portfolio Partnership L.P.
Lehman Brothers Offshore Investment Partnership L.P.
Lehman Brothers Offshore Investment Partnership - Japan L.P.
3 World Financial Center
New York, New York 10285
Fax: (212) 526-3738
Attention: Alan Washkowitz
Harold Booher
Dirkson Charles
Frank Crampton
Glenn D'Alessandro
Bruce DeYoung
Donald Fogelsanger
Richard Johnson
Terry Lindsey
Roger C. Martin
Hal Miller
Gregory Much
Thomas Nemcheck
Kenneth M. Schwartz
Edward Searle
John Skubina
R. Welsch
Jerry Wisner
Michael P. DeBlasio
B. LaPenta
24
<PAGE> 26
F. Lanza
Michael B. Targoff
Michael B. Targoff
Trust dated 05/10/80
c/o K & F Industries, Inc.
600 Third Avenue
New York, New York 10016
Fax: (212) 867-1182
Attention: Kenneth M. Schwartz
Executive Vice President
25
<PAGE> 1
Exhibit 2.03
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT ("Stock Purchase Agreement")
DATED SEPTEMBER 15, 1997, dated as of October 15, 1997, among (i) K & F
INDUSTRIES, INC., a Delaware corporation (the "Company"), and (ii) the
securityholders of the Company listed in Part A of Schedule I to the Stock
Purchase Agreement.
1. Definitions. All capitalized terms used herein without definition
have the meanings assigned thereto in the Stock Purchase Agreement.
2. Amendment to Section 1.3(a). The first sentence of Section 1.3(a) of
the Stock Purchase Agreement is hereby amended in its entirety to read as
follows: "(a) The price per Share to be paid by the Company for the Purchase
Shares shall be an amount (the "Per Share Price") equal to the quotient obtained
by dividing (i) $625,000,000, plus $951,750 (which represents the aggregate
exercise price payable pursuant to the Company Options), plus the Cash Amount,
as set forth in the certificate referred to in paragraph (b) below, minus the
Debt Amount, as set forth in the certificate referred to in paragraph (b) below,
minus the Brokerage Fee (as defined in Section 4.5), by (ii) 2,051,223."
3. Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all the
counterparts shall together constitute one and the same instrument.
4. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of all parties to the Stock Purchase Agreement and their
respective successors and assigns.
5. Amendments and Waivers. This Amendment may be amended or waived only
in an agreement in writing, duly executed and delivered by the party to be
charged, and may not be amended or waived orally.
6. Integration. This Amendment and the Stock Purchase Agreement
constitute the full agreement of the parties with respect to the subject matter
hereof, and together integrate all written and oral communications pertaining to
the subject matter hereof, all of which are incorporated and superseded hereby.
7. Stock Purchase Agreement. Except as specifically amended hereby, the
Stock Purchase Agreement remains in full force and effect and is reaffirmed by
the parties hereto.
<PAGE> 2
IN WITNESS WHEREOF, and intending to be legally bound as of the date written
above, the parties hereto have duly executed this Amendment as set forth below:
K & F INDUSTRIES, INC.
By:/s/ Kenneth M. Schwartz
-------------------------------
Name: Kenneth M. Schwartz
Title: Executive Vice President
/s/ Bernard L. Schwartz
- -------------------------------
BERNARD L. SCHWARTZ
CBC CAPITAL PARTNERS, INC.
By: /s/ Donald J. Hoffman
----------------------------
Name: Donald J. Hoffman
Title:
LORAL SPACE & COMMUNICATIONS
LTD.
By: /s/ Eric J. Zahler
----------------------------
Name: Eric J. Zahler
Title: Vice President
LEHMAN BROTHERS CAPITAL PARTNERS
II, L.P.
By: Lehman Brothers Holdings
Inc., General Partner
By: /s/ Alan H. Washkowitz
----------------------------
Name: Alan H. Washkowitz
Title: Vice President
<PAGE> 3
LEHMAN BROTHERS MERCHANT BANKING
PORTFOLIO PARTNERSHIP L.P.
By: LB I Group Inc., General
Partner
By: /s/ Alan H. Washkowitz
----------------------------
Name: Alan H. Washkowitz
Title: Senior Vice President
LEHMAN BROTHERS OFFSHORE
INVESTMENT PARTNERSHIP L.P.
By: Lehman Brothers Offshore
Partners Ltd., General
Partner
By: /s/ Alan H. Washkowitz
----------------------------
Name: Alan H. Washkowitz
Title: Authorized Signatory
LEHMAN BROTHERS OFFSHORE
INVESTMENT PARTNERSHIP-JAPAN
L.P.
By: Lehman Brothers Offshore
Partners Ltd., General
Partner
By: /s/ Alan H. Washkowitz
----------------------------
Name: Alan H. Washkowitz
Title: Authorized Signatory
<PAGE> 1
Exhibit 3.01
RESTATED CERTIFICATE OF INCORPORATION
OF
K & F INDUSTRIES, INC.
The undersigned, Kenneth M. Schwartz and Ronald H. Kisner, being the
Executive Vice President and Secretary, respectively of K & F Industries, Inc.
a corporation organized and existing under the laws of the State of Delaware,
on behalf of said corporation, hereby certify as follows:
FIRST: The name of the corporation (hereinafter, the "Corporation") is
K & F Industries, Inc. The Corporation's original Certificate of Incorporation
was filed with the Secretary of State of the State of Delaware on March 13,
1989, under the name of "Opus Acquisition Corporation."
SECOND: The Certificate of Incorporation of the Corporation as in effect
on the date hereof is hereby amended and restated to read in its entirety as
set forth on Exhibit A attached hereto.
THIRD: Said amendment and restatement was duly adopted in accordance with
the provisions of Sections 228, 242 and 245 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this Certificate this
15th day of October, 1997.
By: /s/ Kenneth M. Schwartz
--------------------------------
Kenneth M. Schwartz
Executive Vice President
Attest: /s/ Ronald H. Kisner
--------------------------
Ronald H. Kisner
Secretary
<PAGE> 2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
K & F INDUSTRIES, INC.
-------------------------------------------------------------------
Pursuant to Section 103, Section 242 and Section 245 of the General
Corporation Law of the State of Delaware
-------------------------------------------------------------------
ARTICLE I
NAME
The name of the corporation is K & F Industries, Inc. (the
"Corporation").
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of the registered office of the Corporation in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington,
County of New Castle, Delaware 19801. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
OBJECT AND PURPOSES
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
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ARTICLE IV
CAPITAL STOCK
The Corporation shall be authorized to issue 1,000,000 shares of
Common Stock, $.01 par value (the "Common Stock"), which shall be the only class
of capital stock of the Company.
All shares of capital stock of the Corporation issued and
outstanding immediately prior to the date this Amended and Restated Certificate
of Incorporation becomes effective (the "Effective Date"), shall be, and hereby
are, automatically reclassified into Common Stock on a one-for-one basis. All
shares of capital stock of the Corporation purchased by the Corporation prior to
the Effective Date, shall be, and hereby are, automatically retired and
cancelled.
ARTICLE V
DIRECTORS
The number of directors of the Corporation shall be such as from
time to time shall be fixed by, or in the manner provided, in the By-Laws of the
Corporation. Election of directors need not be by ballot unless the By-Laws so
provide.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS; INSURANCE
1.(a) A director of the Corporation shall not be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
the law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit.
(b) If the General Corporation Law of the State of Delaware is
hereafter amended to further eliminate or limit the liability of a director of a
corporation, then a director of the Corporation, in addition to the
circumstances set forth herein, shall not be liable to the fullest extent
permitted by the General Corporation Law of the State of Delaware as so amended.
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2.(a) Each person who was or is a party or is threatened to be made a party to,
or is involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigate, by reason of
the fact that such person is or was a director, officer, employee or agent of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by applicable law. The right to
indemnification conferred in this ARTICLE VI shall also include the right to be
paid by the Corporation the expenses incurred in connection with any such
proceeding in advance of its final disposition to the fullest extent authorized
by applicable law. The right to indemnification conferred in this ARTICLE VI
shall be a contract right,
(b) The Corporation shall determine the right of any person to
receive indemnification as provided hereunder in accordance with the provisions
of applicable law.
3. The rights and authority conferred in this ARTICLE VI shall not be exclusive
of any other right which any person may have or hereafter acquire under any
statute, provision of this Amended and Restated Certificate of Incorporation or
the By-Laws of the Corporation, agreement, vote of stockholders or disinterested
directors or otherwise.
4. Neither the amendment nor repeal of this ARTICLE VI nor the adoption of any
provision of this Amended and Restated Certificate of Incorporation or the
By-laws of the Corporation of or any statute inconsistent with this ARTICLE VI
shall eliminate or reduce the effect of this ARTICLE VI in respect of any acts
or omissions occurring prior to such amendment or repeal or such adoption of an
inconsistent provision.
5. The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director or, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of the General Corporation Law of the State
of Delaware.
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ARTICLE VII
COMPROMISE OR ARRANGEMENT WITH CREDITORS
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court or equitable
jurisdiction within the State of Delaware, may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 Title 8 of the Delaware
Code order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths (3/4) in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
ARTICLE VIII
BY-LAW AMENDMENTS
The Board of Directors shall have the power to adopt, amend or
repeal the By-laws of the Corporation to the extent provided in the By-laws.
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Exhibit 3.02
AMENDED AND RESTATED
BY-LAWS
OF
K & F INDUSTRIES, INC.
AS OF OCTOBER 15, 1997
ARTICLE I
OFFICES
Section 1. Registered Office in Delaware.
The registered office of K & F Industries, Inc. (hereinafter called the
"Corporation") in the State of Delaware shall be in the City of Wilmington,
County of New Castle, and the registered agent in charge thereof shall be The
Corporation Trust Company.
Section 2. Other Offices.
The Corporation may have such other offices in such places, either within
or without the State of Delaware, as the Board of Directors may from time to
time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS; STOCKHOLDERS'
CONSENT IN LIEU OF MEETING
Section 1. Annual Meeting.
The annual meeting of stockholders for the election of directors and for
the transaction of such other business as may properly come before the meeting
shall be held at such place within or without the State of Delaware, and at such
date and hour, as shall be designated by the Board of Directors.
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Section 2. Special Meetings.
A special meeting of stockholders, for any purpose or purposes, may be
called at any time by any member of the Board of Directors or by the Chairman of
the Board. Any such meeting shall be held at such place within or without the
State of Delaware, and at such date and hour, as shall be designated in the
notice of such meeting.
Section 3. Notice of Meeting.
Unless waived in writing by the stockholder of record or unless such
stockholder is represented thereat in person or by proxy, each stockholder of
record shall be given written notice of each meeting of stockholders, which
notice shall state the place, date and hour of the meeting, and, in the case of
a special meeting, the purpose or purposes for which the meeting is called. Such
notice shall be given at least ten days and no more than sixty days before the
date fixed for such meeting.
Section 4. Quorum.
At each meeting of stockholders, the holders of record of a majority of the
issued and outstanding stock of the Corporation entitled to vote at such
meeting, present in person or by proxy, shall constitute a quorum for the
transaction of business, except where otherwise provided by law, the Certificate
of Incorporation or these By-Laws. In the absence of a quorum, any officer
entitled to preside at, or act as secretary of, such meeting shall have the
power to adjourn the meeting from time to time until a quorum shall be
constituted. At any such adjourned meeting at which a quorum shall be present
any business may be transacted which might have been transacted at the meeting
as originally called, but only those stockholders entitled to vote at the
meeting as originally noticed shall be entitled to vote at any adjournment or
adjournments thereof.
Section 5. Voting.
Except as otherwise provided in the Certificate of Incorporation, at every
meeting of stockholders each holder of record of the issued and outstanding
stock of the Corporation entitled to vote thereat shall be entitled to one vote,
in person or by proxy, for each share of stock held by such stockholder. Shares
of capital stock of the Corporation belonging to the Corporation directly or
indirectly shall not be voted directly or indirectly. At all meetings of
stockholders, a quorum being present, all matters shall be decided by majority
vote of the shares of stock entitled to vote thereat, except as otherwise
required by the laws of the State of Delaware. Unless demanded by a stockholder
of the Corporation present in person or by proxy at any meeting of stockholders
and entitled to vote thereat or so
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directed by the chairman of the meeting or required by the laws of the State of
Delaware, the vote thereat on any question need not be by ballot. On a vote by
ballot, each ballot shall be signed by the stockholder voting, or in his name by
his proxy, if there be such proxy, and shall state the number of shares voted by
him and the number of votes to which each share is entitled.
Section 6. Stockholders' Consent in Lieu of Meeting.
Any corporate action requiring a vote of stockholders may be taken without
a meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Such writing or writings shall be filed
with the minutes of stockholders' meetings and prompt notice of the taking of
any such action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not so consented in writing.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers.
The property, business and affairs of the Corporation shall be managed by
the Board of Directors.
Section 2. Number and Term of Holding Office.
The number of directors which shall constitute the whole Board of Directors
shall be nine, or such other number of directors as the Board may determine from
time to time. Each of the directors of the Corporation shall hold office until
the annual meeting next after his election and until his successor shall be
elected and shall qualify or until his earlier death or resignation or removal
in the manner hereinafter provided.
Section 3. Organization and Order of Business.
Except as otherwise provided in Article IV Section 2, at each meeting of
the Board of Directors, any director chosen by a majority of the directors
present thereat shall act as chairman of the meeting and preside thereat. The
Secretary of the Corporation or, in the case of his absence, any person whom the
chairman shall appoint, shall act as secretary of such meeting and keep the
minutes thereof.
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Section 4. Resignations.
Any director may resign at any time by giving written notice of his
resignation to the President or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, then it shall take
effect when accepted by action of the Board of Directors. Except as aforesaid,
the acceptance of such resignation shall not be necessary to make it effective.
Section 5. Removal of Directors.
Any director may be removed, either with or without cause, at any time by
vote of a majority in interest of the stockholders of Corporation.
Section 6. Vacancies.
Any vacancy in the Board of Directors, arising from death, resignation,
removal, an increase in the number of directors or any other cause, may be
filled either by a majority vote of the remaining directors, although less than
a quorum, or by the stockholders of the Corporation at the next annual meeting
or any special meeting called for the purpose.
Section 7. Place of Meeting.
The Board of Directors may hold its meetings at such place or places within
or without the State of Delaware as the Board may from time to time by
resolution determine or as shall be designated in the respective notices or
waivers of notice thereof.
Section 8. Meetings.
(a) Annual Meetings. As soon as practicable after each annual election of
directors, the Board of Directors shall meet for the purpose of organization and
the transaction of other business.
(b) Other Meetings. Other meetings of the Board of Directors shall be held
at such times and places as the Board shall from time to time determine or upon
call by the President of the Corporation.
Section 9. Notice of Meetings.
The Secretary of the Corporation shall give notice to each director of each
meeting, including the time and place of such meeting. Notice of each such
meeting shall be mailed to each director, addressed to him at his residence or
usual place
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of business, at least three days before the day on which such meeting is to be
held, or shall be sent to him by telegraph, cable, wireless or other form of
recorded communication or be delivered personally or by telephone not later than
the day before the day on which such meeting is to be held. Notice of any
meeting shall not be required to be given to any director who shall attend such
meeting. A written waiver of notice, signed by the person entitled thereto,
whether before or after the time stated therein, shall be deemed equivalent to
adequate notice.
Section 10. Quorum and Manner of Acting.
(a) General Provisions. Except as provided by law, the Certificate of
Incorporation or these By-Laws, a majority of the directors then in office (or
such other number of directors as the Board of Directors may determine from time
to time) shall be necessary at any meeting of the Board of Directors in order to
constitute a quorum for the transaction of business at such meeting, and the
vote of a majority of those directors present at any such meeting at which a
quorum is present shall be necessary for the passage of any resolution or act of
the Board. In the absence of a quorum for any such meeting, a majority of the
directors present thereat may adjourn such meeting from time to time until a
quorum shall be present thereat. Notice of any adjourned meeting need not be
given.
(b) Certain Actions. Notwithstanding the provisions of Section 10(a) and
Section 14 and for so long as there are Lehman Designees on the Board the
following listed actions proposed to be taken by the Corporation, directly or
indirectly, shall require the affirmative vote of a majority of the directors
then in office, including the affirmative vote of at least one of the directors
on the Board nominated as director-designees ("Lehman Designees") by the
Lehman Group, as such term is defined in the Stockholders' Agreement dated
October 15, 1997 between the Corporation and the stockholders identified
therein:
(i) mergers, consolidations, recapitalizations and reorganizations of the
Corporation other than with or into a wholly-owned subsidiary of the
Corporation;
(ii) issuances of any capital stock ("Capital Stock") by the Corporation
(other than any issuance of Common Stock of the Corporation upon conversion of
any convertible stock), including any public offering of Capital Stock;
(iii) repurchases (other than repurchases of Common Stock issued pursuant
to the exercise of options held by employees pursuant to option plans of the
Company) of and dividends on Capital Stock by the Corporation or its
subsidiaries;
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(iv) the issuance of employee options representing in excess of 50,000
shares of Capital Stock;
(v) the acquisition, sale or exchange of assets with a value in excess of
$5,000,000;
(vi) dissolution or liquidation of the Corporation;
(vii) amendment of the Restated Certificate of Incorporation or these
Amended and Restated By-Laws;
(viii) the incurrence of debt or liens in excess of $10,000,000 in the
aggregate;
(ix) the making of loans, investments or capital expenditures in an
aggregate amount in excess of $10,000,000, in each case in any single year;
(x) transactions with affiliates of the Corporation;
(xi) engagement in new types of businesses or ventures by the Corporation;
(xii) prepayments of or amendments to any amount of financing in excess of
$10,000,000;
(xiii) provision of compensation to the Chairman of the Board and other
directors or directors of subsidiaries in addition to base compensation of
$2,400,000 per annum;
(xiv) and approval and implementation of any noncompetition agreement with
the Chairman of the Board.
(c) Notwithstanding the foregoing, any consent heretofore granted by Lehman
Designees and any action heretofore authorized by the Board of Director or
otherwise currently in effect, including but not limited to any employee bonus
or compensation plan heretofore approved, shall remain in full force and effect.
Section 11. Action by Consent.
Any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if a
written consent thereto is signed by all members of the Board or of such
committee, as the case may be, and such written consent is filed with the
minutes of the proceedings of the Board or such committee.
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Section 12. Meetings by Telephone, etc.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of the Board, or of such committee, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this Section shall constitute presence in person at such
meeting.
Section 13. Compensation.
Each director, in consideration of his serving as such, shall be
entitled to receive from the Corporation such amount per annum or such fees for
attendance at meetings of the Board of Directors or of any committee thereof, or
both, as the Board shall from time to time determine. The Board may likewise
provide that the Corporation shall reimburse each director or member of a
committee for any expenses incurred by him on account of his attendance at any
such meeting. Nothing contained in this Section shall be construed to preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor.
Section 14. Committees.
The Board of Directors, by resolution passed by a majority of the
whole Board, may designate members of the Board to constitute one or more
committees, which shall in each case consist of such number of directors, not
fewer than two, and shall have and may exercise such powers as the Board may by
resolution determine and specify in the respective resolutions appointing them,
subject to Section 10(b) of these By-Laws. A majority of all the members of any
such committee may fix its rules of procedure, determine its action and fix the
time and place, whether within or without the State of Delaware, of its meetings
and specify what notice thereof, if any, shall be given, unless the Board shall
otherwise by resolution provide. The Board shall have power to change the
members of any such committee at any time, to fill vacancies therein and to
discharge any such committee, either with or without cause, at any time.
ARTICLE IV
OFFICERS
Section 1. Number.
The officers of the Corporation shall be a Chairman, a President, an
Executive Vice President, one or more Vice
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Presidents, a Treasurer and a Secretary. Each such officer shall be elected by
the Board of Directors at its initial organization meeting and thereafter at its
annual meeting and shall hold office until the next succeeding annual meeting of
the Board and until his successor is elected or until his earlier death or
resignation or removal in the manner hereinafter provided.
The Board may elect or appoint such other officers of the
Corporation (including one or more Assistant Treasurers and one or more
Assistant Secretaries) as it deems necessary who shall have such authority and
shall perform such duties as the Board may prescribe. If additional officers are
elected or appointed during the year, each of them shall hold office until the
next annual meeting of the Board at which officers are regularly elected or
appointed and until his successor is elected or appointed or until his earlier
death or resignation or removal in the manner hereinafter provided.
A vacancy in any office may be filled for the unexpired portion of
the term in the same manner as provided for election or appointment to such
office.
All officers and agents elected or appointed by the Board shall be
subject to removal at any time by the Board with or without cause.
Any officer may resign at any time by giving written notice to the
Chairman, President or the Secretary of the Corporation, and such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, it shall take effect when
accepted by action of the Board. Except as aforesaid, the acceptance of such
resignation shall not be necessary to make it effective.
Section 2. Chairman of the Board.
The Board of Directors may appoint one of its members to be Chairman
of the Board. If so appointed, he shall preside at all meetings of the Board of
Directors and at all meetings of the stockholders and shall have and exercise
such further powers and duties as may from time to time be conferred upon or
assigned to him by the Board of Directors. Subject to the direction of the
Board, the Chairman shall be the Chief Executive Officer of the Corporation,
shall have general charge of the business and affairs of the Corporation and may
assign such duties to other officers of the Corporation as he deems appropriate.
Section 3. President.
The President shall have such powers and perform such duties as the
Board of Directors and the Chief Executive Officer
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may from time to time prescribe and shall perform such other duties as may be
prescribed by these By-Laws.
Section 4. Executive Vice President.
The Executive Vice President shall have such powers and perform such
duties as the Chief Executive Officer, the President or the Board may from time
to time prescribe and shall perform such other duties as may be prescribed by
these By-Laws. At the request of the President, or in case of his absence or
inability to act, the Executive Vice President shall perform the duties of the
President and, when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President.
Section 5. Vice Presidents.
Vice Presidents shall have such powers and perform such duties as
the Chief Executive Officer, the President or the Board may from time to time
prescribe and shall perform such other duties as may be prescribed by these
By-Laws.
Section 6. Treasurer.
The Treasurer of the Corporation shall have charge and custody of
and be responsible for all funds and securities of the Corporation and its books
of account.
Section 7. Secretary.
The Secretary of the Corporation shall keep the records of all
meetings of the stockholders and the Board of Directors. He shall affix the seal
of the Corporation to all deeds, contracts, bonds or other instruments requiring
the corporate seal when the same shall have been signed on behalf of the
Corporation by a duly authorized officer and shall be the custodian of all
contracts, deeds, documents and all other indicia of title to Properties owned
by the Corporation and of its other corporate records.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 1. Execution of Documents.
Any officer, employee or agent of the Corporation designated by the
Board of Directors shall have power to execute and deliver deeds, contracts,
mortgages, bonds, debentures, checks, drafts and other orders for the payment of
money and
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other documents for and in the name of the Corporation, and the Board
of Directors may authorize any such officer, employee or agent to delegate such
power (including authority to redelegate) by written instrument to other
officers, employees or agents of the Corporation.
Section 2. Deposits.
All funds of the Corporation not otherwise employed shall be
deposited from time to time to the credit of the Corporation or otherwise as the
Board of Directors or the President or any other officer of the Corporation to
whom power in that respect shall have been delegated by the Board shall select.
ARTICLE VI
BOOKS AND RECORDS
The books and records of the Corporation may be kept at such places
within or without the State of Delaware as the Board of Directors may from time
to time determine.
ARTICLE VII
SEAL
The Board shall provide a corporate seal, which shall be in the form
of a circle and shall bear the full name of the Corporation and the word
"Delaware" and figures representing the year of its incorporation.
ARTICLE VIII
INDEMNIFICATION
To the fullest extent permitted by Section 145 of the General
Corporation Law of the State of Delaware, as now in effect and as from time to
time amended, or any successor provisions thereto, the Corporation shall hold
harmless and indemnify against any expense, liability or loss (including,
without limitation, judgments, fines, settlement payments and the expense of
legal counsel) incurred by any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and whether
or not such action is an action by or in the right of the Corporation to
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procure a judgment in its favor, by reason of the fact that such person is or
was a director, officer, employee or agent of the Corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. The right to indemnification conferred in this article also shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition to the fullest
extent permitted by applicable law.
At the discretion of the Board of the Corporation and to the fullest
extent permitted by law, the Corporation may purchase insurance at its expense,
in amounts and in a manner determined by the Board, to protect itself and any
other person who is or was a director, officer, employee or agent of the
Corporation or who is or was serving at the request of the Corporation as a
director, officer, employee or agent of another Corporation, partnership, joint
venture, trust or other enterprise, against any expense, liability or loss
incurred by such person in any such capacity or arising out of such person's
status as such, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under applicable law.
ARTICLE IX
SHARES AND THEIR TRANSFER
Section 1. Certificates of Stock.
Every owner of stock of the Corporation shall be entitled to have a
certificate certifying the number of shares owned by him or it in the
Corporation and designating the class of stock to which such shares belong,
which shall otherwise be in such form as the Board of Directors shall prescribe.
Each such certificate shall be signed by the President, the Executive Vice
President or any Vice President and the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Corporation. In case any officer
or officers who shall have signed any such certificate or certificates shall
cease to be such officer or officers of the Corporation, whether because of
death, resignation, removal or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and be issued and
delivered as though the person or persons who signed such certificate had not
ceased to be such officer or officers of the Corporation.
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Section 2. Record.
A record shall be kept of the name of the person, firm or
corporation owning the stock represented by each certificate for stock of the
Corporation issued, the number of shares represented by each such certificate,
and the date thereof, and, in the case of cancellation, the date of
cancellation. The person in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards the
Corporation.
Section 3. Transfer of Stock.
Transfers of shares of the stock of the Corporation shall be made
only on the books of the Corporation by the registered holder thereof, or by his
attorney thereunto authorized by power of attorney duly executed and filed with
the Secretary of the Corporation, and on the surrender of the certificate or
certificates for such shares properly endorsed.
Section 4. Lost, Destroyed or Mutilated Certificate.
In case of the alleged loss or destruction or the mutilation of a
certificate representing stock of the Corporation, a new certificate may be
issued in place thereof, in the manner and upon such terms as the Board of
Directors may prescribe.
Section 5. Regulations.
The Board of Directors may make such rules and regulations as it may
deem expedient, not inconsistent with the Certificate of Incorporation or these
By-Laws, concerning the issue, transfer and registration of certificates for
shares of the stock of the Corporation. It may appoint, or authorize any
principal officer or officers to appoint, one or more transfer agents and one or
more registrars, and may require all certificates of stock to bear the signature
or signatures of any of them. The Board of Directors may at any time terminate
the employment of any transfer agent or any registrar of transfers.
Section 6. Stockholder Agreements.
Shares of stock of the Corporation may be subject to one or more
agreements abridging, limiting or restricting the rights of any one or more of
the stockholders to sell, assign, transfer, mortgage, pledge or hypothecate any
or all of the stock of the Corporation held by them, or providing for preemptive
rights, or may be subject to one or more agreements providing a purchase option
with respect to any shares of stock of the Corporation or establishing certain
voting rights and obligations. If such agreements exist, all certificates of
shares of stock subject to
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such abridgements, limitations, restrictions, or option shall have reference
thereto endorsed on such certificate, and such stock shall not thereafter be
transferred on the books of the Corporation except in accordance with the terms
and conditions of such agreement or agreements. Copies of such agreement or
agreements shall be maintained at the offices of the Corporation.
ARTICLE X
AMENDMENTS
These By-laws, or any of them, may be altered, amended or repealed,
or new By-laws may be made, by the Stockholders entitled to vote thereon at any
annual or special meeting thereof or by the Board of Directors; provided that,
for so long as there are directors nominated as Director-Designees by the Lehman
Group on the Board of Directors, no such alteration, amendment, repeal or
restatement may be approved by the Board of Directors without the affirmative
vote of at least one of the Directors nominated by the Lehman Group.
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Exhibit 4.01
EXECUTION COPY
================================================================================
-----------------------------------------
K & F INDUSTRIES, INC.
9 1/4% SENIOR SUBORDINATED NOTES DUE 2007
---------
INDENTURE
Dated as of October 15, 1997
---------
---------
STATE STREET BANK AND TRUST COMPANY
---------
Trustee
================================================================================
<PAGE> 2
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.
(a)(5) ............................................... 7.10
(b) .................................................. 7.10
(c) .................................................. N.A.
311 (a) .................................................. 7.11
(b) .................................................. 7.11
(c) .................................................. N.A.
312 (a) .................................................. 2.05
(b) ................................................... 11.03
(c) .................................................. 11.03
313 (a) .................................................. 7.06
(b)(1) ............................................... N.A.
(b)(2) ............................................... 7.06
(c) .................................................. 7.06;11.02
(d) .................................................. 7.06
314 (a) .................................................. 4.03;4.04
(b) .................................................. N.A
(c)(1) ............................................... 11.04
(c)(2) ............................................... 11.04
(c)(3) ............................................... N.A.
(d) .................................................. N.A.
(e) .................................................. 11.05
(f) .................................................. N.A.
315 (a) .................................................. 7.02,11.02
(b) .................................................. 7.05,11.02
(c) .................................................. 7.01
(d) .................................................. 7.01
(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
(c) .................................................. N.A.
317 (a)(1) ................................................ 6.08
(a)(2)................................................ 6.09
(b) .................................................. 2.04
318 (a) .................................................. 11.01
(b) .................................................. N.A.
(c) .................................................. 11.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.................................................. 1
Section 1.02. Other Definitions............................................ 15
Section 1.03. Incorporation by Reference of Trust Indenture Act............ 15
ARTICLE 2
THE NOTES
Section 2.01 Form and Dating.............................................. 16
Section 2.02. Execution and Authentication................................. 17
Section 2.03. Registrar and Paying Agent................................... 18
Section 2.04. Paying Agent to Hold Money in Trust.......................... 18
Section 2.05. Holder Lists................................................. 18
Section 2.06. Transfer and Exchange.........................................19
Section 2.07. Replacement Notes............................................ 31
Section 2.08. Outstanding Notes............................................ 31
Section 2.09. Treasury Notes............................................... 31
Section 2.10. Temporary Notes.............................................. 32
Section 2.11. Cancellation................................................. 32
Section 2.12. Defaulted Interest........................................... 32
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee........................................... 33
Section 3.02. Selection of Notes to Be Redeemed............................ 33
Section 3.03. Notice of Redemption......................................... 33
Section 3.04. Effect of Notice of Redemption............................... 34
Section 3.05. Deposit of Redemption Price.................................. 34
Section 3.06. Notes Redeemed in Part....................................... 35
Section 3.07. Optional Redemption.......................................... 35
Section 3.08. Mandatory Redemption......................................... 35
Section 3.09. Offer to Purchase by Application of Excess Proceeds.......... 35
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes............................................. 37
Section 4.02. Maintenance of Office or Agency.............................. 37
Section 4.03. Reports...................................................... 38
Section 4.04. Compliance Certificate....................................... 38
Section 4.05. Taxes........................................................ 39
Section 4.06. Stay, Extension and Usury Laws............................... 39
Section 4.07. Restricted Payments.......................................... 39
Section 4.08. Dividend and Other Payment Restrictions
Affecting Subsidiaries....................................... 41
Section 4.09. Incurrence of Indebtedness and Issuance of
Preferred Stock.............................................. 42
Section 4.10. Asset Sales.................................................. 44
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Section 4.11. Transactions with Affiliates................................. 44
Section 4.12. Liens........................................................ 45
Section 4.13. Offer to Repurchase Upon Change of Control................... 45
Section 4.14. Payments For Consent......................................... 47
Section 4.15. No Senior Subordinated Debt.................................. 47
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets..................... 47
Section 5.02. Successor Corporation Substituted............................ 48
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default............................................ 48
Section 6.02. Acceleration................................................. 49
Section 6.03. Other Remedies............................................... 50
Section 6.04. Waiver of Past Defaults...................................... 51
Section 6.05. Control by Majority.......................................... 51
Section 6.06. Limitation on Suits.......................................... 51
Section 6.07. Rights of Holders of Notes to Receive Payment................ 52
Section 6.08. Collection Suit by Trustee................................... 52
Section 6.09. Trustee May File Proofs of Claim............................. 52
Section 6.10. Priorities................................................... 52
Section 6.11. Undertaking for Costs........................................ 53
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee............................................ 53
Section 7.02. Rights of Trustee............................................ 54
Section 7.03. Individual Rights of Trustee................................. 55
Section 7.04. Trustee's Disclaimer......................................... 55
Section 7.05. Notice of Defaults........................................... 55
Section 7.06. Reports by Trustee to Holders of the Notes................... 55
Section 7.07. Compensation and Indemnity................................... 55
Section 7.08. Replacement of Trustee....................................... 56
Section 7.09. Successor Trustee by Merger, etc............................. 57
Section 7.10. Eligibility; Disqualification................................ 57
Section 7.11. Preferential Collection of Claims Against Company............ 58
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance..... 58
Section 8.02. Legal Defeasance and Discharge............................... 58
Section 8.03. Covenant Defeasance.......................................... 58
Section 8.04. Conditions to Legal or Covenant Defeasance................... 59
Section 8.05. Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions................ 60
Section 8.06. Repayment to the Company..................................... 61
Section 8.07. Reinstatement................................................ 61
Section 8.08. Satisfaction and Discharge................................... 61
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ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes.......................... 62
Section 9.02. With Consent of Holders of Notes............................. 62
Section 9.03. Compliance with Trust Indenture Act.......................... 64
Section 9.04. Revocation and Effect of Consents............................ 64
Section 9.05. Notation on or Exchange of Notes............................. 64
Section 9.06. Trustee to Sign Amendments, etc.............................. 64
ARTICLE 10
SUBORDINATION
Section 10.01. Notes Subordinated to Senior Indebtedness.................... 65
Section 10.02. Certain Definitions.......................................... 65
Section 10.04. Payment Over of Proceeds Upon Dissolution, Etc............... 66
Section 10.05. Subrogation.................................................. 67
Section 10.06. Obligations of the Company Unconditional..................... 68
Section 10.07. Notice to Trustee............................................ 68
Section 10.08. Reliance on Judicial Order or Certificate of
Liquidating Agent............................................ 69
Section 10.09. Trustee's Relation to Senior Indebtedness.................... 69
Section 10.10. Subordination Rights Not Impaired by Acts of Omissions
of the Company or holders of Senior Indebtedness............. 69
Section 10.11. Holders of Notes Authorize Trustee to Effectuate
Subordination of the Notes................................... 70
Section 10.12. Article 10 Not to Prevent Events of Default.................. 70
Section 10.13. Trustee's Compensation Not Prejudiced........................ 70
Section 10.14. Reliance By Holders of Senior Indebtedness On
subordination Provisions .................................... 70
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls................................. 71
Section 11.02. Notices...................................................... 71
Section 11.03. Communication by Holders of Notes with Other Holders
of Notes..................................................... 72
Section 11.04. Certificate and Opinion as to Conditions Precedent........... 72
Section 11.05. Statements Required in Certificate or Opinion................ 72
Section 11.06. Rules by Trustee and Agents.................................. 73
Section 11.07. No Personal Liability of Directors, Officers, Employees
and Stockholders............................................. 73
Section 11.08. Governing Law................................................ 73
Section 11.09. No Adverse Interpretation of Other Agreements................ 73
Section 11.10. Successors................................................... 73
Section 11.11. Severability................................................. 73
Section 11.12. Counterpart Originals........................................ 73
Section 11.13. Table of Contents, Headings, etc............................. 74
Section 11.14. Reliance By Holders of Senior Indebtedness On Subordinated... 71
Provisions
iii
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EXHIBITS
Exhibit A-1 FORM OF NOTE
Exhibit A-2 FORM OF REGULATION S TEMPORARY
GLOBAL NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE FROM ACQUIRING
ACCREDITED INVESTOR
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<PAGE> 7
INDENTURE dated as of October 15, 1997 among K & F Industries, Inc., a
Delaware corporation (the "Company") and State Street Bank and Trust Company, a
Massachusetts trust company, as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each other
and for the equal and ratable benefit of the Holders of the 9 1/4% Series A
Senior Subordinated Notes due 2007 (the "Series A Notes") of the Company and the
9 1/4% Series B Senior Subordinated Notes due 2007 of the Company (the "Series B
Notes" and, together with the Series A Notes, the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS
"Accredited Investor" means an "accredited investor" as defined in Rule
501(a) under the Securities Act, who is not also a QIB.
"AI Global Note" means the global Note in the form of Exhibit A-1 hereto
bearing the Global Note Legend and the Private Placement Legend and deposited
with or on behalf of and registered in the name of the Depositary or its nominee
that will be issued in a denomination equal to the outstanding principal amount
of the Notes sold to Accredited Investors.
"144A Global Note" means a global note in the form of Exhibit A-1 hereto
bearing the Global Note Legend and the Private Placement Legend and deposited
with or on behalf of and registered in the name of, the Depositary or its
nominee that will be issued in a denomination equal to the outstanding principal
amount of the Notes sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
<PAGE> 8
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Aircraft Braking Systems" means Aircraft Braking Systems Corporation, a
Delaware corporation and a Wholly Owned Subsidiary of the Company.
"Applicable Procedures" means, with respect to any transfer or exchange of
or for beneficial interests in any Global Note, the rules and procedures of the
Depositary, Euroclear and Cedel that apply to such transfer or exchange.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback, other
than sale and leaseback transactions so long as the present value of the rental
obligations of the Company and its Subsidiaries thereunder do not exceed $30
million in the aggregate since the Issue Date) other than sales of inventory in
the ordinary course of business consistent with past practices (provided that
the sale, lease, conveyance or other disposition of all or substantially all of
the assets of the Company and its Subsidiaries taken as a whole shall be
governed by Section 4.13 and Article 5 hereof and not Section 4.10 hereof), and
(ii) the issue or sale by the Company or any of its Subsidiaries of Equity
Interests of any of the Company's Subsidiaries, in the case of either clause (i)
or (ii), whether in a single transaction or a series of related transactions (a)
that have a fair market value in excess of $5 million or (b) for net proceeds in
excess of $5 million. Notwithstanding the foregoing: (i) a transfer of assets by
the Company to a Subsidiary or by a Subsidiary to the Company or to another
Subsidiary, (ii) an issuance of Equity Interests by a Subsidiary to the Company
or to another Subsidiary, and (iii) a Restricted Payment that is permitted by
Section 4.07 hereof will not be deemed to be Asset Sales.
"Bank" means any financial institution extending credit under the New
Credit Facility.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"BLS" means Bernard L. Schwartz.
"BLS Group" means (i) BLS, (ii) BLS's spouse and descendants
(collectively, "relatives"); (iii) a trust of which there are no beneficiaries
other than BLS and the relatives of BLS; (iii) a partnership, corporation or
limited liability company of which there are no other partners stockholders or
members, as applicable, other than BLS or the relatives of BLS; (v) a legal
representative or guardian of BLS or a relative of BLS if BLS or such relative
becomes mentally incompetent, (vi) any person succeeding BLS or a relative of
BLS by will or by the laws of descent, (vii) any individual who is employed by,
a consultant to or a director of the Company or any of its subsidiaries, and
(viii) any individual who is a consultant or advisor to BLS with respect to the
investment by BLS in the Company.
2
<PAGE> 9
"Board" means the Board of Directors, any managers or other similar
governing entity of the Company, the members of which are, in each case, elected
by the equity holders of the Company, including any duly authorized committee of
the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) the discounted present value of the
rental obligations of such Person as lessee under which, in conformity with
GAAP, is required to be capitalized on the balance sheet of that Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than twelve
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500 million, (iv) repurchase obligations with
a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above and (v)
commercial paper having a rating of at least A-3 from Moody's Investors Service,
Inc. or P-3 from Standard & Poor's Corporation and in each case maturing within
six months after the date of acquisition.
"Cedel" means Cedel Bank, S.A.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Permitted Investors, (ii) the adoption of a plan relating to
the liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any person (as defined above), other than the Permitted
Investors, becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50%
of the voting stock of the Company or (iv) the first day on which a majority of
the members of the Board of the Company are not Continuing Directors. For
purposes of this definition, any transfer of an Equity Interest of an entity
that was formed for the purpose of acquiring voting stock of the Company will be
deemed to be a transfer of such portion of such voting stock as corresponds to
the portion of the equity of such entity that has been so transferred.
3
<PAGE> 10
"Company" means K & F Industries, Inc., a Delaware corporation.
"Consolidated Capital Expenditures" means, for any period, the aggregate
of all expenditures incurred (whether paid in cash or accrued as liabilities) by
the Company and its Consolidated Subsidiaries during such period that, in
conformity with GAAP are included in the property, plant or equipment or similar
fixed asset account reflected in the consolidated balance sheet of the Company
and its Consolidated Subsidiaries.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any net loss realized in connection with an Asset Sale (to the extent
such losses were deducted in computing such Consolidated Net Income), plus (ii)
provision for taxes based on income or profits of such Person and its
Subsidiaries for such period, to the extent that such provision for taxes was
included in computing such Consolidated Net Income, plus (iii) Consolidated
Interest Expense of such Person and its Subsidiaries for such period, whether
paid or accrued (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations but excluding amortization
of deferred financing fees incurred in connection with the Recapitalization), to
the extent that any such expense was deducted in computing such Consolidated Net
Income, plus (iv) depreciation, amortization (including amortization of goodwill
and other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash charges (excluding any such
non-cash charge to the extent that it represents an accrual of or reserve for
cash charges in any future period or amortization of a prepaid cash expense that
was paid in a prior period) of such Person and its Subsidiaries for such period
to the extent that such depreciation, amortization and other non-cash charges
were deducted in computing such Consolidated Net Income in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in same proportion) that the Net
Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Subsidiary
without prior governmental approval (that has not been obtained), and without
direct or indirect restriction pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Interest Expense" of any Person for any period means
interest expense (including amortization of original issue discount and non-cash
interest payments or accruals and the interest portion of Capitalized Leases but
excluding amortization of deferred financing fees incurred in connection with
the Recapitalization) of such Person and its Consolidated Subsidiaries, all as
determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Subsidiary thereof, (ii)
4
<PAGE> 11
the Net Income of any Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Subsidiary
of that Net Income is not at the date of determination permitted without any
prior governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its stockholders, (iii) the Net Income of any
Person acquired in a pooling of interests transactions for any period prior to
the date of such acquisition shall be excluded and (iv) the cumulative effect of
a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its Consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date hereof in the book value of any asset
owned by such Person or a Consolidated Subsidiary of such Person, (y) all
investments as of such date in unconsolidated Subsidiaries and in Persons that
are not Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Consolidated Subsidiary" of any Person means a Subsidiary which for
financial reporting purposes is or, in accordance with GAAP, should be,
accounted for by such Person as a consolidated subsidiary.
"Continuing Directors" means, as of any date of determination, any member
of the Board of the Company who (i) was a member of such Board on the date of
this Indenture or (ii) was nominated for election or elected to such Board with
the approval of a majority of the Continuing Directors who were members of such
Board at the time of such nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Cumulative Operating Cash Flow" means, for the period beginning September
30, 1997 through and including the end of the last fiscal quarter (taken as one
accounting period) preceding the date of any proposed Restricted Payment,
Operating Cash Flow for the Company and its Consolidated Subsidiaries for such
period determined on a consolidated basis in accordance with GAAP.
"Cumulative Total Interest Expense" means, for the period beginning
September 30, 1997 through and including the end of the last fiscal quarter
(taken as one accounting period) preceding the date of any proposed Restricted
Payment, Consolidated Interest Expense for the Company and its Consolidated
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP.
"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.
5
<PAGE> 12
"Definitive Note" means a certificated Note registered in the name of the
Holder thereof and issued in accordance with Section 2.06 hereof, in the form of
Exhibit A-1 hereto, except that such Note shall not bear the Global Note Legend
and shall not have the "Schedule of Exchanges of Interests in the Global Note"
attached thereto.
"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 pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
"Engineered Fabrics" means Engineered Fabrics Corporation, a Delaware
corporation and a Wholly Owned Subsidiary of the Company.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock so long as it is a debt
security).
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the offer that shall be made by the Company
pursuant to the Registration Rights Agreement to exchange Series A Notes for
Series B Notes.
"Exchange Offer Registration Statement" means the registration statement
relating to the Exchange Offer to be filed by the Company pursuant to the
Registration Rights Agreement.
"Existing Indebtedness" means all Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the date hereof, including the Notes, until such amounts are
repaid.
"Existing Notes" means the Company's 10 3/8% Senior Subordinated Notes due
2004.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations but excluding amortization of deferred financing fees incurred in
connection with the Recapitalization) and
6
<PAGE> 13
(ii) the consolidated interest of such Person and its Subsidiaries that was
capitalized during such period, and (iii) any interest expense on Indebtedness
of another Person that is guaranteed by such Person or one of its Subsidiaries
or secured by a Lien on assets of such Person or one of its Subsidiaries
(whether or not such Guarantee or Lien is called upon) and (iv) the product of
(a) all cash dividend payments (and non-cash dividend payments in the case of a
Person that is a Subsidiary) on any series of preferred stock of such Person,
times (b) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local statutory tax
rate of such Person, expressed as a decimal, in each case, on a consolidated
basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges shall
not be obligations of the referent Person or any of its Subsidiaries following
the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public 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, which are in effect from time to time.
"Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, in the forms of
Exhibit A-1 and Exhibit A-2 hereto issued in accordance with Section 2.01,
2.06(b)(iv), 2.06(d)(ii) or 2.06(f) hereof.
"Global Note Legend" means the legend set forth in Section 2.06(g)(ii),
which is required to be placed on all Global Notes issued under this Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
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<PAGE> 14
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, without duplication, with respect to any Person, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability upon
a balance sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether or
not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Independent Financial Advisor" means a nationally recognized investment
banking firm (i) which does not (and whose directors, officers, employees and
Affiliates do not) have a direct or indirect material financial interest in the
Company and (ii) which, in the sole judgment of the Board, is otherwise
independent and qualified to perform the task for which such firm is being
engaged.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or indirect
loans (including guarantees of Indebtedness or other obligations), advances or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided that
an acquisition of assets, Equity Interests or other securities by the Company
for consideration consisting of common equity securities of the Company shall
not be deemed to be an Investment. If the Company or any Subsidiary of the
Company sells or otherwise disposes of any Equity Interest of any direct or
indirect Subsidiary of the Company such that, after giving effect to any such
sale or disposition, such Person is no longer a Subsidiary of the Company, the
Company shall be deemed to have made an Investment on the date of any such sale
or disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of.
"Issue Date" means the date of this Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on which the Trustee
or banking institutions in the City of New York or at a place of payment are
authorized by law, regulation or executive
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<PAGE> 15
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.
"Lehman Investors" means those certain merchant banking partnerships
affiliated with Lehman Brothers Holdings Inc.
"Letter of Transmittal" means the letter of transmittal to be prepared by
the Company and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant to
Section 5 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain or loss, together with any related
provision for taxes on such extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting and investment
banking fees, and sales commissions) and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale, and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"New Credit Facility" means that certain New Credit Facility, dated as of
October 15, 1997, by and among Aircraft Braking Systems, Engineered Fabrics,
Lehman Brothers, as arranger, Lehman Commercial Paper Inc., as syndication
agent, The First National Bank of Chicago, as administrative agent, and the
lenders named therein, providing for up to $372.0 million of borrowings,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time with the
same or different lenders.
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"Non-U.S. Person" means a Person who is not a U.S. Person.
"Notes" means the Series A Notes and the Series B Notes.
"Note Custodian" means the Trustee, as custodian with respect to the Notes
in global form, or any successor entity thereto.
"Obligations" means any principal, interest, penalties, fees, expenses,
indemnifications, reimbursements, obligations, damages and other liabilities or
other amounts payable under the documentation governing any Indebtedness.
"Offering" means the Offering of the Notes by the Company.
"Officer" means, (a) with respect to any Person that is a corporation, 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 Controller, the Secretary or any Vice-President of such Person
and (b) with respect to any other Person, the individuals selected by the Board
of such Person to perform functions similar to those of the officers listed in
clause (a).
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the Chief Executive
Officer, the Chief Financial Officer, the Treasurer or the principal accounting
officer of the Company that meets the requirements of Section 11.05 hereof.
"Operating Cash Flow" of any Person means, for any period, the sum of (a)
Net Income of such Person and its consolidated Subsidiaries for such period,
plus (b) provision for taxes based on income or profits included in computing
Net Income of such Person for such period, plus (c) Consolidated Interest
Expense of such Person for such period, plus (d) other non-cash charges deducted
from consolidated revenues in determining Net Income of such Person for such
period, in each case, determined on a consolidated basis in accordance with
GAAP.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee, that meets the requirements of Section 11.05 hereof.
The counsel may be an employee of or counsel to the Company, any Subsidiary of
the Company or the Trustee.
"Participant" means, with respect to the Depositary, Euroclear or Cedel, a
Person who has an account with the Depositary, Euroclear or Cedel, respectively
(and, with respect to The Depository Trust Company, shall include Euroclear and
Cedel).
"Permitted Investments" means (a) any Investments in the Company or in a
Wholly Owned Subsidiary of the Company; (b) any Investments in Cash Equivalents;
(c) any Investment by the Company or any Subsidiary of the Company in a Person,
if as a result of such Investment (i) such Person becomes a Subsidiary of the
Company or (ii) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Subsidiary of the Company; and (d) any Restricted
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance Section 4.10 hereof.
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<PAGE> 17
"Permitted Investor" means (i) any Person that is a member of the BLS
Group or (ii) any Lehman Investor.
"Permitted Liens" means (i) Liens on assets of the Company or its
Subsidiaries that secure Senior Indebtedness permitted by the terms hereof to be
incurred; (ii) Liens in favor of the Company; (iii) Liens on property of a
Person existing at the time such Person is merged into or consolidated with the
Company or any Subsidiary of the Company; provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or consolidated
with the Company; (iv) Liens on property existing at the time of acquisition
thereof by the Company or any Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens existing on the date hereof and any extensions or renewals thereof,
provided that such Liens do not extend to or cover any other property or assets
of the Company or any Subsidiary; (vi) statutory Liens or landlords', carriers',
warehouseman's, mechanics', suppliers', materialmen's, repairmen's or other like
Liens arising in the ordinary course of business; (vii) Liens for taxes,
assessments, government charges or claims which are being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted,
and if a reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor; (viii) Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (ix)
Liens created or deposits made to secure the performance of tenders, bids,
leases, statutory obligations, surety and appeal bonds, government contracts,
performance and return-of-money bonds and other obligations of a like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (x) easements, rights-of-way, restrictions and other
similar charges or encumbrances not interfering in any material respect with the
business of the Company or any Significant Subsidiary incurred in the ordinary
course of business; (xi) any attachment or judgment Lien, unless the judgment it
secures shall not, within 60 days after the entry thereof, have been discharged
or execution thereof stayed pending appeal, or shall not have been discharged
within 60 days after the expiration of any such stay; (xii) any other Liens
imposed by operation of law which do not materially affect the Company's ability
to perform its obligations under the Notes and the Indenture; (xiii) rights of
banks to set off deposits against debts owed to said bank; (xiv) Liens upon
specific items of inventory or other goods and proceeds of the Company or its
Subsidiaries securing the Company's or any Subsidiary's obligations in respect
of bankers' acceptances issued or created for the account of any such Person to
facilitate the purchase, shipment or storage of such inventory or other goods;
(xv) Liens securing reimbursement obligations with respect to letters of credit
which encumber documents and other property relating to such letters of credit
and the products and proceeds thereof; (xvi) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (xvii) Liens encumbering
property of assets under construction arising from progress or partial payments
by a customer of the Company or one of its Subsidiaries relating to such
property or assets; (xviii) Liens on the property or assets of the Company or
its Subsidiaries in favor of the Pension Benefit Guaranty Corporation in respect
of unfunded pension obligations or similar obligations pursuant to any agreement
existing on the date of this Indenture as in effect on the date of this
Indenture; and (xix) Liens incurred in the ordinary course of business of the
Company or any Subsidiary of the Company with respect to obligations that do not
exceed $5 million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Subsidiary.
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"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; provided that: (i) the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount (or accreted
value, if applicable) of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of accrued and unpaid interest
thereon, reasonable expenses incurred in connection therewith and any associated
redemption premium); (ii) such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or agency or political subdivision thereof (including
any subdivision or ongoing business of any such entity or substantially all of
the assets of any such entity, subdivision or business).
"Private Placement Legend" means the legend set forth in Section
2.06(g)(i) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Recapitalization" means the Recapitalization as defined in the Offering
Memorandum.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of October 15, 1997, 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.
"Regulation S Global Note" means a Regulation S Temporary Global Note or
Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global Note in the
form of Exhibit A-1 hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Regulation S Temporary Global Note upon
expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary global Note in the
form of Exhibit A-2 hereto bearing the Private Placement Legend and deposited
with or on behalf of and registered in the name
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<PAGE> 19
of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Notes initially sold in reliance on Rule 903
of Regulation S.
"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration 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 Definitive Note" means a Definitive Note bearing the Private
Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private Placement
Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Period" means the 40-day restricted period as defined in
Regulation S.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Notes" means the 9 1/4% Senior Subordinated Notes due 2007 of
the Company issued under the Indenture.
"Series B Notes" means the 9 1/4% Senior Subordinated Notes due 2007 of
the Company issued under the Indenture pursuant to the Exchange Offer.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article I, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other
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Subsidiaries of that Person (or a combination thereof) and (ii) any partnership
(a) the sole general partner or the managing general partner of which is such
Person or a Subsidiary of such Person or (b) the only general partners of which
are such Person or of one or more Subsidiaries of such Person (or any
combination thereof).
"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.
"Transfer Restricted Securities" means securities that bear or are
required to bear the legend set forth in Section 2.06 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 Global Note" means a permanent global Note in the form of
Exhibit A-1 attached hereto that bears the Global Note Legend and that has the
"Schedule of Exchanges of Interests in the Global Note" attached thereto, and
that is deposited with or on behalf of and registered in the name of the
Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"Unrestricted Definitive Note" means one or more Definitive Notes that do
not bear and are not required to bear the Private Placement Legend.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership 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 and one or
more Wholly Owned Subsidiaries of such Person.
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SECTION 1.02. OTHER DEFINITIONS
Defined in
Term Section
"Asset Sale Offer"............................................... 3.09
"Blockage Period"................................................ 10.02
"Calculation Date"............................................... 1.01
"Change of Control Offer"........................................ 4.14
"Change of Control Payment"...................................... 4.14
"Change of Control Payment Date"................................. 4.14
"Covenant Defeasance"............................................ 8.03
"Default Notice"................................................. 10.02
"Designated Senior Indebtedness"................................. 10.02
"DTC"............................................................ 2.03
"Event of Default"............................................... 6.01
"Excess Proceeds"................................................ 4.10
"incur".......................................................... 4.09
"Legal Defeasance" .............................................. 8.02
"Maximum Amount"................................................. 4.09
"Offer Amount"................................................... 3.09
"Offer Period"................................................... 3.09
"Paying Agent"................................................... 2.03
"Permitted Junior Securities".................................... 10.02
"Purchase Date".................................................. 3.09
"Registrar"...................................................... 2.03
"Restricted Payments"............................................ 4.07
"Senior Indebtedness"............................................ 10.02
"Specified Senior Indebtedness................................... 10.02
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;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
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<PAGE> 22
"obligor" on the Notes means the Company 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.
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
(a) General. The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A-1 or Exhibit A-2 hereto. The Notes may
have notations, legends or endorsements required by law, stock exchange rule or
usage. 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. However, to the extent any provision of
any Note conflicts with the express provisions of this Indenture, the provisions
of this Indenture shall govern and be controlling.
(b) Global Notes. Notes issued in global form shall be substantially in the form
of Exhibit A-1 or A-2 attached hereto (including the Global Note Legend and the
"Schedule of Exchanges in the Global Note" attached thereto). Notes issued in
definitive form shall be substantially in the form of Exhibit A-1 attached
hereto (but without the Global Note Legend and without the "Schedule of
Exchanges of Interests in the Global Note" attached 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 principal amount of
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<PAGE> 23
outstanding Notes from time to time endorsed thereon and that the aggregate
principal 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 aggregate principal 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.
(c) Temporary Global Notes. Notes offered and sold in reliance on
Regulation S shall be issued initially in the form of the Regulation S Temporary
Global Note, which shall be deposited on behalf of the purchasers of the Notes
represented thereby with the Trustee, at its Boston office, as custodian for the
Depositary, and registered in the name of the Depositary or the nominee of the
Depositary for the accounts of designated agents holding on behalf of Euroclear
or Cedel Bank, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The Restricted Period shall be terminated upon the receipt
by the Trustee of (i) a written certificate from the Depositary, together with
copies of certificates from Euroclear and Cedel Bank certifying that they have
received certification of non-United States beneficial ownership of 100% of the
aggregate principal amount of the Regulation S Temporary Global Note (except to
the extent of any beneficial owners thereof who acquired an interest therein
during the Restricted Period pursuant to another exemption from registration
under the Securities Act and who will take delivery of a beneficial ownership
interest in a 144A Global Note or an AI Global Note, all as contemplated by
Section 2.06(a)(ii) hereof), and (ii) an Officers' Certificate from the Company.
Following the termination of the Restricted Period, beneficial interests in the
Regulation S Temporary Global Note shall be exchanged for beneficial interests
in Regulation S Permanent Global Notes pursuant to the Applicable Procedures.
Simultaneously with the authentication of Regulation S Permanent Global Notes,
the Trustee shall cancel the Regulation S Temporary Global Note. The aggregate
principal amount of the Regulation S Temporary Global Note and the Regulation S
Permanent Global Notes may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depositary or its
nominee, as the case may be, in connection with transfers of interest as
hereinafter provided.
(d) Euroclear and Cedel Procedures Applicable. The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer Handbook" of Cedel Bank shall be applicable to interests in the
Regulation S Temporary Global Note and the Regulation S Permanent Global Notes
that are held by the agent members through Euroclear or Cedel Bank.
SECTION 2.02. EXECUTION AND AUTHENTICATION
One Officer of the Company 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 one
Officer of the Company, authenticate Notes for original issue up to the
aggregate principal amount stated in paragraph
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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
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 Paying 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 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 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 of and premium, if any, interest and Liquidated Damages, if any, 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 money held by it to the Trustee. Upon
payment over to the Trustee, the Paying Agent (if other than the Company) shall
have no further liability for the money. If the Company 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 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 sec. 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
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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 Global Notes. A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, the Depositary or any such nominee to a successor Depositary or a
nominee of such successor Depositary. All Global Notes will be exchanged by the
Company for Definitive Notes if (i) the Company delivers to the Trustee notice
from the Depositary that it is unwilling or unable to continue to act as
Depositary or that it is no longer a clearing agency registered under the
Exchange Act and, in either case, a successor Depositary is not appointed by the
Company within 120 days after the date of such notice from the Depositary or
(ii) the Company in its sole discretion determines that the Global Notes (in
whole but not in part) should be exchanged for Definitive Notes and delivers a
written notice to such effect to the Trustee; provided that in no event shall
the Regulation S Temporary Global Note be exchanged by the Company for
Definitive Notes prior to (x) the expiration of the Restricted Period and (y)
the receipt by the Registrar of any certificates required pursuant to Rule
903(c)(3)(ii)(B) under the Securities Act together with an Officer's Certificate
and Opinion of Counsel with respect thereto. Upon the occurrence of either of
the preceding events in (i) or (ii) above, Definitive Notes shall be issued in
such names as the Depositary shall instruct the Trustee. Global Notes also may
be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and
2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu
of, a Global Note or any portion thereof, pursuant to this Section 2.06 or
Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form
of, and shall be, a Global Note. A Global Note may not be exchanged for another
Note other than as provided in this Section 2.06(a), however, beneficial
interests in a Global Note may be transferred and exchanged as provided in
Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global
Notes. The transfer and exchange of beneficial interests in the Global Notes
shall be effected through the Depositary, in accordance with the provisions of
this Indenture and the Applicable Procedures. Beneficial interests in the
Restricted Global Notes shall be subject to restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well as
one or more of the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in
the same Restricted Global Note in accordance with the transfer
restrictions set forth in the Private Placement Legend; provided, however,
that prior to the expiration of the Restricted Period, transfers of
beneficial interests in the Regulation S Temporary Global Note may not be
made to a U.S. Person or for the account or benefit of a U.S. Person
(other than an Initial Purchaser). Beneficial interests in any
Unrestricted Global Note may be transferred to Persons who take delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note. No written orders or instructions shall be required to be delivered
to the Registrar to effect the transfers described in this Section
2.06(b)(i).
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(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of beneficial
interests that are not subject to Section 2.06(b)(i) above, the transferor
of such beneficial interest must deliver to the Registrar either (A) (1) a
written order from a Participant or an Indirect Participant given to the
Depositary in accordance with the Applicable Procedures directing the
Depositary to credit or cause to be credited a beneficial interest in
another Global Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given in accordance with the
Applicable Procedures containing information regarding the Participant
account to be credited with such increase or (B) (1) a written order from
a Participant or an Indirect Participant given to the Depositary in
accordance with the Applicable Procedures directing the Depositary to
cause to be issued a Definitive Note in an amount equal to the beneficial
interest to be transferred or exchanged and (2) instructions given by the
Depositary to the Registrar containing information regarding the Person in
whose name such Definitive Note shall be registered to effect the transfer
or exchange referred to in (1) above; provided that in no event shall
Definitive Notes be issued upon the transfer or exchange of beneficial
interests in the Regulation S Temporary Global Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the Registrar
of any certificates required pursuant to Rule 903 under the Securities Act
together with an Officer's Certificate and an Opinion of Counsel with
respect thereto. Upon consummation of an Exchange Offer by the Company in
accordance with Section 2.06(f) hereof, the requirements of this Section
2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the
Registrar of the instructions contained in the Letter of Transmittal
delivered by the Holder of such beneficial interests in the Restricted
Global Notes. Upon satisfaction of all of the requirements for transfer or
exchange of beneficial interests in Global Notes contained in this
Indenture and the Notes or otherwise applicable under the Securities Act,
the Trustee shall adjust the principal amount of the relevant Global
Note(s) pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted Global
Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) and the Registrar
receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof;
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global Note or the
Regulation S Permanent Global Note, then the transferor must deliver
a certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof; and
(C) if the transferee will take delivery in the form of a
beneficial interest in the AI Global Note, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel required by item
(3) thereof, if applicable.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in the Unrestricted Global Note. A
beneficial interest in any Restricted
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<PAGE> 27
Global Note may be exchanged by any holder thereof for a beneficial
interest in an Unrestricted Global Note or transferred to a Person who
takes delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note if the exchange or transfer complies with the
requirements of Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of the beneficial interest to be transferred, in the
case of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it, is not
(1) a broker-dealer, (2) a Person participating in the distribution
of the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest
for a beneficial interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit C hereto,
including the certifications in item (1)(a) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial interest
to a Person who shall take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note, a certificate
from such holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained
herein and in the Private Placement Legend are no longer required in
order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B)
or (D) above at a time when an Unrestricted Global Note has not yet been
issued, the Company shall issue and, upon receipt of an Authentication
Order in accordance with Section 2.02 hereof, the Trustee shall
authenticate one or more Unrestricted Global Notes in an aggregate
principal amount equal to the aggregate principal amount of beneficial
interests transferred pursuant to subparagraph (B) or (D) above.
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Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the
form of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive
Notes.
(i) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. If any holder of a beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a Restricted
Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of a Restricted Definitive Note, then,
upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note, a certificate from such holder in the
form of Exhibit C hereto, including the certifications in item
(2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB
in accordance with Rule 144A under the Securities Act, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule
903 or Rule 904 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant
to an exemption from the registration requirements of the Securities
Act in accordance with Rule 144 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an
Accredited Investor in reliance on an exemption from the
registration requirements of the Securities Act other than those
listed in subparagraphs (B) through (D) above, a certificate to the
effect set forth in Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3) thereof, if
applicable;
(F) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item
(3)(b) thereof; or
(G) if such beneficial interest is being transferred pursuant
to an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable Global
Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the
Company shall execute and the Trustee shall authenticate and deliver to the
Person designated in the instructions a Definitive
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Note in the appropriate principal amount. Any Definitive Note issued in exchange
for a beneficial interest in a Restricted Global Note pursuant to this Section
2.06(c) shall be registered in such name or names and in such authorized
denomination or denominations as the holder of such beneficial interest shall
instruct the Registrar through instructions from the Depositary and the
Participant or Indirect Participant. The Trustee shall deliver such Definitive
Notes to the Persons in whose names such Notes are so registered. Any Definitive
Note issued in exchange for a beneficial interest in a Restricted Global Note
pursuant to this Section 2.06(c)(i) shall bear the Private Placement Legend and
shall be subject to all restrictions on transfer contained therein.
(ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a beneficial
interest in the Regulation S Temporary Global Note may not be exchanged for a
Definitive Note or transferred to a Person who takes delivery thereof in the
form of a Definitive Note prior to (x) the expiration of the Restricted Period
and (y) the receipt by the Registrar of any certificates required pursuant to
Rule 903(c)(3)(ii)(B) under the Securities Act together with an Officer's
Certificate and an Opinion of Counsel with respect thereto, except in the case
of a transfer pursuant to an exemption from the registration requirements of the
Securities Act other than Rule 903 or Rule 904.
(iii) Beneficial Interests in Restricted Global Notes to
Unrestricted Definitive Notes. A holder of a beneficial interest in a Restricted
Global Note may exchange such beneficial interest for an Unrestricted Definitive
Note or may transfer such beneficial interest to a Person who takes delivery
thereof in the form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the Exchange
Offer in accordance with the Registration Rights Agreement and the holder
of such beneficial interest, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the applicable Letter
of Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a Person
who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance with
the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a Definitive
Note that does not bear the Private Placement Legend, a certificate from
such holder in the form of Exhibit C hereto, including the certifications
in item (1)(b) thereof; or
(2) if the holder of such beneficial interest in a Restricted
Global Note proposes to transfer such beneficial interest to a Person who
shall take delivery thereof in the form of a Definitive Note that does not
bear the Private Placement Legend, a certificate
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from such holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof; and
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to the
effect that such exchange or transfer is in compliance with the Securities
Act and that the restrictions on transfer contained herein and in the
Private Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
(iv) Beneficial Interests in Unrestricted Global Notes to Unrestricted
Definitive Notes. If any holder of a beneficial interest in an Unrestricted
Global Note proposes to exchange such beneficial interest for a Definitive Note
or to transfer such beneficial interest to a Person who takes delivery thereof
in the form of a Definitive Note, then, upon satisfaction of the conditions set
forth in Section 2.06(b)(ii) hereof, the Trustee shall cause the aggregate
principal amount of the applicable Global Note to be reduced accordingly
pursuant to Section 2.06(h) hereof, and the Company shall execute and the
Trustee shall authenticate and deliver to the Person designated in the
instructions a Definitive Note in the appropriate principal amount. Any
Definitive Note issued in exchange for a beneficial interest pursuant to this
Section 2.06(c)(iii) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such beneficial
interest shall instruct the Registrar through instructions from the Depositary
and the Participant or Indirect Participant. The Trustee shall deliver such
Definitive Notes to the Persons in whose names such Notes are so registered. Any
Definitive Note issued in exchange for a beneficial interest pursuant to this
Section 2.06(c)(iii) shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(i) Restricted Definitive Notes to Beneficial Interests in Restricted
Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange
such Note for a beneficial interest in a Restricted Global Note or to transfer
such Restricted Definitive Notes to a Person who takes delivery thereof in the
form of a beneficial interest in a Restricted Global Note, then, upon receipt by
the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global Note,
a certificate from such Holder in the form of Exhibit C hereto, including
the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred to a QIB
in accordance with Rule 144A under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the certifications in
item (1) thereof;
(C) if such Restricted Definitive Note is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule 903 or
904 under the Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (2) thereof;
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(D) if such Restricted Definitive Note is being transferred pursuant
to an exemption from the registration requirements of the Securities Act
in accordance with Rule 144 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications in item
(3)(a) thereof;
(E) if such Restricted Definitive Note is being transferred to an
Accredited Investor in reliance on an exemption from the registration
requirements of the Securities Act other than those listed in
subparagraphs (B) through (D) above, a certificate to the effect set forth
in Exhibit B hereto, including the certifications, certificates and
Opinion of Counsel required in item (3) thereof, if applicable;
(F) if such Restricted Definitive Note is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set forth
in Exhibit B hereto, including the certifications in item (3)(b) thereof;
or
(G) if such Restricted Definitive Note is being transferred pursuant
to an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or cause to be
increased the aggregate principal amount of, in the case of clause (A) above,
the appropriate Restricted Global Note, in the case of clause (B) above, the
144A Global Note, in the case of clause (C) above, the Regulation S Global Note,
and in all other cases, the AI Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in Unrestricted
Global Notes. A Holder of a Restricted Definitive Note may exchange such Note
for a beneficial interest in an Unrestricted Global Note or transfer such
Restricted Definitive Notes to a Person who takes delivery thereof in the form
of a beneficial interest in an Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to the Exchange
Offer in accordance with the Registration Rights Agreement and the Holder,
in the case of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of the
Exchange Notes or (3) a Person who is an affiliate (as defined in Rule
144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance with
the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to
exchange such Notes for a beneficial interest in the Unrestricted Global
Note, a certificate from such
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Holder in the form of Exhibit C hereto, including the certifications in
item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes to
transfer such Notes to a Person who shall take delivery thereof in the
form of a beneficial interest in the Unrestricted Global Note, a
certificate from such Holder in the form of Exhibit B hereto, including
the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to the
effect that such exchange or transfer is in compliance with the Securities
Act and that the restrictions on transfer contained herein and in the
Private Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in this Section
2.06(d)(ii), the Trustee shall cancel the Definitive Note and increase or cause
to be increased the aggregate principal amount of the Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note at any time. Upon receipt of a request for such an exchange or
transfer, the Trustee shall cancel the applicable Unrestricted Definitive
Note and increase or cause to be increased the aggregate principal amount
of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such Holder's compliance with
the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder shall present or surrender to the Registrar
the Definitive Notes 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. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive Notes. Any
Restricted Definitive Note may be transferred to and registered in the
name of Persons who take delivery thereof in the form of a Restricted
Definitive Note if the Registrar receives the following:
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(A) if the transfer will be made pursuant to Rule 144A under
the Securities Act, then the transferor must deliver a certificate
in the form of Exhibit B hereto, including the certifications in
item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or 904,
then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2) thereof;
and
(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities Act,
then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications, certificates and
Opinion of Counsel required by item (3) thereof, if applicable.
(ii) Restricted Definitive Notes to Unrestricted Definitive Notes.
Any Restricted Definitive Note may be exchanged by the Holder thereof for
an Unrestricted Definitive Note or transferred to a Person or Persons who
take delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive Note, a
certificate from such Holder in the form of Exhibit C hereto, including
the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take delivery
thereof in the form of an Unrestricted Definitive Note, a certificate from
such Holder in the form of Exhibit B hereto, including the certifications
in item (4) thereof; and
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests, an Opinion of Counsel in form reasonably acceptable
to the Company to the effect that such exchange or transfer is in
compliance with the Securities Act and that the restrictions on
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transfer contained herein and in the Private Placement Legend are no
longer required in order to maintain compliance with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive
Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes
to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Note. Upon receipt of a request to register for such a
transfer, the Registrar shall register the Unrestricted Definitive Notes
pursuant to the instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons that
certify in the applicable Letters of Transmittal that (x) that are not
broker-dealers, (y) they are not participating in a distribution of the Exchange
Notes and (z) they are not affiliates (as defined in Rule 144) of the Company,
and accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an
aggregate principal amount of the Restricted Definitive Notes accepted for
exchange in the Exchange Offer. Concurrently with the issuance of such Notes,
the Trustee shall cause the aggregate principal amount of the applicable
Restricted Global Notes to be reduced accordingly, and the Company shall execute
and the Trustee shall authenticate and deliver to the Persons designated by the
Holders of Definitive Notes so accepted Definitive Notes in the appropriate
principal amount.
(g) Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each Global
Note and each Definitive Note (and all Notes issued in exchange
therefor or substitution thereof) shall bear the legend in
substantially the following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR
(B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a) UNDER THE
SECURITIES ACT) ("ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND
IS ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN OFF-SHORE TRANSACTION;
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE SECURITY
EVIDENCED HEREBY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY
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THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE
144A UNDER THE SECURITIES ACT, (C) TO AN ACCREDITED INVESTOR OR A
PURCHASER WHO IS NOT A U.S. PERSON THAT, PRIOR TO SUCH TRANSFER, FURNISHES
TO STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE (OR A SUCCESSOR
TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE
UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH
CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER
APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS
PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE (OR A
SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT."
(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii),
(c)(iii), (d)(ii), (c)(iv), (d)(iii), (e)(ii), (e)(iii) or (f) to
this Section 2.06 (and all Notes issued in exchange therefor or
substitution thereof) shall not bear the Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON
AS MAY
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BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS GLOBAL
NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a)
OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE
FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS
GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR
WRITTEN CONSENT OF THE COMPANY."
(iii) Regulation S Temporary Global Note Legend. The Regulation S
Temporary Global Note shall bear a legend in substantially the following
form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE NOTES, ARE
AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR
THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE
ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
cancelled in whole and not in part, each such Global Note 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 or transferred to a Person who will take delivery thereof
in the form of a beneficial interest in another Global Note or for Definitive
Notes, 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 by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note shall be increased accordingly
and an endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(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 Global Notes and
Definitive Notes upon the Company's order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note 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 (other than any such transfer taxes
or similar governmental charge payable upon exchange or transfer pursuant
to Sections 2.10, 3.06, 3.09, 4.10, 4.13 and 9.05 hereof).
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(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 Global Notes and Definitive Notes issued upon any
registration of transfer or exchange any of Global Notes or Definitive
Notes shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the
Global Notes or Definitive Notes surrendered upon such registration of
transfer or exchange.
(v) The Company shall not be required (A) to issue, to register the
transfer of or to exchange any 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 the close of business
on the day of selection, (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 for all other purposes, and none of the Trustee, any Agent
or the Company shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive
Notes in accordance with the provisions of Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06 to
effect a registration of transfer or exchange may be submitted by
facsimile.
SECTION 2.07. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee or either 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 each 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 for their 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.
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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 either
of the Company holds the Note.
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 or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that 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, waiver or consent, Notes owned by the
Company or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that a Responsible Officer of the Trustee knows are so owned shall be
so disregarded. The Company agrees to notify the Trustee of the existence of any
Treasury Notes.
SECTION 2.10. TEMPORARY NOTES.
Until Definitive 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 Definitive Notes but may have variations that the
Company consider appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate Definitive 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 forward 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 upon request. The Company may not issue new Notes to replace
Notes that have been paid or that have been delivered to the Trustee for
cancellation.
SECTION 2.12. DEFAULTED INTEREST.
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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 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 is required to make an offer to redeem Notes pursuant
to the provisions of Section 3.09 or 4.13 hereof, it shall furnish to the
Trustee at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the Section 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,
including, accrued interest and Liquidated Damages.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, at least 45 days but not more than
60 days before a redemption date, it shall notify the Trustee in writing of such
election, the redemption date, the principal amount of Notes to be redeemed and
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 securities 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 (including pursuant to Sections 3.09 and 4.13), 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 whole 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 a 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.
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SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 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.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed 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.
One Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all Notes
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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 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. 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 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, upon the Company's written request, the Trustee shall 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.
The Notes shall not be redeemable at the Company's option prior to
October 15, 2002. Thereafter, the Notes shall be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages,
if any, thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on October 15, of the years indicated below:
Year Percentage
---- ----------
2002 ................................................... 104.625%
2003 ................................................... 103.083%
2004 ................................................... 101.542%
2005 and thereafter .................................... 100.000%
Notwithstanding the foregoing, on or prior to October 15, 2000, the
Company may redeem up to an aggregate of $65.0 million in principal amount of
Notes at a redemption price of 109.25% of the principal amount thereof, in each
case plus accrued and unpaid interest and Liquidated Damages, if any, thereon to
the redemption date, with the net proceeds of one or more underwritten public
offerings of common stock of the Company; provided that at least $120.0 million
in aggregate principal amount of Notes remain outstanding immediately after the
occurrence of such redemption; and provided, further, that such redemption shall
occur within 45 days of the date of the closing of such underwritten public
offering of common stock of the Company.
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SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 3.09, 4.10 and 4.13 hereof, the
Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Company
shall be required to commence an offer to all Holders to purchase Notes (an
"Asset Sale Offer"), they shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.
If the Purchase Date is on or after an interest record date and on
or before the related interest payment date, any accrued and unpaid interest
shall be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall
send, by first class mail, a notice to the Trustee and each of the Holders. The
notice shall contain all instructions and materials necessary to enable such
Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer
shall be made to all Holders. The notice, which shall govern the terms of the
Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale
Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase
Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Company defaults in making such payment,
any Note accepted for payment pursuant to the Asset Sale Offer shall cease
to accrue interest after the Purchase Date;
(e) that Holders (other than those Holders whose Notes bear a
legend containing the text set forth in Footnote 1 to Exhibit A-1 or
Exhibit A-2) electing to have a Note purchased pursuant to an Asset Sale
Offer may only elect to have all of such Note purchased and may not elect
to have only a portion of such Note purchased;
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(f) that Holders electing to have a Note purchased pursuant
to any Asset Sale Offer shall be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Note completed, or transfer by book-entry transfer, to the Company, a
depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice, no later than the termination of the Offer
Period;
(g) that Holders shall be entitled to withdraw their election
if the Company, the depositary or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Note the Holder delivered for purchase
and a statement that such Holder is withdrawing his election to have such
Note purchased;
(h) that, if the aggregate principal amount of Notes
surrendered by Holders exceeds the Offer Amount, the Company shall select
the Notes to be purchased on a pro rata basis (with such adjustments as
may be deemed appropriate by the Company so that only Notes in
denominations of $1,000, or integral multiples thereof, shall be
purchased); and
(i) that Holders whose Notes were purchased only in part
shall be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in accordance
with the terms of this Section 3.09. The Company or the Paying Agent, as the
case may be, shall promptly (but in any case not later than five days after the
Purchase Date) mail or deliver to each tendering Holder an amount equal to the
purchase price of the Notes tendered by such Holder and accepted by the Company
for purchase, and the Company shall promptly issue a new Note, and the Trustee,
upon written request from the Company shall authenticate and mail or deliver
such new Note to such Holder, in a principal amount equal to any unpurchased
portion of the Note surrendered. Any Note not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof. The Company shall
publicly announce the results of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.02 through 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium,
if any, interest and Liquidated Damages, if any, 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 Paying Agent, if other than
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the Company, holds as of 12:00 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 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 (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 office of the
Trustee in Boston, Massachusetts.
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 office of State Street Bank and
Trust Company, N.A., at 61 Broadway, 15th Floor, New York, New York, 10006 as
one such office or agency of the Company in accordance with Section 2.03. The
Trustee may resign such agency at any time by giving written notice to the
Company no later than 30 days prior to the effective date of such resignation.
SECTION 4.03. REPORTS.
Whether or not required by the rules and regulations of the SEC, so
long as any of the Notes are outstanding, the Company shall furnish to the
Holders of the Notes, within 15 days after they are or would have been required
to be contained in a filing with the SEC, (i) all quarterly and annual financial
information that would be required to be contained in filings with the SEC on
Forms 10-Q and 10-K if the Company were required to file such forms, including
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to annual consolidated financial statements and
schedules only, a report thereon by the certified independent auditors of the
Company, and (ii) all current reports that would be required to be filed with
the SEC on Form 8-K if the Company was required to file such form. In addition,
whether or not required by the rules and regulations of the SEC, the Company
shall file a copy of all such information and reports with the SEC for public
availability (unless the SEC will not accept such a filing) and make such
information available to securities analysts
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and prospective investors upon request. In addition, the Company agrees that,
for so long as any Notes remain outstanding, it shall furnish to the 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 105 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, in all material respects, 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 the Indenture in all material respects and is not in
Default in the performance or observance of any of the terms, provisions and
conditions of this Indenture (and, 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 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 prohibited or if such event
has occurred, a description of the event.
(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 above shall be accompanied by a
written statement of the Company's certified 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 Four or Article Five 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 (and in any event within five calendar days)
upon any Officer of the Company becoming aware of any Default or Event of
Default an Officers' Certificate specifying such Default or Event of Default.
SECTION 4.05. TAXES.
The Company 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)
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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. RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Company's or any of its Subsidiaries'
Equity Interests (including, without limitation, any payment in connection with
any merger or consolidation involving the Company) or to the direct or indirect
holders of the Company's Equity Interests in their capacity as such (other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock), dividends or distributions payable to the Company or any Subsidiary of
the Company or dividends or distributions payable by a Subsidiary of the Company
to its shareholders on a pro rata basis); (ii) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of the Company or any direct or
indirect parent of the Company (other than any such Equity Interests owned by
the Company); (iii) make any principal payment on, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is subordinated
to the Notes, except at stated maturity; or (iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) with respect to Restricted Payments described in clauses (i) and
(ii) of the immediately preceding paragraph, the Company would, at the
time of such Restricted Payment and after giving pro forma effect thereto
as if such Restricted Payment had been made at the beginning of the
applicable four-quarter period, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of Section 4.09 hereof; and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Subsidiaries after
the date hereof (including the Restricted Payments permitted by the next
paragraph, but excluding Restricted Payments permitted by clauses (ii),
(iii), (iv), (v) and (vi) of the next paragraph), is less than the sum of
(i) an amount equal to the difference (but not less than zero) between (A)
Cumulative Operating Cash Flow and (B) the product of 1.3 times Cumulative
Total Interest Expense, plus (ii) 100% of the aggregate net cash proceeds,
including the fair market value of property other than cash as determined
in good faith by the Board whose determination shall be conclusive and
evidenced by a resolution of the Board set forth in an Officer's
Certificate delivered to the Trustee, received by the Company from the
issue or sale after the date hereof of Equity Interests of the Company or
of debt securities of the Company that have been converted into such
Equity Interests (other than Equity Interests (or convertible debt
securities) sold to a Subsidiary of the Company and other than
Disqualified Stock or debt securities issued subsequent to the date hereof
that have been converted into Disqualified Stock), plus (iii) to the
extent that any Restricted Investment that was made after the date hereof
is sold for cash or otherwise liquidated or repaid for cash, the lesser of
(A) the cash return of capital with respect to such Restricted Investment
(less the cost
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of disposition, if any) and (B) the initial amount of such Restricted
Investment, plus (iv) $15 million.
The foregoing provisions shall not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the preceding paragraph; (iii) the defeasance, redemption
or repurchase of subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness or the substantially concurrent
issuance (other than to a Subsidiary of the Company) of Equity Interests of the
Company (other than Disqualified Stock); provided that the amount of any such
net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (iv) investments, loans or advances to joint ventures of
the Company or any of its Subsidiaries in an aggregate amount at any time not to
exceed $20 million; (v) the repurchase of shares of, or options to purchase
shares of, the Company's common stock held by employees of the Company (other
than any member of the BLS Group) or any of its Subsidiaries pursuant to the
forms of agreements under which such employees purchase, or are granted the
option to purchase, shares of such common stock in an aggregate amount not to
exceed $3 million in any fiscal year; provided that the amount available in any
given fiscal year shall be increased by the excess, if any, of (A) $3 million
over (B) the amount used pursuant to this clause (v) in the immediately
preceding fiscal year; and (vi) distributions made by the Company on the date of
this Indenture, provided that the proceeds of such distributions are used solely
to consummate the Recapitalization.
The amount of all Restricted Payments (other than cash) shall be the
fair market value (as determined in good faith by the Board, which determination
shall be conclusive and evidenced by a resolution of the Board set forth in an
Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this Section 4.07 were computed, which calculations may be based upon the
Company's latest available financial statements.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction on the ability of any
Subsidiary to (i)(a) pay dividends or make any other distributions to the
Company or any of its Subsidiaries (1) on its Capital Stock or (2) with respect
to any other interest or participation in, or measured by, its profits, or (b)
pay any Indebtedness owed to the Company or any of its Subsidiaries, (ii) make
loans or advances to the Company or any of its Subsidiaries or (iii) transfer
any of its properties or assets to the Company or any of its Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
the New Credit Facility as in effect as of the date hereof, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements
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or refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings are no more restrictive with respect to such dividend and other
payment restrictions than those contained in the New Credit Facility as in
effect on the date hereof, (b) this Indenture and the Notes, (c) applicable law,
(d) any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Company or any of its Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of this Indenture to be incurred, (e) by reason of customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, (f) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (iii) above on the property so acquired, or (g)
Permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and the
Company shall not issue any Disqualified Stock and shall not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, however, that the
Company or any of its Subsidiaries may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock and the Company's Subsidiaries may
issue shares of preferred stock if the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock or preferred
stock is issued would have been at least 2.0 to 1.0, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock or
preferred stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The foregoing provisions shall not apply to:
(i) the incurrence by the Company and its Subsidiaries of
Indebtedness and letters of credit pursuant to the New Credit Facility
(with letters of credit being deemed to have a principal amount equal to
the maximum potential liability of the Company and its Subsidiaries
thereunder) in an aggregate principal amount not to exceed $372.0 million,
less the aggregate amount of all proceeds of Assets Sales that have been
applied since the date hereof to permanently reduce the outstanding amount
of such Indebtedness pursuant to Section 4.10;
(ii) Existing Indebtedness;
(iii) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that is permitted by this Indenture to be incurred;
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(iv) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries; provided, however, that (i) if the Company is the obligor of
such Indebtedness, such Indebtedness is expressly subordinate to the
payment in full of all Obligations with respect to the Notes and (ii)(A)
any subsequent issuance or transfer of Equity Interests that results in
any such Indebtedness being held by a Person other than the Company or a
Subsidiary and (B) any sale or other transfer of any such Indebtedness to
a Person that is not either the Company or a Subsidiary shall be deemed,
in each case, to constitute an incurrence of such Indebtedness by the
Company or such Subsidiary, as the case may be;
(v) Indebtedness under Guarantees in respect of obligations of joint
ventures of the Company or any of its Subsidiaries in an aggregate
principal amount not to exceed $20 million at any one time;
(vi) (A) Indebtedness incurred to finance the purchase or
construction of property, plant or equipment which will be treated as
Consolidated Capital Expenditures of the Company so long as such
Indebtedness is secured by a Lien on the property, plant or equipment so
purchased or constructed and such Indebtedness does not exceed the value
of such property, plant or equipment so purchased or constructed and such
Lien shall not extend to or cover other assets of the Company or any of
its Subsidiaries other than the property, plant or equipment so purchased
or constructed and the real property, if any, on which the property so
constructed or so purchased, is situated and the accessions, attachments,
replacements and improvements thereto or (B) Indebtedness incurred in
connection with any lease financing transaction in conjunction with the
acquisition of new property; provided that such lease financing
transaction is consummated within 60 days of such acquisition (whether
such lease will be treated as an operating or capital lease in accordance
with GAAP) and the aggregate of the Indebtedness incurred pursuant to
clauses (A) and (B) does not exceed $15 million during any fiscal year
(such amount is referred to as the "Maximum Amount"); provided that the
Maximum Amount for each year shall be increased by the excess, if any, of
(a) $30 million over (b) Consolidated Capital Expenditures for the
immediately preceding two years;
(vii) Indebtedness incurred in connection with any sale and
leaseback transaction, provided that the aggregate of the Indebtedness
incurred pursuant to this clause (vii) shall not exceed $30.0 million;
(viii) obligations incurred in the ordinary course of business under
(A) trade letters of credit which are to be repaid in full not more than
one year after the date on which such Indebtedness is originally incurred
to finance the purchase of goods by the Company or a Subsidiary of the
Company; (B) standby letters of credit issued for the purpose of
supporting (1) workers' compensation liabilities of the Company or any of
its Subsidiaries as required by law, (2) obligations with respect to
leases of the Company or any of its Subsidiaries, (3) performance,
payment, deposit or surety obligations of the Company or any of its
Subsidiaries or (4) environmental liabilities of the Company or any of its
Subsidiaries as required by law, not exceeding an aggregate amount of $15
million at any one time outstanding in addition to any amounts required by
law; (C) performance bonds and surety bonds, and refinancings thereof; and
(D) Guarantees of Indebtedness incurred in the ordinary course of business
of suppliers, licensees, franchisees, or customers in an aggregate amount
not to exceed $5 million;
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(ix) Indebtedness to repurchase shares, or cancel options to
purchase shares, of the Company's common stock held by employees of the
Company (other than any member of the BLS Group) or any of its
Subsidiaries pursuant to the forms of agreements under which such
employees purchase shares of the Company's common stock;
(x) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of this Indenture to be outstanding; and
(xi) the incurrence by the Company or any of its Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding not to exceed $25 million.
Notwithstanding the foregoing, the accretion or amortization of
original issue discount under any Indebtedness, the payment of interest in
additional Indebtedness or the accretion of the liquidation preference of
Disqualified Stock or preferred stock, shall not be deemed an incurrence of
Indebtedness, Disqualified Stock or preferred stock; provided, however, that
such accretion or amortization or payment of interest is included in Fixed
Charges.
SECTION 4.10. ASSET SALES.
The Company shall not, and shall not permit any of its Subsidiaries
to, engage in an Asset Sale unless (i) the Company (or the Subsidiary, as the
case may be) receives consideration at the time of such Asset Sale at least
equal to the fair market value (evidenced by a resolution of the Board set forth
in an Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 70% of the
consideration therefor received by the Company or such Subsidiary is in the form
of cash or Cash Equivalents; provided that the amount (x) of any liabilities (as
shown on the Company's or such Subsidiary's most recent balance sheet), of the
Company or any Subsidiary (other than contingent liabilities and liabilities
that are by their terms subordinated to the Notes or any Guarantee thereof) that
are assumed by the transferee of any such assets and (y) any notes, securities
or other obligations received by the Company or any such Subsidiary from such
transferee that are immediately (subject to normal settlement periods) converted
by the Company or such Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds, at its option, (a) to permanently
reduce (x) Senior Indebtedness or (y) Indebtedness of the Company's Subsidiaries
or (b) to invest in the business or businesses of the Company or any of its
Subsidiaries or any business directly related to any business then conducted by
the Company or any of its Subsidiaries or any business related to the aircraft
industry or used for working capital purposes. Pending the final application of
any such Net Proceeds, the Company may temporarily reduce the revolving portion
of Senior Indebtedness or otherwise invest such Net Proceeds in any manner that
is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are
not applied or invested as provided in the first sentence of this paragraph will
be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $10 million, the Company will be required to make an offer to
all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the
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principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase, in accordance with the
procedures set forth in Section 3.09 hereof. To the extent that the aggregate
amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, enter into any transaction involving aggregate
consideration in excess of $1 million with any Affiliate or Holder of 5% or more
of any class of Capital Stock of the Company (including any Affiliates of such
Holders) except for transactions (including any loans or advances by or to any
Affiliate) in good faith the terms of which are fair and reasonable to the
Company or such Subsidiary, as the case may be, and are at least as favorable as
the terms which could be obtained by the Company or such Subsidiary, as the case
may be, in a comparable transaction made on an arm's length basis with Persons
who are not such a Holder, an Affiliate of such Holder or Affiliate of the
Company; provided that any such transaction shall be conclusively deemed to be
on terms which are fair and reasonable to the Company or any of its Subsidiaries
and on terms which are at least as favorable as the terms which could be
obtained on an arm's length basis with Persons who are not such a Holder, an
Affiliate of such Holder or Affiliate of the Company if such transaction is
approved by a majority of the Company's directors (including a majority of the
Company's disinterested and independent directors, if any); and provided further
that with respect to the purchase or disposition of assets of the Company or any
of its Subsidiaries having a net book value in excess of $5 million, if the
Company does not have any disinterested and independent directors, in addition
to approval of its Board, the Company shall obtain a written opinion of an
Independent Financial Advisor stating that the terms of such transaction are
fair and reasonable to the Company or its Subsidiary, as the case may be, and
are at least as favorable to the Company or such Subsidiary, as the case may be,
as could have been obtained on an arm's length basis with Persons who are not
such a Holder, an Affiliate of such Holder or Affiliate of the Company. This
Section 4.11 shall not apply to (a) any transaction between the Company or any
Affiliate thereof and any Lehman Investor, including, without limitation, the
payment of fees to any Lehman Investor for financial and consulting services,
(b) transactions between the Company or any of its Subsidiaries and any employee
or director of, or consultant to, the Company or any of its Subsidiaries that
are approved by the Board, (c) the payment of reasonable and customary regular
fees to directors of the Company, (d) any transaction between the Company and
any of its Subsidiaries or between any of its Subsidiaries, (e) any Restricted
Payment not otherwise prohibited by Section 4.07, or (f) transactions with Loral
Space & Communications Ltd. pursuant to agreements in effect on the date of this
Indenture (as such agreements are in effect on such date).
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien on
any asset now owned or hereafter acquired, or any income or profits therefrom or
assign or convey any right to receive income therefrom, except Permitted Liens.
SECTION 4.13. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
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Upon the occurrence of a Change of Control, each Holder of Notes
shall have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes (a "Change of
Control Offer") at an offer price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase (the "Change of Control
Payment"). The Change of Control Offer shall be made in compliance with all
applicable laws, including, without limitation, Rule 14e-1 under the Exchange
Act and all applicable federal and state securities laws, and shall include all
instructions and materials necessary to enable Holders to tender their Notes.
Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder stating:
(1) the transaction or transactions that constitute the Change of
Control, providing information regarding the Person or Persons
acquiring control, and stating that the Change of Control
Offer is being made pursuant to this Section 4.13 and that, to
the extent lawful, all Notes tendered will be accepted for
payment;
(2) the purchase price and the purchase date, which shall be no
earlier than 30 days nor later than 60 days from the date such
notice is mailed (the "Change of Control Payment Date");
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Company defaults in the payment of the Change
of Control Payment, all Notes accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date;
(5) that Holders electing to have any Notes purchased pursuant to
a Change of Control Offer will be required to surrender the
Notes, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Notes completed, to the Paying
Agent at the address specified in the notice prior to the
close of business on the third Business Day preceding the
Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of
business on the second Business Day preceding the Change of
Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder,
the principal amount of Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have
the Notes purchased; and
(7) that Holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered, which
unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof;
On the Change of Control Payment Date, the Company shall, to the
extent lawful, (i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii)
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deposit with the Paying Agent an amount equal to the Change of Control Payment
in respect of all Notes or portions thereof so tendered and (iii) deliver or
cause to be delivered to the Trustee the Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of Notes or
portions thereof being purchased by the Company. The Paying Agent shall promptly
mail to each Holder of Notes so tendered the Change of Control Payment for such
Notes, and the Trustee shall promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Note equal in principal amount
to any unpurchased portion of the Notes surrendered, if any; provided, that each
such new Note shall be in a principal amount of $1,000 or an integral multiple
thereof. Prior to complying with the provisions of this Section, but in any
event within 90 days following a Change of Control, the Company shall either
repay all outstanding Senior Indebtedness or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Indebtedness to permit
the repurchase of the Notes required by this Section. The Company shall publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
The Company shall not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
forth in this Section 4.13 made by the Company and purchases all Notes validly
tendered and not withdrawn under such Change of Control Offer.
This Section 4.13 shall be applicable whether or not any other
provisions of this Indenture are applicable.
SECTION 4.14. PAYMENTS FOR CONSENT.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of this
Indenture or the Notes unless such consideration is offered to be paid or is
paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
SECTION 4.15. NO SENIOR SUBORDINATED DEBT.
The Company shall not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Indebtedness and senior in any respect in right of
payment to the Notes.
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company shall not consolidate or merge with or into (whether or
not the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another corporation, Person or
entity unless (i) the Company is the surviving entity or the entity or the
Person formed by or
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surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company) or the entity or Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made assumes
all the obligations of the Company under the Notes and this Indenture pursuant
to a supplemental indenture in a form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of Default exists;
and (iv) except in the case of a merger of the Company with or into a Wholly
Owned Subsidiary of the Company, the Company or the entity or Person formed by
or surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (A) shall have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) shall, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition 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 sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
the Company's assets that meets the requirements of Section 5.01 hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(a) the Company defaults in the payment when due of
interest, or Liquidated Damages, on the Notes (whether
or not prohibited by Article 10) and such default
continues for a period of 30 days;
(b) the Company defaults in the payment when due of
principal of or premium, if any, on the Notes (whether
or not prohibited by Article 10)
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when the same becomes due and payable at maturity, upon
redemption (including in connection with an offer to
purchase) or otherwise;
(c) the Company fails to observe or perform any other
covenant or agreement in this Indenture or the Notes and
such failure to observe or perform continues for a
period of 45 days after notice thereof;
(d) a default occurs under any mortgage, indenture or
instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Subsidiaries
(or the payment of which is guaranteed by the Company or
any of its Subsidiaries), whether such Indebtedness or
guarantee now exists, or is created after the date
hereof which default (i) is caused by a failure to pay
principal or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such
default (a "Payment Default") or (ii) results in the
acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of such
Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so
accelerated, aggregates $10 million or more;
(e) a final judgment or final judgments for the payment of
money are entered by a court or courts of competent
jurisdiction against the Company or any of its
Subsidiaries and such judgment or judgments remain
unpaid or undischarged for a period (during which
execution shall not be effectively stayed) of 60 days,
provided that the aggregate of all such unpaid,
undischarged or unstayed judgments exceeds $10 million;
(f) the Company or any Subsidiary of the Company:
(i) commences a voluntary case under any Bankruptcy
Law,
(ii) consents to the entry of an order for relief
against it in an involuntary case,
(iii) consents to the appointment of a custodian or
receiver 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
(g) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
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(i) is for relief against the Company or any of the
Company's Subsidiaries;
(ii) appoints a Custodian of the Company or any of its
Subsidiaries or for all or substantially all of
the property of the Company or any of its
Subsidiaries; or
(iii) orders the liquidation of the Company or any of
its Subsidiaries;
and the order or decree remains unstayed and in effect for 60
consecutive days.
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clause (f) or (g) of Section 6.01 hereof with respect to the Company or any
Subsidiary of the Company) occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately; provided; that so long as the
New Credit Facility is in effect, such declaration shall not become effective
until the earlier of (i) five days after receipt of notice of such acceleration
by the agent under the New Credit Facility and the Company or (ii) an
acceleration of obligations under the New Credit Facility.
Notwithstanding the foregoing, if an Event of Default specified in
clause (f) or (g) of Section 6.01 hereof occurs with respect to the Company, any
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary of the Company, all outstanding Notes shall
be due and payable immediately without further action or notice. The Holders of
a majority in aggregate principal amount of the then outstanding Notes by
written notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal, interest or premium that has become due solely because of the
acceleration) have been cured or waived.
In the case of any Event of Default occurring by reason any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to Section
3.07 hereof, an equivalent premium shall also become and be immediately due and
payable, to the extent permitted by law upon the acceleration of the Notes. If
an Event of Default occurs prior to October 15, 2002 by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding the prohibition on redemption of the Notes prior to
October 15, 2002, then the premium, as discussed below, will become immediately
due and payable to the extent permitted by law upon the acceleration of the
Notes. The premium payable for purposes of this paragraph for each of the years
beginning on October 15, of the years set forth below shall be as set forth in
the following table expressed as a percentage of the amount that would otherwise
be due but for the provisions of this sentence, plus accrued interest, if any,
to the date of payment:
Year Percentage
---- ----------
1997 ................................................... 109.25%
1998 ................................................... 108.33%
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1999 ................................................... 107.40%
2000 ................................................... 106.48%
2001 ................................................... 105.55%
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, interest or Liquidated Damages, if any, on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
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.
The Trustee shall not be deemed to have knowledge of the Company's
intent to avoid the payment of any such premium unless it shall have received
notice thereof from a Holder or the Company.
The Company shall promptly notify holders of Senior Indebtedness if
payment of the Notes is accelerated because of an Event of Default.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by notice to the Trustee may on behalf of the Holders
of all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of or interest on the Notes (including in connection
with an offer to purchase) (provided, however, that the Holders of a majority in
aggregate principal amount of the then outstanding Notes may rescind an
acceleration and its consequences, including any related payment default that
resulted from such acceleration). Upon any such waiver, such Default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been cured for every purpose of this Indenture; but no such waiver shall extend
to any subsequent or other Default or impair any right consequent thereon.
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 determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability and shall be entitled to the benefit of Section
7.01(c)(iii) and (e) hereof.
SECTION 6.06. LIMITATION ON SUITS.
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A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(a) the Holder of a Note 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 of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the
rights of another Holder of a Note or to obtain a preference or priority over
another Holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal of, or premium, if any,
interest or Liquidated Damages, if any, 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 specified in Section 6.01(a) or (b) 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 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.
SECTION 6.09. TRUSTEE MAY FILE PROOFS 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 (including accountants,
experts or such other professionals as the Trustee deems necessary, advisable or
appropriate) and counsel (including the allocated costs of inside counsel)) and
the Holders of the Notes 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
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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 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 of Notes for amounts due and unpaid on the Notes
for principal, premium 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 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 special record date and payment date for any
payment to Holders of Notes 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 a 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 of a
Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7
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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 man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of an Event of Default:
(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, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from 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 7.01.
(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 any Holders, unless such Holder 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.
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(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. 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 an Officer 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.
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 of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest (as defined in the TIA) 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.
SECTION 7.05. NOTICE OF DEFAULTS.
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If a Default or Event of Default occurs and is continuing and if it
is known to a Responsible Officer of the Trustee, 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, or interest on any Note, the Trustee may
withhold the notice if and so long as a committee of its Responsible Officers in
good faith determines that withholding the notice is in the interests of the
Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15 following
the date hereof, 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.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee 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 and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or 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, and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
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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(f) or (g) 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.
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 Notes 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. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(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 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 Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder of a Note who
has been a Holder of a Note for at least six months, fails to comply with
Section 7.10, such Holder of a Note 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
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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.
If the Trustee consolidates, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
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 $100 million 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 sec. 310(a)(1), (2) and (5). The Trustee is subject to TIA
sec. 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA sec. 311(a), excluding any creditor
relationship listed in TIA sec. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA sec. 311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE; SATISFACTION AND DISCHARGE.
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board 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 Eight.
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 their obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding"
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only for the purposes of Section 8.05 hereof and the other Sections of this
Indenture referred to in (a) and (b) below, and to have satisfied all their
other obligations under such Notes and this Indenture (and the Trustee, on
demand of and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive solely from the trust fund described in Section
8.04 hereof, and as more fully set forth in such Section, payments in respect of
the principal of, or premium, if any, interest and Liquidated Damages, if any,
on such Notes when such payments are due, (b) the Company's obligations with
respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights,
powers, trusts, duties and immunities of the Trustee hereunder and the Company's
obligations in connection therewith and (d) this Article Eight. Subject to
compliance with this Article Eight, the 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 shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from their
obligations under the covenants contained in Sections 4.07 - 4.15 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
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(c) 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 hereof, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, Sections
6.01(c) through 6.01(e) 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:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders of the Notes, cash in United States
dollars, non-callable Government Securities, 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, and premium, if any, interest and Liquidated Damages, if any, on the
outstanding Notes on the stated date for payment thereof or on the
applicable redemption date, as the case
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may be and the Company must specify whether the Notes are being defeased
to maturity or to a particular redemption date;
(b) in the case of an election under Section 8.02 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of this Indenture, there
has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that the
Holders of the outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Section 6.01(f) or (g) hereof is concerned, at any
time in the period ending on the ninety-first day after the date of
deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, any
material agreement or instrument (other than this Indenture) to which the
Company or any of its Subsidiaries is a party or by which the Company or
any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that after the ninety-first day following
the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and
(g) 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 Notes over the other
creditors of the Company, or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company; and
(h) the Company shall have delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel, each stating that all
conditions precedent and provided for relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
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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 non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.05, the "Trustee") pursuant 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, 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 non-callable
Government Securities 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 of the outstanding Notes.
Anything in this Article Eight 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 non-callable Government Securities 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 (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 8.06. REPAYMENT TO THE 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 or
Liquidated Damages, if any, or interest on any Note and remaining unclaimed for
two years after such principal, and premium or Liquidated Damages, if any, 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 editions), 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.
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SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities 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 obligations of the Company 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, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
SECTION 8.08. SATISFACTION AND DISCHARGE.
This Indenture shall be discharged and shall cease to be of further
effect as to all Notes issued hereunder, when (a) either (i) all such Notes
theretofore authenticated and delivered (except lost, stolen or destroyed Notes
which have been replaced or paid and Notes for whose payment money has
theretofore been deposited in trust and thereafter repaid to the Company) have
been delivered to the Trustee for cancellation; or (ii) all such Notes not
theretofore delivered to such Trustee for cancellation have become due and
payable by reason of the making of a notice of redemption or otherwise or shall
become due and payable within one year and the Company has irrevocably deposited
or caused to be deposited with such Trustee as trust funds in trust solely for
the benefit of the Holders, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient
without consideration of any reinvestment of interest, to pay and discharge the
entire indebtedness on such Notes not theretofore delivered to the Trustee for
cancellation for principal, premium, if any, and accrued interest and Liquidated
Damages, if any, to the date of maturity or redemption; (b) no Default or Event
of Default with respect to this Indenture or the Notes shall have occurred and
be continuing on the date of such deposit or shall occur as a result of such
deposit and such deposit shall not result in a breach or violation of, or
constitute a default under, any other instrument to which the Company is a party
or by which the Company is bound; (c) the Company has paid or caused to be paid
all sums payable by it under this Indenture; and (d) the Company has delivered
irrevocable instructions to the Trustee under this Indenture to apply the
deposited money toward the payment of such Notes at maturity or the redemption
date, as the case may be. In addition, the Company must deliver an Officers'
Certificate and an Opinion of Counsel to the Trustee stating that all conditions
precedent to satisfaction and discharge have been satisfied.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company 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;
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(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 of the Notes in the case of a merger or consolidation pursuant
to Article 5 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder of any Holder of the Notes; or
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Company, accompanied by a resolution of the
Board authorizing the execution of any such amended or supplemental Indenture,
and upon receipt by the Trustee of the documents described in Section 7.02
hereof, 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 supplemental 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 (including Section 3.10, 4.10,
4.13 and Article 10 hereof, and including the defined terms used therein) and
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then 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, interest or Liquidated Damages, if any, on the
Notes) or compliance with any provision of this Indenture or the Notes may be
waived with the consent of the Holders of a majority in principal amount of the
then outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for the Notes).
Without the consent of each Holder affected, an amendment or waiver
may not (with respect to any Notes held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of
any Note or alter or waive any of the provisions with respect to the
redemption of the Notes (other than with respect to Section 4.10 and
4.13 hereof,;
(c) reduce the rate of or change the time for payment of
interest on any Note;
(d) waive a Default or Event of Default in the payment of
principal of, or premium, if any, or interest on the Notes (except a
rescission of acceleration of the Notes
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by the Holders of at least a majority in aggregate principal amount
of the then outstanding Notes and a waiver of the payment default
that resulted from such acceleration);
(e) make any Note payable in money other than that stated in
the Notes;
(f) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of
Notes to receive payments of principal of or premium, if any,
interest on the Notes;
(g) waive a redemption payment with respect to any Note (other
than with respect to Section 4.10 and 4.13 hereof); or
(h) make any change in Section 6.04 or 6.07 hereof or in the
foregoing amendment and waiver provisions.
In addition, any amendment to the provisions of Article 10 of this
Indenture or any of the related definitions will require the consent of the
Holders of at least 75% in aggregate principal amount of the Notes then
outstanding if such amendment would adversely affect the rights of Holders of
Notes.
Upon the written request of the Company accompanied by a resolution
of the Board 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 7.02 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 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 of Notes
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.
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.
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 the Holder of a
Note and every subsequent Holder of a Note or portion
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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
approves it. In executing any amended or supplemental indenture, the Trustee
shall be entitled to receive and rely upon an Officer's Certificate and an
Opinion of Counsel stating that (i) the execution of such amended or
supplemental indenture is authorized or permitted by this Indenture, (ii) no
Event of Default shall occur as a result of the execution of such Officer's
Certificate or the delivery of such Opinion of Counsel and (iii) the amended or
supplemented indenture complies with the terms of this Indenture.
ARTICLE 10
SUBORDINATION
SECTION 10.01. NOTES SUBORDINATED TO SENIOR INDEBTEDNESS.
The Company covenants and agrees and each Holder, by his acceptance
thereof likewise covenants and agrees, that all Notes shall be issued subject to
the provisions of this Article 10; and each Person holding any Note, whether
upon original issue or upon transfer, assignment or exchange thereof, accepts
and agrees that the payment of the principal of and interest on the Notes,
whether at maturity, by declaration or otherwise by the Company, shall, to the
extent and in the manner herein set forth, be subordinated and junior in right
of payment, to the prior payment in full in cash or Cash Equivalents of Senior
Indebtedness.
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SECTION 10.02. CERTAIN DEFINITIONS.
"Designated Senior Indebtedness" means (i) Indebtedness under the
New Credit Facility and (ii) if there is no Indebtedness outstanding or active
commitments to issue Indebtedness under the New Credit Facility, any other
Indebtedness constituting Senior Indebtedness which, at the time of
determination has an aggregate principal amount outstanding of at least $25
million and is specifically designated in the instrument evidencing such Senior
Indebtedness as "Designated Senior Indebtedness."
"Permitted Junior Securities" means Equity Interests in the Company
or debt securities that are subordinated to all Senior Indebtedness (and any
debt securities issued in exchange for Senior Indebtedness) to substantially the
same extent as, or to a greater extent than, the Notes are subordinated to
Senior Indebtedness pursuant to this Indenture.
"Senior Indebtedness" means (i) all Indebtedness and other monetary
obligations (whether now existing or hereafter incurred or arising) of the
Company and its Subsidiaries on, under, in respect of, or arising under the New
Credit Facility and including all fees, expenses (including reasonable fees and
expenses of counsel), claims, charges, indemnity obligations and interest
accruing on or subsequent to the filing of a petition initiating any proceeding
in bankruptcy, insolvency or like proceeding whether or not such interest is an
allowed claim in such proceeding; (ii) all other Indebtedness of the Company
(other than the Notes and the Existing Notes), whether presently outstanding or
hereafter created, incurred or assumed, unless such Indebtedness, by its terms
or the terms of the instrument creating or evidencing it is subordinate in right
of payment to or pari passu with the Notes and (iii) any Hedging Obligations;
provided that the term Senior Indebtedness shall not include (a) any
Indebtedness of the Company which when incurred and without respect to any
election under Section 11(b) of the Bankruptcy Code, was without recourse to the
Company, (b) any Indebtedness of the Company to any of its Subsidiaries or
Affiliates, (c) any Indebtedness of the Company not otherwise permitted by
Sections 4.09 and 4.15 hereof; (d) Indebtedness to any employee of the Company,
(e) any liability for taxes and (f) trade payables.
"Specified Senior Indebtedness" means any Indebtedness constituting
Senior Indebtedness which, at the time of determination has an aggregate
principal amount outstanding of at least $25 million and is specifically
designated in the instrument evidencing such Senior Indebtedness as "Specified
Senior Indebtedness."
SECTION 10.03. NO PAYMENT ON NOTES IN CERTAIN CIRCUMSTANCES.
(a) If any default in the payment of any principal of or interest on
any Specified Senior Indebtedness or any Designated Senior Indebtedness when due
and payable, whether at maturity, upon any redemption, by declaration or
otherwise, occurs and is continuing, no payment shall be made by the Company
with respect to the principal of, premium, if any, or interest or Liquidated
Damages, if any, on, or other amount owing with respect to, the Notes, or to
redeem or acquire any of the Notes for cash or property or otherwise.
(b) If any event of default (other than a default in payment of the
principal of or interest on any Designated Senior Indebtedness) occurs and is
continuing in respect of any Senior Indebtedness (or if such an event of default
would occur upon any payment of any kind or character with respect to the
Notes), as such event of default is defined in such Designated Senior
Indebtedness, permitting the holders
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thereof to accelerate the maturity thereof and if the holder or holders or a
representative of such holder or holders gives written notice of the event of
default to the Company and the Trustee (a "Default Notice"), then, unless and
until such event of default has been cured or waived or has ceased to exist or
the Trustee receives notice from the holder or holders of the relevant
Designated Senior Indebtedness (or a representative of such holder or holders)
terminating the Blockage Period (as defined below), during the 179 period after
the delivery of such Default Notice (the "Blockage Period"), the Company, or any
Person acting on its behalf, shall not, (x) make any payment or distribution of
or with respect to the principal of, premium, if any or interest or Liquidated
Damages, if any, on, or other amounts owing with respect to the Notes or (y)
acquire any of the Notes for cash or property or otherwise. At the expiration of
such Blockage Period, the Company shall, subject to Section 10.03(a), promptly
pay to the Trustee all sums which the Company would have been obligated to pay
during such Blockage Period but for this Section 10.03(b). Only one such
Blockage Period may be commenced within any 360 consecutive days. For all
purposes of this Section 10.03, no event of default which existed or was
continuing with respect to the Designated Senior Indebtedness to which the
Blockage Period relates on the date such Blockage Period commenced shall be or
be made the basis for the commencement of any subsequent Blockage Period by the
holder or holders of such Designated Senior Indebtedness (or a representative of
such holder or holders) unless such event of default is cured or waived for a
period of not less than 90 consecutive days.
(c) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by Section 10.03(a) or 10.03(b), such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of Senior
Indebtedness or their respective representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Senior Indebtedness may have
been issued, as their respective interests may appear, but only to the extent
that, upon notice from the Trustee to the holders of the Senior Indebtedness
that such prohibited payment has been made, the holders of the Senior
Indebtedness notify the Trustee of the amounts then due and owing on the Senior
Indebtedness, if any, and only the amounts specified in such notice to the
Trustee shall be paid to the holders of Senior Indebtedness.
SECTION 10.04. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC..
(a) Upon any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to creditors upon
any dissolution or winding-up or total or partial liquidation or reorganization
of the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Indebtedness (including any interest accruing under the New Credit
Facility subsequent to an event of bankruptcy whether or not such interest is an
allowed claim in such proceeding) shall first be paid in full in cash or Cash
Equivalents, or payment provided for in cash or Cash Equivalents before any
payment of any kind or character (excluding Permitted Junior Securities) may be
made on account of the principal of, premium, if any, or interest or Liquidated
Damages, if any, on the Notes, or to acquire or redeem any of the Notes for cash
or property (excluding Permitted Junior Securities). Before any payment may be
made by, or on behalf of, the Company of the principal of, premium, if any, or
interest or Liquidated Damages, if any, on the Notes upon any such dissolution
winding-up, liquidation or reorganization, any payment or distribution of assets
of the Company of any kind or character, whether in cash, property or
securities, to which the Holders or the Trustee on their behalf would be
entitled, except for the provisions of this Article 10, shall be paid by the
Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or
other person making such payment or distribution, or by the Holders of the Notes
or by the Trustee under this Indenture if received by them or it, directly to
the holders of Senior Indebtedness (pro rata to such
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holders on the basis of the respective amounts of Senior Indebtedness held by
such holders) or their respective representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Senior Indebtedness may have
been issued, as their respective interests may appear, for application to the
payment of Senior Indebtedness remaining unpaid until all such Senior
Indebtedness has been paid in full in cash or Cash Equivalents after giving
effect to any concurrent payment, distribution or provision therefor to or for
the holders of Senior Indebtedness.
(b) In the event that, notwithstanding the foregoing, any payment or
distribution or assets of the Company of any kind or character, whether in cash,
property or securities (excluding Permitted Junior Securities), shall be
received by the Trustee or any Holder when such payment or distribution is
prohibited by Section 10.04(a), such payment or distribution shall be held in
trust for the benefit or, and shall be paid over or delivered to, the holders of
Senior Indebtedness (pro rata to such holders on the basis of the respective
amount of Senior Indebtedness held by such holders) or their respective
representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of Senior Indebtedness
remaining unpaid until all such Senior Indebtedness has been paid in full in
cash or Cash Equivalents, after giving effect to any concurrent payment,
distribution or provision therefor to or for the holders of such Senior
Indebtedness.
The consolidation of the Company with, or the merger of the Company
with or into, another corporation or the liquidation or dissolution of the
Company following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided in Article 5 hereof shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 10.04
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article 5.
SECTION 10.05. SUBROGATION.
Subject to the payment in full in cash or Cash Equivalents of all
Senior Indebtedness, the Holders of the Notes shall be subrogated to the rights
of the holders of Senior Indebtedness to receive payments or distributions of
cash, property or securities of the Company applicable to the Senior
Indebtedness until the principal of and interest on the Notes shall be paid in
full; and, for the purposes of the such subrogation, (a) no payments or
distributions to the holders of the Senior Indebtedness of any cash, property or
securities to which the Holders of the Notes would be entitled except for the
provisions of Article 10 and no payment over pursuant to the provisions of
Article 10 to the holders of Senior Indebtedness by Holders of the Notes shall,
as between the Company, its creditors other than holders of Senior Indebtedness,
and Holders of the Notes, be deemed to be a payment by the Company to or on
account of the Senior Indebtedness, and (b) no payment or distributions of cash,
property or securities to or for the benefit of the Holders of the Notes
pursuant to this Section 10.05, which would otherwise have been paid to the
holders of Senior Indebtedness shall be deemed to be a payment by the Company to
or for the account of the Notes. It is understood that the provisions of this
Article 10 are and are intended solely for the purpose of defining the relative
rights of the Holders of the Notes, on the one hand, and the holders of the
Senior Indebtedness, on the other hand.
If any payment or distribution to which the Holders of Notes would
otherwise have been entitled but for the provisions of this Article 10 shall
have been applied, pursuant to the provisions of this Article 10, to the payment
of all amounts payable under the Senior Indebtedness, then and in such case,
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the Holders of Notes shall be entitled to receive from the holders of such
Senior Indebtedness any payments or distributions received by such holders of
Senior Indebtedness in excess of the amount required to make payment in full in
cash or Cash Equivalents of such Senior Indebtedness.
SECTION 10.06. OBLIGATIONS OF THE COMPANY UNCONDITIONAL.
Nothing contained in this Article 10 or elsewhere in this Indenture
is intended to or shall impair, as among the Company, its creditors other than
the holders of Senior Indebtedness, and the Holders of the Notes, the obligation
of the Company, which is absolute and unconditional, to pay to the Holders of
the Notes the principal of and interest on the Notes as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the Holders of the Notes and creditors of
the Company other than the holders of the Senior Indebtedness, nor shall
anything herein or therein prevent the Holders of any Note or the Trustee on
their behalf from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article 10 of the holders of the Senior Indebtedness in respect of cash,
property or securities of the Company received upon the exercise of any such
remedy.
Without limiting the generality of the foregoing, nothing contained
in Article 10 will restrict the right of the Trustee or the Holders of Notes to
take any action to declare the Notes to be due and payable prior to their stated
maturity pursuant to Section 6.01 or to pursue any rights or remedies hereunder.
SECTION 10.07. NOTICE TO TRUSTEE.
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Notes pursuant to the provisions of this
Article 10. Regardless of anything to the contrary contained in this Article 10
or elsewhere in this Indenture, the Trustee shall not be charged with knowledge
of the existence of any default or event of default with respect to any Senior
Indebtedness or of any other facts which would prohibit the making of any
payment to or by the Trustee unless and until a Responsible Officer of the
Trustee shall have received notice in writing at the Corporate Trust Office of
the Trustee to that effect signed by an officer of the Company, or by a holder
of Senior Indebtedness or trustee or agent therefor, who shall have been
certified by the Company or otherwise established to the reasonable satisfaction
of the Trustee to be such holder, trustee or agent, and, prior to the receipt of
any such written notice, the Trustee shall, subject to Sections 7.01 and 7.02,
be entitled to assume that no such facts exist; provided that if the Trustee
shall not have received the notice provided for in this Section 10.07 at least
three Business Days prior to the date upon which by the terms hereof any such
monies shall become payable for any purpose (including, without limitation, the
payment of the principal of or interest on any Note), then, regardless of
anything herein to the contrary, the Trustee shall have full power and authority
to receive such monies and apply the same to the purpose for which they were
received, and shall not be affected by any notice to the contrary which may be
received by it on or after such prior date.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article 10, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts
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pertinent to the rights of such Person under this Article 10, and if such
evidence is not furnished the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
SECTION 10.08. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT.
Upon any payment or distribution of assets of the Company referred
to in this Article 10, the Trustee, subject to the provisions of Section 7.01
and 7.02 and the Holders of the Notes shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which bankruptcy,
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidating trustee,
agent or other person making such payment or distribution, delivered to the
Trustee or the Holders of the Notes, 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.
SECTION 10.09. TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS.
The Trustee and any agent of the Company or the Trustee shall be
entitled to all the rights set forth in this Article 10 with respect to any
Senior Indebtedness which may at any time be held by it in its individual or any
other capacity to the same extent as any other holder of Senior Indebtedness and
nothing in this Indenture shall deprive the Trustee or any such agent, of any of
its rights as such holder.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior 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. The Trustee shall not
be liable to any holder of Senior Indebtedness if it shall pay over or deliver
to Holders of Notes, the Company or any other person monies or assets to which
any holder of Senior Indebtedness shall be entitled by virtue of this Article 10
or otherwise, except if such payment is made as a result of the willful
misconduct or gross negligence of the Trustee.
SECTION 10.10. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OF OMISSIONS OF THE
COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS.
(a) No right of any present or future holders of any Senior
Indebtedness to enforce subordination as provided herein will at any time in any
way be prejudiced or impaired by any act or failure to act on the part of the
Company or by any act or failure to act, in good faith, by any such holder, or
by any noncompliance by the Company with the terms of this Indenture, regardless
of any knowledge thereof which any such holder may have or otherwise be charged
with. The provision of this Article 10 are intended to be for the benefit of,
and shall be enforceable directly by, the holders of Senior Indebtedness. No
amendment, waiver or other modification of this Indenture shall in any way
adversely affect the rights of the holders of any Senior Indebtedness under this
Article 10 unless such holders of Senior Indebtedness consent in writing to such
amendment, waiver or modification.
(b) The holders of Senior Indebtedness may at any time and from time
to time without the consent of, or notice to, any Holder of Notes and without
incurring any responsibility to any Holder
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and without impairing or releasing any rights of the holders of any Senior
Indebtedness or any of the obligations of any Holder hereunder; (i) change the
manner, place or terms (including amortization, interest rate, covenants and
other terms) of, or renew, extend, refinance, refund, restructure or otherwise
alter any or all Senior Indebtedness; (ii) perfect, or not perfect, sell,
exchange, release or otherwise deal with any property at any time pledged,
assigned or mortgaged to secure Senior Indebtedness; (iii) release any Person
liable in any manner for the payment or collection of Senior Indebtedness; (iv)
exercise or refrain from exercising any rights against the Company and any other
Person; and (v) apply any amounts paid, acquired or realized to Senior
Indebtedness.
SECTION 10.11. HOLDERS OF NOTES AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF
THE NOTES.
Each Holder of Notes by his acceptance of them authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article 10, and appoints the Trustee his attorney-in-fact for such purposes,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency, receivership,
reorganization or similar proceedings or upon any assignment for the benefit of
creditors or otherwise) tending towards liquidation of the business and assets
of the Company the filing of a claim for the unpaid balance of its or his Notes
in the form required in those proceedings. If the Trustee does not file a proper
claim or proof of debt in the form required in such proceeding at least 30 days
before the expiration of the time to file such claim or claims, the holders of
the Senior Indebtedness (or its representatives) are hereby authorized to file
an appropriate claim for and on behalf of the Holders of Notes.
SECTION 10.12. ARTICLE 10 NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment on account of principal of or interest
on, or any other amount owing on, the Notes by reason of any provision of this
Article 10 will not be construed as preventing the occurrence of an Event of
Default.
SECTION 10.13. TRUSTEE'S COMPENSATION NOT PREJUDICED.
Nothing in this Article will apply to amounts due to the Trustee
pursuant to other sections in the Indenture.
SECTION 10.14. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON SUBORDINATION
PROVISIONS.
Each Holder by accepting a Note acknowledges and agrees that the
foregoing subordination provisions are, and are intended to be, an inducement
and a consideration to each holder of any Senior Indebtedness, whether such
Senior Indebtedness was created or acquired before or after the issuance of the
Note, to acquire and continue to hold such Senior Indebtedness and such holder
of Senior Indebtedness shall be deemed conclusively to have relied on such
subordination provisions in acquiring and continuing to hold such Senior
Indebtedness.
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ARTICLE 11
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision hereof limits, qualifies or conflicts with a
provision of the TIA or another provision that would be required or deemed under
such Act to be part of and govern this Indenture if this Indenture were subject
thereto, the latter provision shall control. If any provision of this Indenture
modifies or excludes any provision of the TIA that may be so modified or
excluded, the latter provision shall be deemed to apply to this Indenture as so
modified or to be excluded, as the case may be.
SECTION 11.02. NOTICES.
Any notice or communication by the Company or the Trustee to others
is duly given if in writing and delivered in Person or mailed by first class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company:
K & F Industries, Inc.
600 Third Avenue
New York, New York 10016
Telecopier No.: (212) 867-1182
Attention: Chief Financial Officer
With a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Telecopier: (212) 408-2420
Attention: Robert Seber
If to the Trustee:
State Street Bank and Trust Company
Corporate Trust Administration
Goodwin Square
225 Asylum Street
Hartford, CT 06103
Attention: Jacqueline Connor
The Company or the Trustee, by notice to the others 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; five Business Days after being
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deposited in the mail, postage prepaid, if mailed; 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 sec. 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.
SECTION 11.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA sec. 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA sec. 312(c).
SECTION 11.04. 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 11.05 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 11.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
SECTION 11.05. 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 sec. 314(a)(4)) shall comply with the provisions of TIA
sec. 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;
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(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 11.06. 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.
SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes, this Indenture, or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Notes by accepting
a Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes.
SECTION 11.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED
TO CONSTRUE THIS INDENTURE AND THE NOTES.
SECTION 11.09. 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 11.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes shall
bind their successors. All agreements of the Trustee in this Indenture shall
bind its successors.
SECTION 11.11. 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 11.12. 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.
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SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture, which 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]
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SIGNATURES
K & F INDUSTRIES, INC.
By: /s/ Kenneth M. Schwartz
----------------------------------
Name: Kenneth M. Schwartz
Title: Executive Vice President
STATE STREET BANK AND TRUST COMPANY
By: /s/ Jacqueline Connor
----------------------------------
Name: Jacqueline Connor
Title: Assistant Vice President
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EXHIBIT A-1
(Face of Note)
================================================================================
9 1/4% [Series A] [Series B] Senior Subordinated Notes due 2007
CUSIP: ___________
No. $___________
K & F INDUSTRIES, INC.
promise to pay to Cede & Co. or registered assigns, the principal sum of
$___________ on October 15, 2007.
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
Dated: October 15, 1997
K & F INDUSTRIES, INC.
By:
------------------------------
Name:
Title:
This is one of the [Global]
Notes referred to in
within-mentioned Indenture:
State Street Bank and Trust Company,
as Trustee
By:
---------------------------------
Name:
Title:
================================================================================
A1 - 1
<PAGE> 84
(Back of Note)
9 1/4% [Series A] [Series B] Senior Subordinated Notes due 2007
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON
AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS
GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION
2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE
TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND
(IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH
THE PRIOR WRITTEN CONSENT OF THE COMPANY.
[Unless and until it is exchanged in whole or in part for Notes in
definitive 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)
[THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR
(B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a) UNDER THE
SECURITIES ACT) ("ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND
IS ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN OFF-SHORE TRANSACTION;
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE SECURITY
EVIDENCED HEREBY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B)
TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) TO AN ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A
U.S. PERSON THAT, PRIOR
- ----------
(1) To be included only if the Note is issued in Global form.
A1 - 2
<PAGE> 85
TO SUCH TRANSFER, FURNISHES TO STATE STREET BANK AND TRUST COMPANY, AS
TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS
APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT, OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE
JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C),
(D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE (OR A SUCCESSOR TRUSTEE,
AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION
AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.](2)
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. INTEREST. K & F Industries, Inc., a Delaware corporation (the
"Company") promises to pay interest on the principal amount of this Note at 9
1/4% per annum from October 15, 1997, 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, if any, semi-annually on April 15 and October 15 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 Note 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 April 15, 1998. 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, if
any (without regard to any applicable grace periods)
- ----------
(2) This legend should be included on the Series A Notes and omitted from the
Series B Notes.
A1 - 3
<PAGE> 86
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.
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 April 1 or October 1
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, interest and Liquidated Damages, if
any, at the office or agency of the Company maintained for such purpose within
or without the City and State of New York, or, at the option of the Company,
payment of interest and Liquidated Damages may be made by check mailed to the
Holders at their addresses set forth in the register of Holders, and provided
that payment by wire transfer of immediately available funds will be required
with respect to principal of and interest, premium and Liquidated Damages 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, State Street Bank and 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 may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as of
October 15, 1997 (the "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 general obligations of the Company limited to $185 million
in aggregate principal amount.
5. OPTIONAL REDEMPTION. (a) Except as set forth in subparagraph (b) of
this Paragraph 5, the Company shall not have the option to redeem the Notes
prior to October 15, 2002. Thereafter, the Company shall have the option to
redeem the Notes, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages,
if any, thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on October 15 of the years set forth below:
Year Percentage
---- ----------
2002 ........................................ 104.625%
2003 ........................................ 103.083%
2004 ........................................ 101.542%
2005 and thereafter ......................... 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph
5, at any time on or prior to October 15, 2000, the Company may redeem up to an
aggregate of $65 million in principal amount of Notes at a redemption price of
109.25% of the principal amount thereof, in each case plus accrued and
A1 - 4
<PAGE> 87
unpaid interest and Liquidated Damages, if any, thereon to the redemption date,
with the net proceeds of one or more underwritten public offerings of its common
stock; provided that at least $120 million in aggregate principal amount of the
Notes remain outstanding immediately after the occurrence of such redemption and
that such redemption occurs within 45 days of the date of the closing of such
underwritten public offering.
6. MANDATORY REDEMPTION. Except as set forth in Paragraph 7 below, the
Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be required
to make an offer (a "Change of Control Offer") to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a
purchase price equal to 101% of the principal amount thereof plus, in each case,
accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase (in either case, the "Change of Control Payment Date"). Within 30 days
following any Change of Control, the Company shall mail a notice to each Holder
setting forth the procedures governing the Change of Control Offer as required
by the Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sale,
within five days of each date on which the aggregate amount of Excess Proceeds
exceeds $10 million, the Company shall commence an offer to all Holders of Notes
(an "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase
the maximum principal amount of Notes that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages, if any,
to the date fixed for the closing of such offer, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company (or such Subsidiary) may use such deficiency for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Holders of Notes that are the
subject of an offer to purchase will receive an Asset Sale Offer from the
Company prior to any related purchase date and may elect to have such Notes
purchased by completing the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Subject to the provisions of Section 3.09 of the
Indenture, a 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. Notes in denominations larger than $1,000
may be redeemed in part but only in whole 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.
9. SUBORDINATION. The Notes are subordinated in right of payment, to the
extent and in the manner provided in the Indenture, to the prior payments in
full of all Senior Indebtedness (as defined in the Indenture).
10. 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
A1 - 5
<PAGE> 88
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, it 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.
11. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.
12. 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 at least a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a purchase of, the tender offer
or exchange for, 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 principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange for,
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 or that
does not adversely affect the legal rights under the Indenture of any such
Holder, or to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
13. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due of interest or Liquidated Damages on the Notes;
(ii) default in payment when due of principal of or premium, if any, on the
Notes when the same becomes due and payable at maturity, upon redemption
(including in connection with an offer to purchase) or otherwise, (iii) failure
by the Company for 45 days after notice to the Company by the Trustee or the
Holders of at least 25% in principal amount of the Notes then outstanding to
comply with certain other agreements in the Indenture or the Notes; (iv) default
under certain other agreements relating to Indebtedness of the Company which
default (a) is caused by a failure to pay principal or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default)
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of such Indebtedness, together
with the principal amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so accelerated,
aggregates $10 million; (v) certain final judgments for the payment of money
that remain undischarged for a period of 60 days, provided that the aggregate of
all such undischarged judgments exceeds $10 million; and (vi) certain events of
bankruptcy or insolvency with respect to the Company or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders of
at least 25% in principal amount of the then outstanding Notes may declare all
the Notes to be due and payable. Notwithstanding the foregoing, in the case of
an Event of Default arising from certain events of bankruptcy or insolvency, all
outstanding Notes will become due and payable without further action or notice.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of the Notes notice of
any continuing Default or Event of Default
A1 - 6
<PAGE> 89
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest. The
Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes. The Company is required to deliver
to the Trustee annually a statement regarding compliance with the Indenture, and
the Company is required upon becoming aware of any Default or Event of Default,
to deliver to the Trustee a statement specifying such Default or Event of
Default.
14. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or their Affiliates, and may otherwise deal with the
Company or their Affiliates, as if it were not the Trustee.
15. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, 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. The waiver and release are part of the consideration for the issuance
of the Notes.
16. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
17. 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).
18. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In
addition to the rights provided to Holders of Notes under the Indenture, Holders
of Transferred Restricted Securities shall have all the rights set forth in the
Registration Rights Agreement dated as of October 15, 1997, between the Company
and the parties named on the signature pages thereof (the "Registration Rights
Agreement").
19. 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:
K & F Industries, Inc.
600 Third Avenue
New York, New York 10016
Attention: Chief Financial Officer
A1 - 7
<PAGE> 90
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:
--------------------
A1 - 8
<PAGE> 91
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant
to Section 4.10 or 4.13 of the Indenture, check the box below:
|_| Section 4.10 |_| Section 4.13
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state the
amount you elect to have purchased: $________
Date:_____________ Your Signature:
-------------------------
(Sign exactly as your name appears on
the face of this Note)
Tax Identification No.:
-----------------
Signature Guarantee:
--------------------
A1 - 9
<PAGE> 92
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES
The following exchanges of a part of this Global Note for Definitive Notes
have been made:
<TABLE>
<CAPTION>
Principal Amount Signature of
Amount of decrease in Amount of increase in of this Global Note authorized officer of
Principal Amount Principal Amount following such decrease Trustee or Note
Date of Exchange of this Global Note of this Global Note (or increase) Custodian
- ---------------- --------------------- ---------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C>
</TABLE>
A1 - 10
<PAGE> 93
EXHIBIT A-2
(Face of Regulation S Temporary Global Note)
================================================================================
9 1/4% [Series A] [Series B] Senior Subordinated Notes due 2007
CUSIP: ___________
No. $___________
K & F INDUSTRIES, INC.
promise to pay to Cede & Co. or registered assigns, the principal sum of
$___________ on October 15, 2007.
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
Dated: October 15, 1997
K & F INDUSTRIES, INC.
By:
------------------------------
Name:
Title:
This is one of the Global
Notes referred to in
within-mentioned Indenture:
State Street Bank and Trust Company,
as Trustee
By:
---------------------------------
Name:
Title:
================================================================================
A2 - 1
<PAGE> 94
(Back of Regulation S Temporary Global Note)
9 1/4% [Series A] [Series B] Senior Subordinated Notes due 2007
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON
AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS
GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION
2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE
TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND
(IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH
THE PRIOR WRITTEN CONSENT OF THE COMPANY.
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE NOTES, ARE
AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR
THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE
ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON.
Unless and until it is exchanged in whole or in part for Notes in
definitive 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.
A2 - 2
<PAGE> 95
[THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR
(B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a) UNDER THE
SECURITIES ACT) ("ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND
IS ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN OFF-SHORE TRANSACTION;
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE SECURITY
EVIDENCED HEREBY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B)
TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) TO AN ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A
U.S. PERSON THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO STATE STREET BANK
AND TRUST COMPANY, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING
TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM
OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE,
AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT, OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE
JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C),
(D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE (OR A SUCCESSOR TRUSTEE,
AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION
AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.](1)
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
- ----------
(1) This legend should be included on the Series A Notes and omitted from the
Series B Notes.
A2 - 3
<PAGE> 96
1. INTEREST. K & F Industries, Inc., a Delaware corporation (the
"Company") promises to pay interest on the principal amount of this Note at 93%
per annum from October 15, 1997, 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, if any, semi-annually on April 15 and October 15 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 Note 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 April 15, 1998. 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, if
any (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.
Until this Regulation S Temporary Global Note is exchanged for one
or more Regulation S Permanent Global Notes, the Holder hereof shall not be
entitled to receive payments of interest hereon; until so exchanged in full,
this Regulation S Temporary Global Note shall in all other respects be entitled
to the same benefits as other Senior Subordinated Notes under the Indenture.
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 April 1 or October 1
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, interest and Liquidated Damages, if
any, at the office or agency of the Company maintained for such purpose within
or without the City and State of New York, or, at the option of the Company,
payment of interest and Liquidated Damages may be made by check mailed to the
Holders at their addresses set forth in the register of Holders, and provided
that payment by wire transfer of immediately available funds will be required
with respect to principal of and interest, premium and Liquidated Damages 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, State Street Bank and 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 may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as of
October 15, 1997 (the "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 general obligations of the Company limited to $185 million
in aggregate principal amount.
A2 - 4
<PAGE> 97
5. OPTIONAL REDEMPTION. (a) Except as set forth in subparagraph (b) of
this Paragraph 5, the Company shall not have the option to redeem the Notes
prior to October 15, 2002. Thereafter, the Company shall have the option to
redeem the Notes, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages,
if any, thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on October 15 of the years set forth below:
Year Percentage
---- ----------
2002 ..................................................... 104.625%
2003 ..................................................... 103.083%
2004 ..................................................... 101.542%
2005 and thereafter ...................................... 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph
5, at any time on or prior to October 15, 2000, the Company may redeem up to an
aggregate of $65 million in principal amount of Notes at a redemption price of
109.25% of the principal amount thereof, in each case plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the redemption date, with
the net proceeds of one or more underwritten public offerings of its common
stock; provided that at least $120 million in aggregate principal amount of the
Notes remain outstanding immediately after the occurrence of such redemption and
that such redemption occurs within 45 days of the date of the closing of such
underwritten public offering.
6. MANDATORY REDEMPTION. Except as set forth in Paragraph 7 below, the
Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be required
to make an offer (a "Change of Control Offer") to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a
purchase price equal to 101% of the principal amount thereof plus, in each case,
accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase (in either case, the "Change of Control Payment Date"). Within 30 days
following any Change of Control, the Company shall mail a notice to each Holder
setting forth the procedures governing the Change of Control Offer as required
by the Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sale,
within five days of each date on which the aggregate amount of Excess Proceeds
exceeds $10 million, the Company shall commence an offer to all Holders of Notes
(an "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase
the maximum principal amount of Notes that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages, if any,
to the date fixed for the closing of such offer, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company (or such Subsidiary) may use such deficiency for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
A2 - 5
<PAGE> 98
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Holders of Notes that are the
subject of an offer to purchase will receive an Asset Sale Offer from the
Company prior to any related purchase date and may elect to have such Notes
purchased by completing the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Subject to the provisions of Section 3.09 of the
Indenture, a 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. Notes in denominations larger than $1,000
may be redeemed in part but only in whole 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.
9. SUBORDINATION. The Notes are subordinated in right of payment, to the
extent and in the manner provided in the Indenture, to the prior payments in
full of all Senior Indebtedness (as defined in the Indenture).
10. 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, it 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.
This Regulation S Temporary Global Note is exchangeable in whole or
in part for one or more Global Notes only (i) on or after the termination of the
40-day restricted period (as defined in Regulation S) and (ii) upon presentation
of certificates (accompanied by an Opinion of Counsel, if applicable) required
by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary
Global Note for one or more Global Notes, the Trustee shall cancel this
Regulation S Temporary Global Note.
11. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.
12. 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 at least a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a purchase of, the tender offer
or exchange for, 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 principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange for,
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 or that
does not adversely affect the legal rights under the Indenture
A2 - 6
<PAGE> 99
of any such Holder, or to comply with the requirements of the SEC in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act.
13. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due of interest or Liquidated Damages on the Notes;
(ii) default in payment when due of principal of or premium, if any, on the
Notes when the same becomes due and payable at maturity, upon redemption
(including in connection with an offer to purchase) or otherwise, (iii) failure
by the Company for 45 days after notice to the Company by the Trustee or the
Holders of at least 25% in principal amount of the Notes then outstanding to
comply with certain other agreements in the Indenture or the Notes; (iv) default
under certain other agreements relating to Indebtedness of the Company which
default (a) is caused by a failure to pay principal or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default)
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of such Indebtedness, together
with the principal amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so accelerated,
aggregates $10 million; (v) certain final judgments for the payment of money
that remain undischarged for a period of 60 days, provided that the aggregate of
all such undischarged judgments exceeds $10 million; and (vi) certain events of
bankruptcy or insolvency with respect to the Company or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders of
at least 25% in principal amount of the then outstanding Notes may declare all
the Notes to be due and payable. Notwithstanding the foregoing, in the case of
an Event of Default arising from certain events of bankruptcy or insolvency, all
outstanding Notes will become due and payable without further action or notice.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of the Notes notice of
any continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. The Holders of a majority in aggregate
principal amount of the Notes then outstanding by notice to the Trustee may on
behalf of the Holders of all of the Notes waive any existing Default or Event of
Default and its consequences under the Indenture except a continuing Default or
Event of Default in the payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and the Company is required upon becoming aware
of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
14. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or their Affiliates, and may otherwise deal with the
Company or their Affiliates, as if it were not the Trustee.
15. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, 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. The waiver and release are part of the consideration for the issuance
of the Notes.
16. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
A2 - 7
<PAGE> 100
17. 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).
18. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In
addition to the rights provided to Holders of Notes under the Indenture, Holders
of Transferred Restricted Securities shall have all the rights set forth in the
Registration Rights Agreement dated as of October 15, 1997, between the Company
and the parties named on the signature pages thereof (the "Registration Rights
Agreement").
19. 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:
K & F Industries, Inc.
600 Third Avenue
New York, New York 10016
Attention: Chief Financial Officer
A2 - 8
<PAGE> 101
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:
--------------------
A2 - 9
<PAGE> 102
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant
to Section 4.10 or 4.13 of the Indenture, check the box below:
|_| Section 4.10 |_| Section 4.13
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state the
amount you elect to have purchased: $________
Date:______________ Your Signature:
-------------------------
(Sign exactly as your name appears on
the face of this Note)
Tax Identification No.:
-----------------
Signature Guarantee:
--------------------
A2 - 10
<PAGE> 103
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Global Note for Definitive Notes
have been made:
<TABLE>
<CAPTION>
Principal Amount Signature of
Amount of decrease in Amount of increase in of this Global Note authorized officer of
Principal Amount Principal Amount following such decrease Trustee or Note
Date of Exchange of this Global Note of this Global Note (or increase) Custodian
- ---------------- --------------------- ---------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C>
</TABLE>
A2 - 11
<PAGE> 104
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
K & F Industries, Inc.
600 Third Avenue
New York, New York 10016
State Street Bank and Trust Company
P.O. Box 778
Boston, MA 02102-0078
Re: __% Senior Subordinated Notes due 2007
Reference is hereby made to the Indenture, dated as of October , 1997 (the
"Indenture"), between K & F Industries, Inc., as issuer (the "Company"), and
State Street Bank and Trust Company, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
______________, (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to __________ (the "Transferee"), as further specified in Annex A hereto. In
connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. |_| Check if Transferee will take delivery of a beneficial interest in the
144A Global Note or a Definitive Note Pursuant to Rule 144A. The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.
2. |_| Check if Transferee will take delivery of a beneficial interest in the
Regulation S Temporary Global Note, the Regulation S Permanent Global Note or a
Definitive Note pursuant to Regulation S. The Transfer is being effected
pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act
and, accordingly, the Transferor hereby further certifies that (i) the Transfer
is not being
B - 1
<PAGE> 105
made to a person in the United States and (x) at the time the buy order was
originated, the Transferee was outside the United States or such Transferor and
any Person acting on its behalf reasonably believed and believes that the
Transferee was outside the United States or (y) the transaction was executed in,
on or through the facilities of a designated offshore securities market and
neither such Transferor nor any Person acting on its behalf knows that the
transaction was prearranged with a buyer in the United States, (ii) no directed
selling efforts have been made in contravention of the requirements of Rule
903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the
transaction is not part of a plan or scheme to evade the registration
requirements of the Securities Act and (iv) if the proposed transfer is being
made prior to the expiration of the Restricted Period, the transfer is not being
made to a U.S. Person or for the account or benefit of a U.S. Person (other than
an Initial Purchaser). Upon consummation of the proposed transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will be subject to the restrictions on Transfer enumerated in
the Private Placement Legend printed on the Regulation S Permanent Global Note,
the Regulation S Temporary Global Note, and/or the Definitive Note and in the
Indenture and the Securities Act.
3. |_| Check and complete if Transferee will take delivery of a beneficial
interest in the AI Global Note or a Definitive Note pursuant to any provision of
the Securities Act other than Rule 144A or Regulation S. The Transfer is being
effected in compliance with the transfer restrictions applicable to beneficial
interests in Restricted Global Notes and Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act and any applicable blue
sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):
(a) |_| such Transfer is being effected pursuant to and in accordance with
Rule 144 under the Securities Act;
or
(b) |_| such Transfer is being effected to the Company or a subsidiary
thereof;
or
(c) |_| such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery requirements of the Securities Act;
or
(d) |_| such Transfer is being effected to an Accredited Investor and
pursuant to an exemption from the registration requirements of the Securities
Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby
further certifies that it has not engaged in any general solicitation within the
meaning of Regulation D under the Securities Act and the Transfer complies with
the transfer restrictions applicable to beneficial interests in a Restricted
Global Note or Restricted Definitive Notes and the requirements of the exemption
claimed, which certification is supported by (1) a certificate executed by the
Transferee in the form of Exhibit D to the Indenture and (2) if such Transfer is
in respect of a principal amount of Notes at the time of transfer of less than
$250,000, an Opinion of Counsel provided by the Transferor or the Transferee (a
copy of which the Transferor has attached to this certification), to the effect
that such Transfer is in compliance with the Securities Act. Upon consummation
of the proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interests or Definitive Note will be
B - 2
<PAGE> 106
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the AI Global Note and/or the Definitive Notes and in the
Indenture and the Securities Act.
4. |_| Check if Transferee will take delivery of beneficial interest in an
Unrestricted Global Note or of an Unrestricted Definitive Note.
(a) |_| Check if Transfer is pursuant to Rule 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act. Upon consummation of the proposed Transfer in accordance with
the terms of the Indenture, the transferred beneficial interests or Definitive
Note will no longer be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the Restricted Global Notes, on Restricted
Definitive Notes and in the Indenture.
(b) |_| Check if Transfer is Pursuant to Regulation S. (i) The Transfer is
being effected pursuant to and in accordance with Rule 903 or Rule 904 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interests or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(c) |_| Check if Transfer is Pursuant to Other Exemption. (i) The Transfer
is being effected pursuant to and in compliance with an exemption from the
registration requirements of the Securities Act other than Rule 144, Rule 903 or
Rule 904 and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any State of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interests or
Definitive Note will not be subject to the restrictions on transfer enumerated
in the Private Placement Legend printed on the Restricted Global Notes or
Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
------------------------------
[Insert Name of Transferor]
By:
---------------------------
Name:
Title:
Dated: _________________, ___
B - 3
<PAGE> 107
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) |_| a beneficial interest in the:
(i) |_| 144A Global Note (CUSIP_______), or
(ii) |_| Regulation S Global Note (CUSIP_______), or
(iii) |_| AI Global Note (CUSIP_______); or
(b) |_| a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) |_| a beneficial interest in the:
(i) |_| 144A Global Note (CUSIP ), or
(ii) |_| Regulation S Global Note (CUSIP_______), or
(iii) |_| AI Global Note (CUSIP_______); or
(iv) |_| Unrestricted Global Note (CUSIP_______); or
(b) |_| a Restricted Definitive Note; or
(c) |_| an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
B - 4
<PAGE> 108
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
K & F Industries, Inc.
600 Third Avenue
New York, New York 10016
State Street Bank and Trust Company
P.O. Box 778
Boston, MA 02102-0078
Re: __% Senior Subordinated Notes due 2007
(CUSIP____________)
Reference is hereby made to the Indenture, dated as of October ,
1997 (the "Indenture"), between K & F Industries, Inc., as issuer (the
"Company") and State Street Bank and Trust Company, as trustee. Capitalized
terms used but not defined herein shall have the meanings given to them in the
Indenture.
_________, (the "Owner") owns and proposes to exchange the Note[s]
or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange"). In connection with
the Exchange, the Owner hereby certifies that:
1. Exchange of Restricted Definitive Notes or Beneficial Interests in a
Restricted Global Note for Unrestricted Definitive Notes or Beneficial Interests
in an Unrestricted Global Note.
(a) |_| Check if Exchange is from beneficial interest in a Restricted
Global Note to beneficial interest in an Unrestricted Global Note. In connection
with the Exchange of the Owner's beneficial interest in a Restricted Global Note
for a beneficial interest in an Unrestricted Global Note in an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the Global
Notes and pursuant to and in accordance with the United States Securities Act of
1933, as amended (the "Securities Act"), (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the beneficial
interest in an Unrestricted Global Note is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(b) |_| Check if Exchange is from beneficial interest in a Restricted
Global Note to Unrestricted Definitive Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Definitive Note is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the Securities
Act, (iii) the restrictions on transfer contained in the Indenture and the
C - 1
<PAGE> 109
Private Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the Definitive Note is being acquired in compliance
with any applicable blue sky securities laws of any state of the United States.
(c) |_| Check if Exchange is from Restricted Definitive Note to beneficial
interest in an Unrestricted Global Note. In connection with the Owner's Exchange
of a Restricted Definitive Note for a beneficial interest in an Unrestricted
Global Note, the Owner hereby certifies (i) the beneficial interest is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to
Restricted Definitive Notes and pursuant to and in accordance with the
Securities Act, (iii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) |_| Check if Exchange is from Restricted Definitive Note to
Unrestricted Definitive Note. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. Exchange of Restricted Definitive Notes or Beneficial Interests in Restricted
Global Notes for Restricted Definitive Notes or Beneficial Interests in
Restricted Global Notes
(a) |_| Check if Exchange is from beneficial interest in a Restricted
Global Note to Restricted Definitive Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued will continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.
(b) |_| Check if Exchange is from Restricted Definitive Note to beneficial
interest in a Restricted Global Note. In connection with the Exchange of the
Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE]
|_| 144A Global Note, |_| Regulation S Global Note, |_| AI Global Note with an
equal principal amount, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer and (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, and in compliance with any applicable blue sky securities
laws of any state of the United States. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the beneficial interest
issued will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the relevant Restricted Global Note and in the
Indenture and the Securities Act.
C - 2
<PAGE> 110
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company.
------------------------------------
[Insert Name of Owner]
By:
---------------------------------
Name:
Title:
Dated: _________________, ___
C - 3
<PAGE> 111
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING ACCREDITED INVESTOR
K & F Industries, Inc.
600 Third Avenue
New York, New York 10016
State Street Bank and Trust Company
P. O. Box 778
Boston, MA 02102-0078
Re: __% Senior Subordinated Notes due 2007
Reference is hereby made to the Indenture, dated as of October __,
1997 (the "Indenture"), between K & F Industries, Inc., as issuer (the
"Company"), and State Street Bank and Trust Company, as trustee. Capitalized
terms used but not defined herein shall have the meanings given to them in the
Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of:
(a) |_| a beneficial interest in a Global Note, or
(b) |_| a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any interest therein
may not be offered or sold except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell the Notes or any interest therein,
we will do so only (A) to the Company or any subsidiary thereof, (B) in
accordance with Rule 144A under the Securities Act to a "qualified institutional
buyer" (as defined therein), (C) to an "accredited investor" (as defined below)
that, prior to such transfer, furnishes (or has furnished on its behalf by a
U.S. broker-dealer) to you and to the Company a signed letter substantially in
the form of this letter and, if such transfer is in respect of a principal
amount of Notes, at the time of transfer of less than $250,000, an Opinion of
Counsel in
D - 1
<PAGE> 112
form reasonably acceptable to the Company to the effect that such transfer is in
compliance with the Securities Act, (D) outside the United States in accordance
with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the
provisions of Rule 144(k) under the Securities Act or (F) pursuant to an
effective registration statement under the Securities Act, and we further agree
to provide to any person purchasing the Definitive Note or beneficial interest
in a Global Note from us in a transaction meeting the requirements of clauses
(A) through (E) of this paragraph a notice advising such purchaser that resales
thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or
beneficial interest therein, we will be required to furnish to you and the
Company such certifications, legal opinions and other information as you and the
Company may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Notes purchased by us
will bear a legend to the foregoing effect. We further understand that any
subsequent transfer by us of the Notes or beneficial interest therein acquired
by us must be effected through one of the placement agents.
4. We are an "accredited investor" (as defined in Rule 501(a) of
Regulation D under the Securities Act) and have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of our investment in the Notes, and we and any accounts for which we are
acting are each able to bear the economic risk of our or its investment.
5. We are acquiring the Notes or beneficial interest therein
purchased by us for our own account or for one or more accounts (each of which
is an "accredited investor") as to each of which we exercise sole investment
discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
----------------------------------------
[Insert Name of Accredited Investor]
By:
-------------------------------------
Name:
Title:
Dated:__________________, ___
D - 2
<PAGE> 1
Exhibit 5.01
[LETTERHEAD OF O'SULLIVAN GRAEV & KARABELL, LLP]
________________, 1997
K & F INDUSTRIES, INC.
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
9 1/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
Ladies and Gentleman:
We have acted as counsel to K & F Industries, Inc., a Delaware corporation
(the "Company"), in connection with the preparation and filing with the
Securities and Exchange Commission (the "Commission") of the Registration
Statement of the Company on Form S-4, as amended (File No. 33- ) (as so
amended, the "Registration Statement"), under the Securities Act of 1933, as
amended (the "Act").
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation G-K under the Act.
In connection with this opinion, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records and other instruments as we have deemed necessary for the
purposes of rendering the opinions set forth below including, without
limitation, (i) the Registration Statement, (ii) the Indenture dated as of
October 15, 1997 (the "Indenture") between the Company and State Street Bank and
Trust Company, as trustee, (iii) the Amended and Restated Certificate of
Incorporation of the Company, as amended through the date hereof; (iv) the
Amended and Restated By-laws of the Company, as amended through the date hereof
and (v) the resolutions adopted by the Board of Directors of the Company at a
meeting held on September 10, 1997 and by unanimous written consent in lieu of a
meeting dated as of October 8, 1997. As to certain questions of fact material to
the opinions contained herein, we have relied upon certificates or statements of
officers of the Company and certificates of public officials.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
to authentic originals of all documents submitted to us as certified or
photostatic copies. In making our examination of documents executed by parties
other than the Company, we have assumed that such parties had the power,
corporate or other, to enter into and perform all obligations thereunder and
have also assumed the due authorization by all requisite action, corporate or
other, and
<PAGE> 2
execution and delivery by such parties of such documents and the
validity and binding effect thereof.
Based upon the foregoing, we are of the opinion as follows:
1. The Company is a validly existing corporation under the laws of the
State of Delaware.
2. The 9 1/4% Series B Senior Subordinated Notes Due 2007 of the Company
have been duly authorized and, when issued upon consummation of the Exchange
Offer (as defined in the Registration Statement) as contemplated by the
Registration Statement and the Indenture, will be validly issued.
Members of our firm are admitted to the Bar of the State of New York and
we express no opinion as to the laws of any other jurisdiction other than the
Delaware General Corporation Law.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement. We also consent to the reference to our
firm under "Legal Matters" in the Registration Statement. In giving this
consent, we do not thereby admit that we are included in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
Very truly yours,
<PAGE> 1
Exhibit 10.15
SHARED SERVICES AGREEMENT
THIS SHARED SERVICES AGREEMENT, dated as of April 27, 1996, between
Lockheed Martin Tactical Defense Systems - Akron, a division of Lockheed Martin
Corporation, a Maryland corporation located at 1210 Massillon Road, Akron, Ohio
44315 ("Lockheed Martin") and Aircraft Braking Systems Corporation, a Delaware
corporation located at 1204 Massillon Road, Akron, Ohio 44306 ("ABSC").
W I T N E S S E T H
WHEREAS, Lockheed Martin has provided certain services to ABSC and such
services will continue to be necessary in the ordinary course of ABSC's
business (such services hereinafter referred to as "Lockheed Martin Services")
and
WHEREAS, ABSC has provided certain services to Lockheed Martin and such
services will continue to be necessary in the ordinary course of Lockheed
Martin's business (such services hereinafter referred to as "ABSC Services");
and
WHEREAS, Lockheed Martin and ABSC desire to enter into an agreement
providing the Shared Services to each other on terms which are mutually
acceptable to both Lockheed Martin and ABSC.
NOW, THEREFORE, Lockheed Martin and ABSC agree as follows:
Section 1. SHARED SERVICES
1.1 Lockheed Martin Services
Lockheed Martin shall provide ABSC with the Lockheed Martin
Services on the terms and conditions set forth in this Agreement. The Lockheed
Martin Services shall consist of the services listed on Exhibit A attached
hereto.
1.2 ABSC Services
ABSC shall provide Lockheed Martin with the ABSC Services on the
terms and conditions of this Agreement. The ABSC Services shall consist of the
services listed on Exhibit B attached hereto.
<PAGE> 2
1.3 Limitations on Obligations to Provide Shared Services
(a) The parties to this Agreement hereby agree that the Shared
Services which are to be provided pursuant to this Agreement shall not be deemed
to include any services not provided prior to the date of this Agreement;
provided, however, that either Lockheed Martin or ABSC may render services
beyond those which it is obligated to render hereunder on such terms and
conditions as may hereinafter be agreed to by Lockheed Martin and ABSC.
(b) All Shared Services hereunder will be provided in accordance
with the customary business practice of the party providing such service, and to
the extent and in substantially the same manner as provided prior to the date of
this Agreement, BUT WITHOUT REPRESENTATION OR WARRANTY OF ANY NATURE WHATSOEVER.
ALL GOODS AND SERVICES SUPPLIED HEREUNDER ARE SUPPLIED WITHOUT REPRESENTATION AS
TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
Section 2. CONSIDERATION
2.1 Lockheed Martin Services
In consideration of the services enumerated in Section 1.1 of
this Agreement, ABSC agrees to pay to Lockheed Martin fees for such services at
the rates set forth in Exhibit A attached hereto.
2.2 ABSC Services
In consideration of the services enumerated in Section 1.2 of
this Agreement, Lockheed Martin agrees to pay to ABSC fees for such services at
the rates set forth in Exhibit B attached hereto.
2.3 Method of Payment
(a) Lockheed Martin shall bill ABSC for Lockheed Martin Services
in the manner specified in Exhibit A attached hereto. Such bill shall set forth,
in reasonable detail, all items and services provided or rendered by Lockheed
Martin to ABSC. ABSC shall remit payment for such Lockheed Martin Services to
Lockheed Martin in a manner specified in Exhibit A attached hereto.
(b) ABSC shall bill Lockheed Martin for ABSC Services in the
2
<PAGE> 3
manner specified in Exhibit B attached hereto. Such bill shall set forth, in
reasonable detail, all items and services provided or rendered by ABSC to
Lockheed Martin. Lockheed Martin shall remit payment for such ABSC Services to
ABSC in a manner specified in Exhibit B attached hereto.
Services 3 TERM
3.1 Term of Shared Services Agreement
This Agreement shall become effective on April 27, 1996 and shall
continue in effect until the close of business on April 26, 1998.
3.2 Termination of Party's Obligation to Provide Certain Shared
Services
(a) Except as set forth in Section 3.3(b) of this Agreement,
Lockheed Martin's obligation to provide a service which constitutes one of the
Lockheed Martin Services shall terminate on April 26, 1998.
(b) Except as set forth in Section 3.3(a) of this Agreement,
ABSC's obligation to provide a service which constitutes one of the ABSC
Services shall terminate on April 26, 1998.
3.3 Termination of Party's Obligation to Purchase Certain Shared
Services
(a) Lockheed Martin shall have the right to terminate its
obligation to purchase any service which constitutes an ABSC Service enumerated
in Section 1.2 of this Agreement upon giving to ABSC the required notice as set
forth in Exhibit B.
(b) ABSC shall have the right to terminate its obligation to
purchase any service which constitutes a Lockheed Martin Service enumerated in
Section 1.1 of this Agreement upon giving to Lockheed Martin the required notice
as set forth in Exhibit A.
Section 4. INDEMNITY
(a) ABSC hereby assumes liability for, and hereby agrees to
hold Lockheed Martin and its affiliates and their respective directors,
officers and
3
<PAGE> 4
employees harmless from and against, and upon their demand pay or reimburse
them for, any and all losses, liabilities, obligations, damages, deficiencies,
interest, penalties, impositions, assessments, fines, costs and expenses
(hereinafter referred to as "Lockheed Martin Indemnified Losses"), in whole or
in part, resulting from, caused by, arising out of or attributable to the
services provided to ABSC hereunder, except for Lockheed Martin Indemnified
Losses arising out of the negligent acts or omissions of Lockheed Martin, its
agents, contractors or employees. The indemnities and assumption of liability
of this Section 4 shall continue in full force and effect notwithstanding the
termination of this Agreement, whether by expiration of time, by operation of
law or otherwise. Lockheed Martin shall give ABSC prompt notice of any Lockheed
Martin Indemnified Loss hereby indemnified against and ABSC shall be entitled
to control the defense thereof upon such notice.
(b) Lockheed Martin hereby assumes liability for, and hereby agrees to
hold ABSC and its respective affiliates and their respective directors,
officers and employees harmless from and against, and upon their demand pay or
reimburse them for, any and all losses, liabilities, obligations, damages,
deficiencies, interest, penalties, impositions, assessments, fines, costs and
expenses (hereinafter referred to as "ABSC Indemnified Losses"), in whole or in
part, resulting from, caused by, arising out of or attributable to services
provided to Lockheed Martin hereunder, except for ABSC Indemnified Losses
arising out of the negligent acts or omissions of ABSC, its agents, contractors
or employees. The indemnities and assumptions of liability of this Section 4
shall continue in full force and effective notwithstanding the termination of
this Agreement, whether by expiration of time, by operation of law or
otherwise. ABSC shall give Lockheed Martin prompt notice of any ABSC
Indemnified Loss hereby indemnified against, and Lockheed Martin shall be
entitled to control the defense thereof upon such notice.
(c) The provisions of this Section 4 shall survive any termination or
cancellation of this Agreement or the termination of the individual obligations
of Lockheed Martin and ABSC as set forth in Section 3 of this Agreement.
Section 5. VALLEY ASSOCIATION CORPORATION COSTS
Valley Association Corporation cost shall be shared by the parties hereto
as described in Exhibit C hereof.
Section 6. SEVERABILITY
Whenever possible, each provision of this Agreement shall be
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<PAGE> 5
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law such provision shall be made to conform to the law and
this Agreement shall continue in full force and effect.
Section 7. NOTICE
(a) Any notice from one party to the other shall be in writing and shall
be deemed to have been duly given, (i) if delivered personally, when delivered
personally (ii), if mailed, on the third business day after such notice has been
deposited in the United States certified mail, postage prepaid and (iii) if by
overnight courier, on the next business day after such notice has been deposited
with such overnight courier.
(b) Any notice referred to in paragraph (a) of this Section 6 shall be
addressed to the parties set forth in the Preamble to this Agreement, provided,
however, that any such notice specifying a new address for such party sending
the notice (a "Change of Address Notice") shall be deemed proper notification
of such party's new address.
Section 8. SUCCESSORS
This Agreement shall be binding upon and shall inure to the benefit of
Lockheed Martin and ABSC and their respective successors and assigns.
Section 9. GOVERNING LAW
This agreement shall be governed and construed in accordance with the
laws of the State of Ohio; provided, however, that the parties shall be
entitled to any and all rights conferred by any applicable federal statue, rule
or regulation.
Section 10. ASSIGNMENT
This Agreement may not be assigned by either Lockheed Martin or ABSC
without the prior written consent of the other party. Any attempted assignment
in violation of this Section 9 shall be void ab initio.
Section 11. CONFIDENTIAL AND PROPRIETARY INFORMATION
Neither party, its officers, agents and employees (such party, its
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<PAGE> 6
officers, agents and employees hereinafter referred to as a "Receiving
Party") shall, without the prior approval of an authorized representative of
the other party (such other party hereinafter referred to as a "Disclosing
Party"), disclose in any manner to any person, firm, corporation or entity, any
confidential or proprietary information of the Disclosing Party furnished to or
acquired by the Receiving Party under the provisions of this Agreement except
that a Receiving Party may disclose such confidential or proprietary
information (i) to its agents, representatives and employees as if necessary to
provide the services hereunder, provided, however, that such agents,
representatives and employees be advised of this Agreement and agree to be bound
by the terms of this Agreement, and (ii) as required by applicable law. The
provisions of this clause shall survive any termination or cancellation of this
entire Agreement or the termination of the individual obligations or Lockheed
Martin and ABSC as set forth in Section 3 of this Agreement.
Section 12. LIMITATION OF DAMAGES
Neither party shall be liable to the other for any special,
incidental or consequential damages arising out of the performance or
non-performance of obligations under this Agreement or the provision of, or
failure to provide, services hereunder.
Section 13. MISCELLANEOUS
(a) Section Headings. Section headings in this Agreement are
for convenience only and shall not be deemed to alter or affect any provision
hereof.
(b) Entire Agreement; Modification. This Agreement contains the
entire agreement between the parties hereto with respect to the transactions
contemplated herein and no representation, promise, inducement or statement of
intention relating to the transactions contemplated by this Agreement has been
made by any party which is not set forth in this Agreement. This Agreement
shall not be modified or amended except by an instrument in writing signed by
or on behalf of both parties hereto.
(c) Counterparts. This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same agreement.
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<PAGE> 7
IN WITNESS WHEREOF, the undersigned have caused their duly authorized
officers to execute this Agreement as of the date set forth above.
LOCKHEED MARTIN TACTICAL DEFENSE SYSTEMS - AKRON
a division of Lockheed Martin Corporation
BY: /s/ Charles J. Schafer
---------------------------------
NAME: Charles J. Schafer
TITLE: President, LMTDS - Akron
AIRCRAFT BRAKING SYSTEMS CORPORATION
BY: /s/ D.E. Fogelsanger
---------------------------------
NAME: D.E. Fogelsanger
TITLE: President K&F Industries Inc.
7
<PAGE> 1
Exhibit 10.27
EXECUTION COPY
================================================================================
$372,000,000
CREDIT AGREEMENT
among
Aircraft Braking Systems Corporation
and
Engineered Fabrics Corporation,
as Borrowers,
The Several Lenders
from Time to Time Parties Hereto,
LEHMAN BROTHERS INC.,
as Arranger,
LEHMAN COMMERCIAL PAPER INC.,
as Syndication Agent
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Administrative Agent
Dated as of October 15, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS..................................................... 1
1.1 Defined Terms................................................... 1
1.2 Other Definitional Provisions................................... 23
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS................................. 24
2.1 Term Loan Commitments........................................... 24
2.2 Procedure for Term Loan Borrowing............................... 24
2.3 Repayment of Term Loans......................................... 24
2.4 Revolving Credit Commitments.................................... 26
2.5 Procedure for Revolving Credit Borrowing........................ 26
2.6 Repayment of Loans; Evidence of Debt............................ 27
2.7 Commitment Fees, etc. .......................................... 28
2.8 Termination or Reduction of Revolving Credit Commitments........ 28
2.9 Optional Prepayments............................................ 28
2.10 Mandatory Prepayments and Commitment Reductions................. 29
2.11 Conversion and Continuation Options............................. 30
2.12 Minimum Amounts and Maximum Number of Eurodollar Tranches....... 31
2.13 Interest Rates and Payment Dates................................ 31
2.14 Computation of Interest and Fees................................ 31
2.15 Inability to Determine Interest Rate............................ 32
2.16 Pro Rata Treatment and Payments................................. 32
2.17 Requirements of Law............................................. 34
2.18 Taxes........................................................... 35
2.19 Indemnity....................................................... 36
2.20 Change of Lending Office........................................ 37
2.21 Maximum Liability............................................... 37
2.22 Illegality...................................................... 37
SECTION 3. LETTERS OF CREDIT............................................... 38
3.1 L/C Commitment.................................................. 38
3.2 Procedure for Issuance of Letter of Credit...................... 38
3.3 Commissions, Fees and Other Charges............................. 39
3.4 L/C Participations.............................................. 39
3.5 Reimbursement Obligation of the Borrowers....................... 40
3.6 Obligations Absolute............................................ 40
3.7 Letter of Credit Payments....................................... 41
3.8 Applications.................................................... 41
SECTION 4. REPRESENTATIONS AND WARRANTIES.................................. 41
4.1 Financial Condition............................................. 41
4.2 No Change....................................................... 42
4.3 Corporate Existence; Compliance with Law........................ 42
4.4 Corporate Power; Authorization; Enforceable Obligations......... 43
4.5 No Legal Bar.................................................... 43
<PAGE> 3
Page
----
4.6 No Material Litigation.......................................... 43
4.7 No Default...................................................... 43
4.8 Ownership of Property; Liens.................................... 43
4.9 Intellectual Property........................................... 44
4.10 No Burdensome Restrictions...................................... 44
4.11 Taxes........................................................... 44
4.12 Federal Regulations............................................. 44
4.13 Labor Matters................................................... 44
4.14 ERISA........................................................... 45
4.15 Investment Company Act; Other Regulations....................... 45
4.16 Subsidiaries.................................................... 45
4.17 Use of Proceeds................................................. 45
4.18 Environmental Matters........................................... 46
4.19 Accuracy of Information, etc.................................... 46
4.20 Security Documents.............................................. 47
4.21 Solvency........................................................ 47
4.22 Senior Indebtedness............................................. 48
4.23 Regulation H.................................................... 48
SECTION 5. CONDITIONS PRECEDENT............................................ 48
5.1 Conditions to Initial Extension of Credit....................... 48
5.2 Conditions to Each Extension of Credit.......................... 52
SECTION 6. AFFIRMATIVE COVENANTS........................................... 53
6.1 Financial Statements............................................ 53
6.2 Certificates; Other Information................................. 54
6.3 Payment of Obligations.......................................... 55
6.4 Conduct of Business and Maintenance of Existence, etc. ......... 56
6.5 Maintenance of Property; Insurance.............................. 56
6.6 Inspection of Property; Books and Records; Discussions.......... 56
6.7 Notices......................................................... 56
6.8 Environmental Laws.............................................. 57
6.9 Interest Rate Protection........................................ 57
6.10 Additional Collateral, etc...................................... 57
6.11 Environmental Audit............................................. 59
6.12 Corporate Separateness.......................................... 59
6.13 Government Contracts............................................ 59
SECTION 7. NEGATIVE COVENANTS.............................................. 59
7.1 Financial Condition Covenants................................... 60
7.2 Limitation on Indebtedness...................................... 62
7.3 Limitation on Liens............................................. 63
7.4 Limitation on Fundamental Changes............................... 64
7.5 Limitation on Sale of Assets.................................... 64
7.6 Limitation on Dividends......................................... 65
7.7 Limitation on Capital Expenditures.............................. 66
7.8 Limitation on Investments, Loans and Advances................... 66
7.9 Limitation on Optional Payments and Modifications
of Debt Instruments, etc...................................... 67
7.10 Limitation on Transactions with Affiliates...................... 67
7.11 Limitation on Sales and Leasebacks.............................. 67
<PAGE> 4
Page
7.12 Limitation on Negative Pledge Clauses........................... 68
7.13 Limitation on Restrictions on Subsidiary Distributions.......... 68
7.14 Limitation on Lines of Business................................. 68
7.15 Limitation on Changes in Fiscal Year............................ 68
7.16 Subsidiaries.................................................... 68
SECTION 8. EVENTS OF DEFAULT............................................... 68
SECTION 9. THE AGENTS...................................................... 72
9.1 Appointment..................................................... 72
9.2 Delegation of Duties............................................ 72
9.3 Exculpatory Provisions.......................................... 72
9.4 Reliance by Administrative Agent................................ 73
9.5 Notice of Default............................................... 73
9.6 Non Reliance on Agents and Other Lenders........................ 73
9.7 Indemnification................................................. 74
9.8 Agent in Its Individual Capacity................................ 74
9.9 Successor Agents................................................ 74
9.10 Authorization to Release Liens.................................. 75
9.11 Arranger........................................................ 75
SECTION 10. MISCELLANEOUS................................................... 76
10.1 Amendments and Waivers.......................................... 76
10.2 Notices......................................................... 76
10.3 No Waiver; Cumulative Remedies.................................. 77
10.4 Survival of Representations and Warranties...................... 78
10.5 Payment of Expenses............................................. 78
10.6 Successors and Assigns; Participations and Assignments.......... 79
10.7 Adjustments; Set off............................................ 81
10.8 Counterparts.................................................... 82
10.9 Severability.................................................... 82
10.10 Integration..................................................... 82
10.11 GOVERNING LAW................................................... 82
10.12 Submission To Jurisdiction; Waivers............................. 82
10.13 Acknowledgements................................................ 83
10.14 WAIVERS OF JURY TRIAL........................................... 83
10.15 Confidentiality................................................. 83
<PAGE> 5
ANNEXES:
A Pricing Grid
B Sources and Uses
SCHEDULES:
1.1A Commitments
1.1B Mortgaged Property
4.4 Consents, Authorizations, Filings and Notices
4.6 Litigation
4.16 Subsidiaries
4.20(a) UCC Filing Jurisdictions
4.20(b) Mortgage Filing Jurisdictions
7.2(d) Existing Indebtedness
7.2(f) Guarantee Obligations
7.3(f) Existing Liens
EXHIBITS:
A Form of Guarantee and Collateral Agreement
B Form of Compliance Certificate
C Form of Closing Certificate
D Form of Mortgage
E Form of Assignment and Acceptance
F-1 Form of Legal Opinion of O'Sullivan Graev & Karabell, LLP
F-2 Form of Legal Opinion of General Counsel
G-1 Form of Term Note
G-2 Form of Revolving Credit Note
H-1 Form of ABS Subordination Agreement
H-2 Form of EF Subordination Agreement
I Form of Exemption Certificate
J Form of Intercreditor Agreement
K Form of Settlement Agreement
L Form of K&F Agreement
<PAGE> 6
CREDIT AGREEMENT, dated as of October 15, 1997, among AIRCRAFT
BRAKING SYSTEMS CORPORATION ("ABS") and ENGINEERED FABRICS CORPORATION ("EF"),
each a Delaware corporation (ABS and EF collectively, the "Borrowers";
individually, a "Borrower"), the several banks and other financial institutions
or entities from time to time parties to this Agreement (the "Lenders"), LEHMAN
BROTHERS INC., as arranger (in such capacity, the "Arranger"), LEHMAN COMMERCIAL
PAPER INC., as syndication agent (in such capacity, the "Syndication Agent"),
and THE FIRST NATIONAL BANK OF CHICAGO, as administrative agent (in such
capacity, the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Borrowers' parent, K&F Industries, Inc., a Delaware
corporation ("K&F") intends (i) to enter into a recapitalization transaction
(the "Recapitalization") on terms and conditions satisfactory to the Arranger
and the Syndication Agent, (ii) to issue senior subordinated notes (as further
defined herein, the "Senior Subordinated Notes") in an aggregate principal
amount equal to $185,000,000 and (iii) to have its subsidiaries, the Borrowers,
enter into the senior secured credit facilities provided for herein in an
aggregate principal amount equal to $372,000,000. The proceeds of such
financings will be used: (a) to finance a tender and consent solicitation in
respect of $140,000,000 in aggregate principal amount (plus accrued interest and
applicable premiums) of K&F's 10.375% Senior Subordinated Notes due 2004 (the
"2004 Notes"), (b) to redeem $70,000,000 in aggregate principal amount (plus
accrued interest and applicable premiums) of K&F's 11.875% Senior Secured Notes
due 2003 (the "Senior Secured Notes"), (c) to refinance the aggregate principal
amount outstanding (plus accrued interest) under the Borrowers' existing amended
and restated credit agreement (the "Existing Credit Agreement"), (d) to finance
the repurchase of approximately $230,000,000 of K&F's outstanding capital stock,
and (e) to pay fees and expenses in connection with the transactions
(collectively, the "Transactions") described above. The sources and uses of
funds in connection with the Transactions shall be as set forth on Annex B
hereto;
WHEREAS, the Lenders are willing to make such senior secured credit
facilities available upon and subject to the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the agreements
hereinafter set forth, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms listed in
this Section 1.1 shall have the respective meanings set forth in this Section
1.1.
<PAGE> 7
2
"Adjustment Date": as defined in the Pricing Grid.
"Administrative Agent": as defined in the preamble hereto.
"Affiliate": as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person
means the power, directly or indirectly, either to (a) vote 10% or more of
the securities having ordinary voting power for the election of directors
(or persons performing similar functions) of such Person or (b) direct or
cause the direction of the management and policies of such Person, whether
by contract or otherwise.
"Agents": the collective reference to the Syndication Agent, the
Administrative Agent and the Collateral Agent.
"Agreement": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time, and, for purposes of the Guarantee
and Collateral Agreement, as renewed, refunded, refinanced or replaced.
"Applicable Margin": for each Type of Loan, the rate per annum set
forth under the relevant column heading below:
Base Rate Eurodollar
Loans Loans
--------- ----------
Revolving Credit Loans 1.25% 2.25%
Tranche A Term Loans 1.25% 2.25%
Tranche B Term Loans 1.375% 2.375%
; provided that on and after the first Adjustment Date occurring after the
completion of one full fiscal quarter of the Borrowers after the Closing
Date, the Applicable Margin with respect to Revolving Credit Loans,
Tranche A Term Loans and Tranche B Term Loans will be determined pursuant
to the Pricing Grid.
"Application": an application, in such form as the Issuing Lender
may specify from time to time, requesting the Issuing Lender to open a
Letter of Credit.
"Asset Sale": any Disposition of Property or series of related
Dispositions of Property (excluding any such Disposition permitted by
clause (a), (b), (c) or (d) of Section 7.5) which yields gross proceeds to
K&F, the Borrowers or any of their Subsidiaries (valued at the initial
principal amount thereof in the case of non-cash proceeds consisting of
notes or other debt securities and valued at fair market value in the case
of other non-cash proceeds) in excess of $50,000.
"Assignee": as defined in Section 10.6(c).
<PAGE> 8
3
"Assignment and Acceptance": as defined in Section 10.6(c).
"Assignor": as defined in Section 10.6(c).
"Available Revolving Credit Commitment": as to any Revolving Credit
Lender at any time, an amount equal to the excess, if any, of (a) such
Lender's Revolving Credit Commitment over (b) such Lender's Revolving
Extensions of Credit.
"Base Rate": for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime
Rate in effect on such day, (b) the Base CD Rate in effect on such day
plus 1% and (c) the Federal Funds Effective Rate in effect on such day
plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of
interest per annum publicly announced from time to time by the Reference
Lender as its prime rate in effect at its principal office in New York
City (the Prime Rate not being intended to be the lowest rate of interest
charged by the Reference Lender in connection with extensions of credit to
debtors); "Base CD Rate" shall mean the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which
is one and the denominator of which is one minus the C/D Reserve
Percentage and (b) the C/D Assessment Rate; and "Three-Month Secondary CD
Rate" shall mean, for any day, the secondary market rate for three-month
certificates of deposit reported as being in effect on such day (or, if
such day shall not be a Business Day, the next preceding Business Day) by
the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of
the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day), or, if such rate shall not be so
reported on such day or such next preceding Business Day, the average of
the secondary market quotations for three-month certificates of deposit of
major money center banks in New York City received at approximately 10:00
A.M., New York City time, on such day (or, if such day shall not be a
Business Day, on the next preceding Business Day) by the Reference Lender
from three New York City negotiable certificate of deposit dealers of
recognized standing selected by it. Any change in the Base Rate due to a
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal
Funds Effective Rate shall be effective as of the opening of business on
the effective day of such change in the Prime Rate, the Three-Month
Secondary CD Rate or the Federal Funds Effective Rate, respectively.
"Base Rate Loans": Loans the rate of interest applicable to which is
based upon the Base Rate.
"BLS": Bernard L. Schwartz.
"BLS Group": (i) BLS, (ii) BLS's spouse and descendants
(collectively, "relatives"), (iii) a trust of which there are no
beneficiaries other than BLS, or relatives of BLS, or a charitable
institution or organization, (iv) a partnership, corporation or limited
liability company of which there are no other partners, stockholders or
<PAGE> 9
4
members, as applicable, other than BLS or the relatives of BLS, (v) a
legal representative or guardian of BLS or a relative of BLS if BLS or
such relative becomes mentally incompetent, (vi) any person succeeding BLS
or a relative of BLS by will or by the laws of descent, (vii) any
individual who is employed by, a consultant to, or a director of, K&F or
any of its Subsidiaries, and (viii) any individual who is a consultant or
advisor to BLS with respect to the investment by BLS in K&F.
"Board": the Board of Governors of the Federal Reserve System of the
United States (or any successor).
"Borrowing Date": any Business Day specified by the Borrowers as a
date on which the Borrowers request the relevant Lenders to make Loans
hereunder.
"Business": as defined in Section 4.18.
"Business Day": (i) for all purposes other than as covered by clause
(ii) below, a day other than a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required by law to
close and (ii) with respect to all notices and determinations in
connection with, and payments of principal and interest on, Eurodollar
Loans, any day which is a Business Day described in clause (i) and which
is also a day for trading by and between banks in Dollar deposits in the
interbank eurodollar market.
"Business Properties": as defined in Section 4.18.
"Capital Expenditures": for any period, with respect to any Person,
the aggregate of all expenditures by such Person and its Subsidiaries for
the acquisition, construction, or leasing (pursuant to a capital lease) of
fixed or capital assets or additions to equipment (including replacements,
capitalized repairs and improvements during such period) which should be
capitalized under GAAP on a consolidated balance sheet of such Person and
its Subsidiaries.
"Capital Lease Obligations": as to any Person, the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under
GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such
time determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a
corporation) and any and all warrants, rights or options to purchase any
of the foregoing.
<PAGE> 10
5
"Cash Equivalents": (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by
any agency thereof and backed by the full faith and credit of the United
States, in each case maturing within one year from the date of
acquisition; (b) certificates of deposit, time deposits, eurodollar time
deposits or overnight bank deposits having maturities of six months or
less from the date of acquisition issued by any Lender or by any
commercial bank organized under the laws of the United States of America
or any state thereof having combined capital and surplus of not less than
$500,000,000; (c) commercial paper of an issuer rated at least A-2 by
Standard & Poor's Ratings Services ("S&P") or P-2 by Moody's Investors
Service, Inc. ("Moody's"), or carrying an equivalent rating by a
nationally recognized rating agency, if both of the two named rating
agencies cease publishing ratings of commercial paper issuers generally,
and maturing within six months from the date of acquisition; (d)
repurchase obligations of any Lender or of any commercial bank satisfying
the requirements of clause (b) of this definition, having a term of not
more than 30 days with respect to securities issued or fully guaranteed or
insured by the United States government; (e) securities with maturities of
one year or less from the date of acquisition issued or fully guaranteed
by any state, commonwealth or territory of the United States, by any
political subdivision or taxing authority of any such state, commonwealth
or territory or by any foreign government, the securities of which state,
commonwealth, territory, political subdivision, taxing authority or
foreign government (as the case may be) are rated at least A by S&P or A
by Moody's; (f) securities with maturities of six months or less from the
date of acquisition backed by standby letters of credit issued by any
Lender or any commercial bank satisfying the requirements of clause (b) of
this definition; or (g) shares of money market mutual or similar funds
which invest exclusively in assets satisfying the requirements of clauses
(a) through (f) of this definition.
"C/D Assessment Rate": for any day as applied to any Base Rate Loan,
the annual assessment rate in effect on such day which is payable by a
member of the Bank Insurance Fund maintained by the Federal Deposit
Insurance Corporation (the "FDIC") classified as well-capitalized and
within supervisory subgroup "B" (or a comparable successor assessment risk
classification) within the meaning of 12 C.F.R. ss. 327.4 (or any
successor provision) to the FDIC (or any successor) for the FDIC's (or
such successor's) insuring time deposits at offices of such institution in
the United States.
"C/D Reserve Percentage": for any day as applied to any Base Rate
Loan, that percentage (expressed as a decimal) which is in effect on such
day, as prescribed by the Board, for determining the maximum reserve
requirement for a Depositary Institution (as defined in Regulation D of
the Board as in effect from time to time) in respect of new non-personal
time deposits in Dollars having a maturity of 30 days or more.
"Closing Date": the date on which the conditions precedent set forth
in Section 5.1 shall have been satisfied, which date is October 15, 1997.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
<PAGE> 11
6
"Collateral": all Property of the Loan Parties, now owned or
hereafter acquired, upon which a Lien is purported to be created by any
Security Document.
"Collateral Agent": The First National Bank of Chicago, in its
capacity as collateral agent under the Guarantee and Collateral Agreement
and the Intercreditor Agreement.
"Commitment": as to any Lender, the sum of the Tranche A Term Loan
Commitment, the Tranche B Term Loan Commitment and the Revolving Credit
Commitment of such Lender.
"Commitment Fee Rate": 1/2 of 1% per annum; provided that on and
after the first Adjustment Date occurring after the completion of one full
fiscal quarter of the Borrowers after the Closing Date, the Commitment Fee
Rate will be determined pursuant to the Pricing Grid.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Borrowers within the
meaning of Section 4001 of ERISA or is part of a group which includes the
Borrowers and which is treated as a single employer under Section 414 of
the Code.
"Compliance Certificate": a certificate duly executed by a
Responsible Officer substantially in the form of Exhibit B.
"Confidential Information Memorandum": the Confidential Information
Memorandum dated September 1997 and furnished to the Lenders.
"Consolidated Adjusted Net Worth": at any date, the sum of (a) all
amounts which would, in conformity with GAAP, be included on a
consolidated balance sheet of K&F and its Subsidiaries under stockholders'
equity at such date, (b) the liability accrued in accordance with FASB 106
on the December 31, 1996 balance sheet of K&F and its Subsidiaries, which
liability is $77,439,000, and (c) the aggregate amount of the adjustment
to the stockholders' equity and retained earnings of K&F and its
Subsidiaries as a result of the Recapitalization and the expenses paid in
connection with the Transactions, including, but not limited to, the cost
of the exercise of options outstanding on the Closing Date in accordance
with GAAP, which amount is $260,881,373.
"Consolidated Cash Interest Coverage Ratio": at any date, the ratio
of Consolidated EBITDA for the four full fiscal quarters ended on such
date to Consolidated Cash Interest Expense for the four full fiscal
quarters ended on such date.
"Consolidated Cash Interest Expense": for any period, total cash
interest expense (including that attributable to Capital Lease
Obligations) of K&F and its Subsidiaries for such period paid or currently
payable with respect to all outstanding
<PAGE> 12
7
Indebtedness of K&F and its Subsidiaries (including, without limitation,
all commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing and net costs under
Interest Rate Protection Agreements to the extent such net costs are
allocable to such period in accordance with GAAP), minus total net cash
interest income of K&F and its Subsidiaries for such period.
"Consolidated Current Assets": at any date, all amounts (other than
cash and Cash Equivalents) which would, in conformity with GAAP, be set
forth opposite the caption "total current assets" (or any like caption) on
a consolidated balance sheet of K&F and its Subsidiaries at such date.
"Consolidated Current Liabilities": at any date, all amounts which
would, in conformity with GAAP, be set forth opposite the caption "total
current liabilities" (or any like caption) on a consolidated balance sheet
of K&F and its Subsidiaries at such date, but excluding (a) the current
portion of any Funded Debt of K&F and its Subsidiaries and (b) without
duplication of clause (a) above, all Indebtedness consisting of Revolving
Credit Loans to the extent otherwise included therein.
"Consolidated EBITDA": for any period, Consolidated Net Income for
such period plus, without duplication and to the extent reflected as a
charge in the statement of such Consolidated Net Income for such period,
the sum of (a) total income tax expense, (b) interest expense,
amortization or writeoff of debt discount and debt issuance costs and
commissions, discounts and other fees and charges associated with
Indebtedness (including the Loans), (c) depreciation and amortization
expense, (d) amortization of intangibles (including, but not limited to,
goodwill) and organization costs, (e) any extraordinary or non-recurring
expenses or losses (including, whether or not otherwise includable as a
separate item in the statement of such Consolidated Net Income for such
period, losses on sales of assets outside of the ordinary course of
business) and (f) any other non-cash charges, and minus, to the extent
included in the statement of such Consolidated Net Income for such period,
the sum of (a) interest income, (b) any extraordinary or non-recurring
income or gains (including, whether or not otherwise includable as a
separate item in the statement of such Consolidated Net Income for such
period, gains on the sales of assets outside of the ordinary course of
business) and (c) any other non-cash income, all as determined on a
consolidated basis.
"Consolidated Lease Expense": for any period, the aggregate rental
obligations of K&F and its Subsidiaries determined on a consolidated basis
payable in respect of such period under leases of real and/or personal
property (net of income from sub-leases thereof, but excluding taxes,
insurance, maintenance and similar expenses which the lessee is obligated
to pay under the terms of said leases), whether or not such obligations
are reflected as liabilities or commitments on a consolidated balance
sheet of K&F and its Subsidiaries or in the notes thereto, excluding,
however, Capital Lease Obligations.
<PAGE> 13
8
"Consolidated Leverage Ratio": at any date, the ratio of (a) Total
Funded Indebtedness of K&F and its Subsidiaries on a consolidated basis on
such date to (b) Consolidated EBITDA for the four full fiscal quarters
ended on such date.
"Consolidated Net Income": for any period, the consolidated net
income (or loss) of K&F and its Subsidiaries, determined on a consolidated
basis in accordance with GAAP; provided that, except for purposes of
determining compliance with Section 7.1(d) at any time, there shall be
excluded (a) the income (or deficit) of any Person accrued prior to the
date it becomes a Subsidiary of K&F or is merged into or consolidated with
K&F or any of its Subsidiaries, (b) the income (or deficit) of any Person
(other than a Subsidiary of K&F) in which K&F or any of its Subsidiaries
has an ownership interest, except to the extent that any such income is
actually received by K&F or such Subsidiary in the form of dividends or
similar distributions and (c) the undistributed earnings of any Subsidiary
of K&F (other than the Borrowers and the Subsidiary Guarantors) to the
extent that the declaration or payment of dividends or similar
distributions by such Subsidiary is not at the time permitted by the terms
of any Contractual Obligation (other than under any Loan Document) or
Requirement of Law applicable to such Subsidiary.
"Consolidated Working Capital": at any date, the excess of
Consolidated Current Assets on such date over Consolidated Current
Liabilities on such date.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
Property is bound.
"Default": any of the events specified in Section 8, whether or not
any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"Disposition": with respect to any Property, any sale, lease, sale
and leaseback, assignment, conveyance, transfer or other disposition
thereof; and the terms "Dispose" and "Disposed of" shall have correlative
meanings.
"Dollars" and "$": dollars in lawful currency of the United States.
"Domestic Subsidiary": any Subsidiary of K&F organized under the
laws of any jurisdiction within the United States.
"ECF Percentage": 75%; provided, that, with respect to each fiscal
year of K&F ending on or after December 31, 1998, the ECF percentage shall
be reduced to 50% if the Consolidated Leverage Ratio of the period of four
consecutive fiscal quarters ending on the last day of such fiscal year is
less than or equal to 4.00 to 1.0.
"Environmental Laws": any and all foreign, Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of
<PAGE> 14
9
any Governmental Authority or other Requirements of Law (including common
law) regulating, relating to or imposing liability or standards of conduct
concerning protection of human health or the environment, as now or may at
any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board or other
Governmental Authority having jurisdiction with respect thereto) dealing
with reserve requirements prescribed for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of the Board)
maintained by a member bank of the Federal Reserve System.
"Eurodollar Base Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate per annum
determined on the basis of the rate for deposits in Dollars for a period
equal to such Interest Period commencing on the first day of such Interest
Period appearing on Page 3750 of the Telerate screen as of 11:00 A.M.,
London time, two Business Days prior to the beginning of such Interest
Period. In the event that such rate does not appear on Page 3750 of the
Telerate Service (or otherwise on such service), the "Eurodollar Base
Rate" for purposes of this definition shall be determined by reference to
such other comparable publicly available service for displaying eurodollar
rates as may be agreed upon by the Administrative Agent and the Borrowers
or, in the absence of such agreement, by reference to the rate at which
the Administrative Agent is offered Dollar deposits at or about 11:00
A.M., New York City time, two Business Days prior to the beginning of such
Interest Period in the interbank eurodollar market where its eurodollar
and foreign currency and exchange operations are then being conducted for
delivery on the first day of such Interest Period for the number of days
comprised therein.
"Eurodollar Loans": Loans the rate of interest applicable to which
is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the
nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar Loans
the then current Interest Periods with respect to all of which begin on
the same date and end on
<PAGE> 15
10
the same later date (whether or not such Loans shall originally have been
made on the same day).
"Event of Default": any of the events specified in Section 8,
provided that any requirement for the giving of notice, the lapse of time,
or both, has been satisfied.
"Excess Cash Flow": for each fiscal year of K&F and its Subsidiaries
commencing with the fiscal year ending December 31, 1998, the excess, if
any, of (a) the sum, without duplication, of Consolidated EBITDA for such
fiscal year minus Capital Expenditures of K&F and its Subsidiaries (net of
the Net Cash Proceeds from any sale and leaseback transaction excluded
from Section 2.10(b) by Section 7.11(b)) to the extent paid in cash in
such fiscal year minus, without duplication, development participation
payments, minus, gains on Asset Sales to the extent such gain is reflected
(A) in Consolidated EBITDA for such fiscal year and (B) in a mandatory
prepayment made pursuant to Section 2.10(b) (with due consideration given
to the $1,000,000 exception contained in the proviso thereto), minus
increases in Consolidated Working Capital for such fiscal year, plus
decreases in Consolidated Working Capital for such fiscal year, plus
increases in Other Long-Term Liabilities for such fiscal year, minus
decreases in Other Long-Term Liabilities for such fiscal year (other than
prepayments of FASB No. 106 liabilities), over (b) the sum, without
duplication, of (A) the aggregate amount of scheduled repayments of the
Term Loans pursuant to Section 2.3 during such period, (B) any principal
payments or prepayments resulting in a permanent reduction of any other
Indebtedness of K&F or its Subsidiaries made during such period in
accordance with the terms hereof, including, without limitation, any
payment to the Pension Plans that would increase a long-term asset, (C)
Consolidated Cash Interest Expense, (D) any taxes paid or payable for such
period and (E) the amount of any optional reductions in revolving credit
commitments, other than the Revolving Credit Commitments, with a
corresponding prepayment of revolving credit loans, other than the
Revolving Credit Loans, in accordance with the terms hereof; provided that
for purposes of determining Excess Cash Flow in any fiscal year payments
or prepayments in respect of the Intercompany Loans shall not be taken
into account.
"Excess Cash Flow Application Date": as defined in Section 2.10(c).
"Excluded Foreign Subsidiaries": any Foreign Subsidiary the pledge
of all of whose Capital Stock as Collateral would, in the good faith
judgment of the Borrowers, result in adverse tax consequences to the
Borrowers.
"Facility": each of (a) the Tranche A Term Loan Commitments and the
Tranche A Term Loans made thereunder (the "Tranche A Term Loan Facility"),
(b) the Tranche B Term Loan Commitments and the Tranche B Term Loans made
thereunder (the "Tranche B Term Loan Facility") and (c) the Revolving
Credit Commitments and the extensions of credit made thereunder (the
"Revolving Credit Facility").
<PAGE> 16
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"Federal Funds Effective Rate"; for any day, the weighted average of
the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published on
the next succeeding Business Day by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for the day of such transactions received by
the Reference Lender from three federal funds brokers of recognized
standing selected by it.
"Foreign Subsidiary": any Subsidiary of K&F that is not a Domestic
Subsidiary.
"Funded Debt": as to any Person, all Indebtedness of such Person
that matures more than one year from the date of its creation or matures
within one year from such date but is renewable or extendible, at the
option of such Person, to a date more than one year from such date or
arises under a revolving credit or similar agreement that obligates the
lender or lenders to extend credit during a period of more than one year
from such date, including, without limitation, all current maturities and
current sinking fund payments in respect of such Indebtedness whether or
not required to be paid within one year from the date of its creation and,
in the case of the Borrowers, Indebtedness in respect of the Loans.
"Funding Office": the office specified from time to time by the
Administrative Agent as its funding office by notice to the Borrowers and
the Lenders.
"GAAP": generally accepted accounting principles in the United
States as in effect from time to time set forth in the opinions and
pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and
pronouncements of the Financial Accounting Standards Board and the rules
and regulations of the Securities and Exchange Commission, or in such
other statements by such other entity as may be in general use by
significant segments of the accounting profession, which are applicable to
the circumstances of K&F as of the date of determination, except that for
purposes of Section 7.1, GAAP shall be determined on the basis of such
principles in effect on the date hereof and consistent with those used in
the preparation of the most recent audited financial statements delivered
pursuant to Section 4.1(b). In the event that any "Accounting Change" (as
defined below) shall occur and such change results in a change in the
method of calculation of financial covenants, standards or terms in this
Agreement, then K&F and the Administrative Agent agree to enter into
negotiations in order to amend such provisions of this Agreement so as to
equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating K&F's financial condition shall be the same after
such Accounting Changes as if such Accounting Changes had not been made.
Until such time as such an amendment shall have been executed and
delivered by K&F, the Administrative Agent and the Required Lenders, all
financial covenants, standards and terms in this Agreement shall continue
to be calculated or construed as if such Accounting Changes had not
occurred.
<PAGE> 17
12
"Accounting Changes" refers to changes in accounting principles
required by the promulgation of any rule, regulation, pronouncement or
opinion by the Financial Accounting Standards Board of the American
Institute of Certified Public Accountants or, if applicable, the
Securities and Exchange Commission (or successors thereto or agencies with
similar functions).
"Governmental Authority": any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government (including, without limitation, any securities
exchange or self-regulatory organization, the National Association of
Insurance Commissioners).
"Guarantee and Collateral Agreement": the Guarantee and Collateral
Agreement to be executed and delivered by K&F, the Borrowers and each
Subsidiary Guarantor, substantially in the form of Exhibit A, as the same
may be amended, supplemented or otherwise modified from time to time.
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another
Person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has issued
a reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends
or other obligations (the "primary obligations") of any other third Person
(the "primary obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or
any Property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of
the primary obligor, (iii) to purchase Property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless the owner
of any such primary obligation against loss in respect thereof; provided,
however, that the term Guarantee Obligation shall not include endorsements
of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (a) an amount equal to the
stated or determinable amount of the primary obligation in respect of
which such Guarantee Obligation is made and (b) the maximum amount for
which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary
obligation and the maximum amount for which such guaranteeing person may
be liable are not stated or determinable, in which case the amount of such
Guarantee Obligation shall be such guaranteeing person's maximum
reasonably anticipated liability in respect thereof as determined by the
Borrowers in good faith.
<PAGE> 18
13
"Guarantors": the collective reference to K&F and the Subsidiary
Guarantors.
"Incur": as defined in Section 7.2.
"Indebtedness": of any Person at any date, without duplication, (a)
all indebtedness of such Person for borrowed money, (b) all obligations of
such Person for the deferred purchase price of Property or services (other
than current trade payables incurred in the ordinary course of such
Person's business), (c) all obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments, (d) all indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to Property acquired by such Person (even though
the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such
Property), (e) all Capital Lease Obligations of such Person, (f) all
obligations of such Person, contingent or otherwise, as an account party
under acceptance, letter of credit or similar facilities, (g) all
Guarantee Obligations of such Person in respect of obligations of the kind
referred to in clauses (a) through (f) above, (h) all obligations of the
kind referred to in clauses (a) through (g) above secured by (or for which
the holder of such obligation has an existing right, contingent or
otherwise, to be secured by) any Lien on Property (including, without
limitation, accounts and contract rights) owned by such Person, whether or
not such Person has assumed or become liable for the payment of such
obligation, and (i) the net liabilities (that is, fractional exposure) of
such Person or its Subsidiaries in respect of Interest Rate Protection
Agreements.
"Insolvency": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Intellectual Property": the collective reference to all rights,
priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including, without limitation, copyrights, copyright licenses, patents,
patent licenses, trademarks, trademark licenses, technology, know-how and
processes, and all rights to sue at law or in equity for any infringement
or other impairment thereof, including the right to receive all proceeds
and damages therefrom.
"Intercompany Loans": (a) the loan in the original principal amount
of $48,400,000 made by K&F to EF on or about April 28, 1989 and (b) the
loan in the original principal amount of $304,600,000 made by K&F to ABS
on or about April 28, 1989.
"Intercreditor Agreement": the Intercreditor Agreement, dated as of
the date hereof, among the PBGC, the Administrative Agent, the Collateral
Agent, each of the
<PAGE> 19
14
Borrowers and K&F, substantially in the form of Exhibit J, as amended,
supplemented or otherwise modified from time to time.
"Interest Payment Date": (a) as to any Base Rate Loan, the last day
of each March, June, September and December to occur while such Loan is
outstanding and the final maturity date of such Loan, (b) as to any
Eurodollar Loan having an Interest Period of three months or less, the
last day of such Interest Period, (c) as to any Eurodollar Loan having an
Interest Period longer than three months, each day which is three months,
or a whole multiple thereof, after the first day of such Interest Period
and the last day of such Interest Period and (d) as to any Loan (other
than any Revolving Credit Loan that is a Base Rate Loan), the date of any
repayment or prepayment made in respect thereof.
"Interest Period": as to any Eurodollar Loan, (a) initially, the
period commencing on the borrowing or conversion date, as the case may be,
with respect to such Eurodollar Loan and ending one, two, three or six
months thereafter, as selected by the Borrowers in their notice of
borrowing or notice of conversion, as the case may be, given with respect
thereto; and (b) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan and
ending one, two, three or six months thereafter, as selected by the
Borrowers by irrevocable notice to the Administrative Agent not less than
three Business Days prior to the last day of the then current Interest
Period with respect thereto; provided that, all of the foregoing
provisions relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day that
is not a Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless the result of such extension
would be to carry such Interest Period into another calendar month
in which event such Interest Period shall end on the immediately
preceding Business Day;
(ii) any Interest Period that would otherwise extend beyond
the Revolving Credit Termination Date or beyond the date final
payment is due on the Term Loans shall end on the Revolving Credit
Termination Date or such due date, as applicable;
(iii) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month; and
(iv) the Borrowers shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Loan.
<PAGE> 20
15
"Interest Rate Protection Agreement": any interest rate protection
agreement, interest rate futures contract, interest rate option, interest
rate cap or other interest rate hedge arrangement, to or under which K&F
or any of its Subsidiaries is a party or a beneficiary on the date hereof
or becomes a party or a beneficiary after the date hereof.
"Issuing Lender": The First National Bank of Chicago, in its
capacity as issuer of any Letter of Credit.
"K&F": as defined in the recitals hereto.
"K&F Agreement": the agreement by K&F in favor of the Administrative
Agent, dated as of the date hereof, substantially in the form of Exhibit
L, as the same may be amended, supplemented or otherwise modified from
time to time.
"L/C Commitment": $20,000,000.
"L/C Fee Payment Date": the last day of each March, June, September
and December and the last day of the Revolving Credit Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum of (a)
the aggregate then undrawn and unexpired amount of the then outstanding
Letters of Credit and (b) the aggregate amount of drawings under Letters
of Credit which have not then been reimbursed pursuant to Section 3.5.
"L/C Participants": the collective reference to all the Revolving
Credit Lenders other than the Issuing Lender.
"Lehman Investors": those certain merchant banking partnerships
affiliated with Lehman Brothers Holdings Inc.
"Letters of Credit": as defined in Section 3.1(a).
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention
agreement and any capital lease having substantially the same economic
effect as any of the foregoing).
"Loan": any loan made by any Lender pursuant to this Agreement.
"Loan Documents": this Agreement, the Security Documents,
Subordination Agreements, the K&F Agreement and the Notes.
<PAGE> 21
16
"Loan Parties": K&F, the Borrowers and each Subsidiary of K&F which
is a party to a Loan Document.
"Majority Facility Lenders": with respect to any Facility, the
holders of more than 50% of the aggregate unpaid principal amount of the
Tranche A Term Loans, the Tranche B Term Loans or the Total Revolving
Extensions of Credit, as the case may be, outstanding under such Facility
(or, in the case of the Revolving Credit Facility, prior to any
termination of the Revolving Credit Commitments, the holders of more than
50% of the Total Revolving Credit Commitments).
"Majority Revolving Credit Facility Lenders": the Majority Facility
Lenders in respect of the Revolving Credit Facility.
"Material Adverse Effect": a material adverse effect on (a) the
Recapitalization and the other Transactions, (b) the business, assets,
property, condition (financial or otherwise) or prospects of K&F and its
Subsidiaries taken as a whole or the Borrowers and their Subsidiaries
taken as a whole or (c) the validity or enforceability of this Agreement
or any of the other Loan Documents or the rights or remedies of the Agents
or the Lenders hereunder or thereunder.
"Material Environmental Amount": an amount payable by the Borrowers
and/or its Subsidiaries in excess of $1,000,000 for remedial costs,
compliance costs, compensatory damages, punitive damages, fines, penalties
or any combination thereof.
"Materials of Environmental Concern": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated
as such in or under any Environmental Law, including, without limitation,
asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.
"Mortgaged Properties": the real properties listed on Schedule 1.1B,
as to which the Administrative Agent for the benefit of the Lenders shall
be granted a Lien pursuant to the Mortgages.
"Mortgages": each of the mortgages and deeds of trust made by any
Loan Party in favor of, or for the benefit of, the Administrative Agent
for the benefit of the Lenders, substantially in the form of Exhibit D
(with such changes thereto as shall be advisable under the law of the
jurisdiction in which such mortgage or deed of trust is to be recorded),
as the same may be amended, supplemented or otherwise modified from time
to time.
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
<PAGE> 22
17
"Net Cash Proceeds": (a) in connection with any Asset Sale or any
Recovery Event, the proceeds thereof in the form of cash and Cash
Equivalents (including any such proceeds received by way of deferred
payment of principal pursuant to a note or installment receivable or
purchase price adjustment receivable or otherwise, but only as and when
received) of such Asset Sale or Recovery Event, net of attorneys' fees,
accountants' fees, investment banking fees, amounts required to be applied
to the repayment of Indebtedness secured by a Lien expressly permitted
hereunder on any asset which is the subject of such Asset Sale or Recovery
Event (other than any Lien pursuant to a Security Document) and other
customary fees and expenses actually incurred in connection therewith and
net of taxes paid or reasonably estimated to be payable as a result
thereof (after taking into account any available tax credits or deductions
and any tax sharing arrangements) and (b) in connection with any issuance
or sale of equity securities or debt securities or instruments or the
incurrence of loans, the cash proceeds received from such issuance or
incurrence, net of attorneys' fees, investment banking fees, accountants'
fees, underwriting discounts and commissions and other customary fees and
expenses actually incurred in connection therewith.
"Non-Excluded Taxes": as defined in Section 2.18(a).
"Non-U.S. Lender": as defined in Section 2.18(d).
"Notes": the collective reference to any promissory note evidencing
Loans.
"Obligations": the unpaid principal of and interest on (including,
without limitation, interest accruing after the maturity of the Loans and
Reimbursement Obligations and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to either of the Borrowers,
whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding) the Loans and all other obligations and
liabilities of either of the Borrowers to the Administrative Agent or to
any Lender (or, in the case of Interest Rate Protection Agreements, any
affiliate of any Lender), whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred,
which may arise under, out of, or in connection with, this Agreement, any
other Loan Document, the Letters of Credit, any Interest Rate Protection
Agreement entered into with any Lender or any affiliate of any Lender or
any other document made, delivered or given in connection herewith or
therewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including, without
limitation, all fees, charges and disbursements of counsel to the
Administrative Agent or to any Lender that are required to be paid by
either of the Borrowers pursuant hereto) or otherwise.
"Offering Memorandum": the Offering Memorandum dated October 9, 1997
in respect of the Senior Subordinated Notes.
<PAGE> 23
18
"Other Long-Term Liabilities": at any date, all amounts which would,
in conformity with GAAP, be included on a consolidated balance sheet of
K&F and the Subsidiaries under the item "Other Long-Term Liabilities",
including, without limitation, amounts accrued under FASB No. 106.
"Other Taxes": any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies
arising from any payment made hereunder or from the execution, delivery or
enforcement of, or otherwise with respect to, this Agreement.
"Participant": as defined in Section 10.6(b).
"Payment Office": the office specified from time to time by the
Administrative Agent as its payment office by notice to the Borrowers and
the Lenders.
"Pension Plans": as defined in the Settlement Agreement.
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA (or any successor).
"Person": an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.
"Plan": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which any Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Pricing Grid": the pricing grid attached hereto as Annex A.
"Pro Forma Balance Sheet": as defined in Section 4.1(a).
"Projections": as defined in Section 6.2(c).
"Property": any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or
intangible, including, without limitation, Capital Stock.
"Recapitalization Documentation": as defined in Section 5.1(b).
"Recovery Event": any settlement of or payment in respect of any
property or casualty insurance claim or any condemnation proceeding
relating to any asset of K&F, the Borrowers or any of their Subsidiaries.
<PAGE> 24
19
"Reference Lender": Citibank, N.A.
"Register": as defined in Section 10.6(d).
"Regulation G": Regulation G of the Board as in effect from time to
time.
"Regulation U": Regulation U of the Board as in effect from time to
time.
"Reimbursement Obligation": the obligation of the Borrowers to
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn
under Letters of Credit.
"Reinvestment Deferred Amount": with respect to any Reinvestment
Event, the aggregate Net Cash Proceeds received by K&F, the Borrowers or
any of their Subsidiaries in connection therewith which are not applied to
prepay the Term Loans or reduce the Revolving Credit Commitments pursuant
to Section 2.10(b) as a result of the delivery of a Reinvestment Notice.
"Reinvestment Event": any Asset Sale or Recovery Event in respect of
which the Borrowers have delivered a Reinvestment Notice.
"Reinvestment Notice": a written notice executed by a Responsible
Officer stating that no Event of Default has occurred and is continuing
and that the Borrowers (directly or indirectly through a Subsidiary)
intend and expect to use all or a specified portion of the Net Cash
Proceeds of an Asset Sale or Recovery Event to acquire assets useful in
their business.
"Reinvestment Prepayment Amount": with respect to any Reinvestment
Event, the Reinvestment Deferred Amount relating thereto less any amount
expended prior to the relevant Reinvestment Prepayment Date to acquire
assets useful in the Borrowers' business.
"Reinvestment Prepayment Date": with respect to any Reinvestment
Event, the earlier of (a) the date occurring twelve months after such
Reinvestment Event and (b) the date on which the Borrowers shall have
determined not to, or shall have otherwise ceased to, acquire assets
useful in the Borrowers' business with all or any portion of the relevant
Reinvestment Deferred Amount.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b)
of ERISA, other than those events as to which the thirty day notice period
is waived under subsection .13, .14, .16, .18, .19 or .20 of PBGC Reg. ss.
2615.
<PAGE> 25
20
"Required Lenders": the holders of more than 50% of (a) until the
Closing Date, the Commitments and (b) thereafter, the sum of (i) the
aggregate unpaid principal amount of the Term Loans and (ii) the Total
Revolving Credit Commitments or, if the Revolving Credit Commitments have
been terminated, the Total Revolving Extensions of Credit.
"Required Prepayment Lenders": the Majority Facility Lenders in
respect of each Facility.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents
of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its Property or to
which such Person or any of its Property is subject.
"Responsible Officer": the chief executive officer, president or
chief financial officer of a Loan Party, but in any event, with respect to
financial matters, the chief financial officer of a Loan Party.
"Revolving Credit Commitment": as to any Lender, the obligation of
such Lender, if any, to make Revolving Credit Loans and participate in
Letters of Credit, in an aggregate principal and/or face amount not to
exceed the amount set forth under the heading "Revolving Credit
Commitment" opposite such Lender's name on Schedule 1.1A or in the
Assignment and Acceptance pursuant to which such Lender became a party
hereto, as the same may be changed from time to time pursuant to the terms
hereof. The original amount of the Total Revolving Credit Commitments is
$50,000,000.
"Revolving Credit Commitment Period": the period from and including
the Closing Date to the Revolving Credit Termination Date.
"Revolving Credit Lender": each Lender which has a Revolving Credit
Commitment or which has made Revolving Credit Loans.
"Revolving Credit Loans": as defined in Section 2.4.
"Revolving Credit Percentage": as to any Revolving Credit Lender at
any time, the percentage which such Lender's Revolving Credit Commitment
then constitutes of the Total Revolving Credit Commitments (or, at any
time after the Revolving Credit Commitments shall have expired or
terminated, the percentage which the aggregate principal amount of such
Lender's Revolving Credit Loans then outstanding constitutes of the
aggregate principal amount of the Revolving Credit Loans then
outstanding).
"Revolving Credit Termination Date": the sixth anniversary of the
Closing Date, which date is October 15, 2003.
<PAGE> 26
21
"Revolving Extensions of Credit": as to any Revolving Credit Lender
at any time, an amount equal to the sum of (a) the aggregate principal
amount of all Revolving Credit Loans made by such Lender then outstanding
and (b) such Lender's Revolving Credit Percentage of the L/C Obligations
then outstanding.
"Security Documents": the collective reference to the Guarantee and
Collateral Agreement, the Mortgages, the Intercreditor Agreement and all
other security documents hereafter delivered to the Administrative Agent
granting a Lien on any Property of any Person to secure the obligations
and liabilities of any Loan Party under any Loan Document.
"Senior Subordinated Note Indenture": the Indenture entered into by
K&F in connection with the issuance of the Senior Subordinated Notes,
together with all instruments and other agreements entered into by K&F in
connection therewith, as the same may be amended, supplemented or
otherwise modified from time to time in accordance with Section 7.9.
"Senior Subordinated Notes": the senior subordinated notes of K&F
issued on the Closing Date pursuant to the Senior Subordinated Note
Indenture in an aggregate principal amount of $185,000,000 on terms and
conditions satisfactory to the Syndication Agent.
"Settlement Agreement": the Settlement Agreement, dated as of
October 15, 1997, between K&F and the PBGC, substantially in the form of
Exhibit K, as the same may be amended, supplemented or otherwise modified
from time to time.
"Single Employer Plan": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as of
any date of determination, (a) the amount of the "present fair saleable
value" of the assets of such Person will, as of such date, exceed the
amount of all "liabilities of such Person, contingent or otherwise", as of
such date, as such quoted terms are determined in accordance with
applicable federal and state laws governing determinations of the
insolvency of debtors, (b) the present fair saleable value of the assets
of such Person will, as of such date, be greater than the amount that will
be required to pay the liability of such Person on its debts as such debts
become absolute and matured, (c) such Person will not have, as of such
date, an unreasonably small amount of capital with which to conduct its
business, and (d) such Person will be able to pay its debts as they
mature. For purposes of this definition, (i) "debt" means liability on a
"claim", and (ii) "claim" means any (x) right to payment, whether or not
such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured or (y) right to an equitable remedy for breach of
performance if such breach gives rise to a right to payment, whether or
<PAGE> 27
22
not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured or unmatured, disputed, undisputed, secured or
unsecured.
"Stockholders Agreement": the Stockholders Agreement, dated as of
October 15, 1997, among K&F, BLS and the Lehman Investors, as amended,
supplemented or otherwise modified from time to time.
"Subordination Agreements": collectively, the ABS Subordination
Agreement and the EF Subordination Agreement, each dated as of the date
hereof, to be executed and delivered by K&F and ABS or EF, respectively,
in favor of the Administrative Agent for the benefit of the Lenders in
respect of the Intercompany Loans, substantially in the form of Exhibits
H-1 and H-2, respectively, as the same may be amended, supplemented or
otherwise modified from time to time.
"Subsidiary": as to any Person, a corporation, partnership, limited
liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such
other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the board of directors
or other managers of such corporation, partnership or other entity are at
the time owned, or the management of which is otherwise controlled,
directly or indirectly through one or more intermediaries, or both, by
such Person. Unless otherwise qualified, all references to a "Subsidiary"
or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of K&F.
"Subsidiary Cash Interest Coverage Ratio": at any date, the ratio of
(i) Consolidated EBITDA for the four full fiscal quarters ended on such
date, plus the amount of operating expenses of K&F during such period,
determined in accordance with GAAP, to (ii) interest paid on the Loans
(the "Subsidiary Interest Expense") during such period, minus total net
cash interest income of the Borrowers and their Subsidiaries for such
period.
"Subsidiary Guarantor": each Subsidiary of the Borrowers other than
any Excluded Foreign Subsidiary.
"Term Loans": the collective reference to the Tranche A Term Loans
and Tranche B Term Loans.
"Term Loan Lenders": the collective reference to the Tranche A Term
Loan Lenders and the Tranche B Term Loan Lenders.
"Total Funded Indebtedness": at any date, the difference between (I)
the sum (without duplication) of (a) the Indebtedness of K&F and its
Subsidiaries for borrowed money on such date, (b) all obligations of K&F
and its Subsidiaries on such date in respect of Capital Leases and (c) all
Guarantee Obligations of K&F and its Subsidiaries on such date in respect
of borrowed money, in each case determined on a consolidated
<PAGE> 28
23
basis in accordance with GAAP and (II) the unencumbered cash balances of
K&F and its Subsidiaries on such date.
"Total Revolving Credit Commitments": at any time, the aggregate
amount of the Revolving Credit Commitments at such time.
"Total Revolving Extensions of Credit": at any time, the aggregate
amount of the Revolving Extensions of Credit of the Revolving Credit
Lenders at such time.
"Tranche A Term Loan": as defined in Section 2.1.
"Tranche A Term Loan Commitment": the obligation of such Lender, if
any, to make a Tranche A Term Loan to the Borrowers hereunder in a
principal amount not to exceed the amount set forth under the heading
"Tranche A Term Loan Commitment" opposite such Lender's name on Schedule
1.1A or in the Assignment and Acceptance pursuant to which such Lender
became a party hereto. The original aggregate amount of the Tranche A Term
Loan Commitments is $50,000,000.
"Tranche A Term Loan Lender": each Lender which has a Tranche A Term
Loan Commitment or which has made a Tranche A Term Loan.
"Tranche A Term Loan Percentage": as to any Lender at any time, the
percentage which such Lender's Tranche A Term Loan Commitment then
constitutes of the aggregate Tranche A Term Loan Commitments (or, at any
time after the Closing Date, the percentage which the aggregate principal
amount of such Lender's Tranche A Term Loans then outstanding constitutes
of the aggregate principal amount of the Tranche A Term Loans then
outstanding).
"Tranche A Termination Date": the sixth anniversary of the Closing
Date, which date is October 15, 2003.
"Tranche B Term Loan": as defined in Section 2.1.
"Tranche B Term Loan Commitment": the obligation of such Lender, if
any, to make a Tranche B Term Loan to the Borrowers hereunder in a
principal amount not to exceed the amount set forth under the heading
"Tranche B Term Loan Commitment" opposite such Lender's name on Schedule
1.1A or in the Assignment and Acceptance pursuant to which such Lender
became a party hereto. The original aggregate amount of the Tranche B Term
Loan Commitments is $272,000,000.
"Tranche B Term Loan Lender": each Lender which has a Tranche B Term
Loan Commitment or which has made a Tranche B Term Loan.
"Tranche B Term Loan Percentage": as to any Lender at any time, the
percentage which such Lender's Tranche B Term Loan Commitment then
constitutes of
<PAGE> 29
24
the aggregate Tranche B Term Loan Commitments (or, at any time after the
Closing Date, the percentage which the aggregate principal amount of such
Lender's Tranche B Term Loans then outstanding constitutes of the
aggregate principal amount of the Tranche B Term Loans then outstanding).
"Tranche B Termination Date": the eighth anniversary of the Closing
Date, which date is October 15, 2005.
"Transferee": as defined in Section 10.15.
"Type": as to any Loan, its nature as a Base Rate Loan or a
Eurodollar Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No.
500, as the same may be amended from time to time.
"United States": the United States of America.
"Wholly Owned Subsidiary": as to any Person, any other Person all of
the Capital Stock of which (other than directors' qualifying shares
required by law) is owned by such Person directly and/or through other
Wholly Owned Subsidiaries.
"Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that
is a Wholly Owned Subsidiary of K&F.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the other Loan Documents or any certificate or other document made
or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to K&F, the Borrowers and their Subsidiaries not
defined in Section 1.1 and accounting terms partly defined in Section 1.1, to
the extent not defined, shall have the respective meanings given to them under
GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
<PAGE> 30
25
2.1 Term Loan Commitments. Subject to the terms and conditions
hereof, (a) each Tranche A Term Loan Lender severally agrees to make a term loan
(a "Tranche A Term Loan") to the Borrowers on the Closing Date in an amount not
to exceed the amount of the Tranche A Term Loan Commitment of such Lender and
(b) each Tranche B Term Loan Lender severally agrees to make a term loan (a
"Tranche B Term Loan") to the Borrowers on the Closing Date in an amount not to
exceed the amount of the Term Loan Commitment of such Lender. The Term Loans may
from time to time be Eurodollar Loans or Base Rate Loans, as determined by the
Borrowers and notified to the Administrative Agent in accordance with Sections
2.2 and 2.11. Any Term Loans borrowed on the Closing Date shall be borrowed by
ABS and EF in a proportion of 17 to 1, respectively.
2.2 Procedure for Term Loan Borrowing. The Borrowers shall give the
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 10:00 A.M., New York City time, one Business Day
prior to the anticipated Closing Date) requesting that the Term Loan Lenders
make the Term Loans on the Closing Date and specifying the amount to be
borrowed. The Term Loans shall initially be Base Rate Loans. Upon receipt of
such notice the Administrative Agent shall promptly notify each Term Loan Lender
thereof. Not later than 12:00 Noon, New York City time, on the Closing Date each
Term Loan Lender shall make available to the Administrative Agent at the Funding
Office an amount in immediately available funds equal to the Term Loan or Term
Loans to be made by such Lender. The Administrative Agent shall make available
to the Borrowers the aggregate of the amounts made available to the
Administrative Agent by the Term Loan Lenders in immediately available funds.
2.3 Repayment of Term Loans. (a) The Tranche A Term Loan of each
Tranche A Term Loan Lender shall mature in 25 consecutive quarterly
installments, commencing on December 31, 1997 and ending on the Tranche A
Termination Date, each of which shall be in an amount equal to such Lender's
Tranche A Term Loan Percentage multiplied by the amount set forth below opposite
such installment:
Installment Principal Amount
----------- ----------------
December 31, 1997 $ 125,000
March 31, 1998 125,000
June 30, 1998 125,000
September 30, 1998 125,000
December 31, 1998 125,000
March 31, 1999 125,000
June 30, 1999 125,000
September 30, 1999 125,000
December 31, 1999 125,000
March 31, 2000 125,000
June 30, 2000 125,000
September 30, 2000 125,000
December 31, 2000 125,000
<PAGE> 31
26
March 31, 2001 125,000
June 30, 2001 125,000
September 30, 2001 125,000
December 31, 2001 125,000
March 31, 2002 125,000
June 30, 2002 125,000
September 30, 2002 125,000
December 31, 2002 125,000
March 31, 2003 11,843,750
June 30, 2003 11,843,750
September 30, 2003 11,843,750
Tranche A Termination
Date 11,843,750
(b) The Tranche B Term Loan of each Tranche B Term Loan Lender
shall mature in 32 consecutive quarterly installments, commencing on December
31, 1997 and ending on the Tranche B Termination Date, each of which shall be in
an amount equal to such Lender's Tranche B Term Loan Percentage multiplied by
the amount set forth below opposite such installment:
Installment Principal Amount
----------- ----------------
December 31, 1997 $ 250,000
March 31, 1998 250,000
June 30, 1998 250,000
September 30, 1998 250,000
December 31, 1998 250,000
March 31, 1999 250,000
June 30, 1999 250,000
September 30, 1999 250,000
December 31, 1999 250,000
March 31, 2000 250,000
June 30, 2000 250,000
September 30, 2000 250,000
December 31, 2000 250,000
March 31, 2001 250,000
June 30, 2001 250,000
September 30, 2001 250,000
December 31, 2001 250,000
March 31, 2002 250,000
June 30, 2002 250,000
September 30, 2002 250,000
December 31, 2002 250,000
March 31, 2003 250,000
<PAGE> 32
27
June 30, 2003 250,000
September 30, 2003 250,000
December 31, 2003 250,000
March 31, 2004 250,000
June 30, 2004 250,000
September 30, 2004 250,000
December 31, 2004 66,250,000
March 31, 2005 66,250,000
June 30, 2005 66,250,000
Tranche B Termination
Date 66,250,000
2.4 Revolving Credit Commitments. (a) Subject to the terms and
conditions hereof, each Revolving Credit Lender severally agrees to make
revolving credit loans ("Revolving Credit Loans") to the Borrowers from time to
time during the Revolving Credit Commitment Period in an aggregate principal
amount at any one time outstanding which, when added to such Lender's Revolving
Credit Percentage of the sum of the L/C Obligations then outstanding does not
exceed the amount of such Lender's Revolving Credit Commitment. During the
Revolving Credit Commitment Period the Borrowers may use the Revolving Credit
Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in
part, and reborrowing, all in accordance with the terms and conditions hereof.
The Revolving Credit Loans may from time to time be Eurodollar Loans or Base
Rate Loans, as determined by the Borrowers and notified to the Administrative
Agent in accordance with Sections 2.5 and 2.11, provided that no Revolving
Credit Loan shall be made as a Eurodollar Loan after the day that is one month
prior to the Revolving Credit Termination Date.
(b) The Borrowers shall repay all outstanding Revolving Credit Loans
on the Revolving Credit Termination Date.
2.5 Procedure for Revolving Credit Borrowing. The Borrowers may
borrow under the Revolving Credit Commitments during the Revolving Credit
Commitment Period on any Business Day, provided that the Borrowers shall give
the Administrative Agent irrevocable notice (which notice must be received by
the Administrative Agent prior to 12:00 Noon, New York City time, (a) three
Business Days prior to the requested Borrowing Date, in the case of Eurodollar
Loans, or (b) one Business Day prior to the requested Borrowing Date, in the
case of Base Rate Loans), specifying (i) the amount and Type of Revolving Credit
Loans to be borrowed, (ii) the requested Borrowing Date and (iii) in the case of
Eurodollar Loans, the respective amounts of each such Type of Loan and the
respective lengths of the initial Interest Period therefor. Each borrowing under
the Revolving Credit Commitments shall be in an amount equal to (x) in the case
of Base Rate Loans, $1,000,000 or a whole multiple thereof (or, if the then
aggregate Available Revolving Credit Commitments are less than $1,000,000, such
lesser amount) and (y) in the case of Eurodollar Loans, $5,000,000 or a whole
multiple of $1,000,000 in excess thereof. Upon receipt of any such notice from
the Borrowers, the Administrative Agent shall promptly notify each Revolving
Credit Lender thereof. Each Revolving Credit Lender will make the amount of its
pro rata share of each borrowing
<PAGE> 33
28
available to the Administrative Agent for the account of the Borrowers at the
Funding Office prior to 12:00 Noon, New York City time, on the Borrowing Date
requested by the Borrowers in funds immediately available to the Administrative
Agent. Such borrowing will then be made available to the Borrowers by the
Administrative Agent in like funds as received by the Administrative Agent.
2.6 Repayment of Loans; Evidence of Debt. (a) The Borrowers hereby,
jointly and severally, unconditionally promise to pay to the Administrative
Agent for the account of the appropriate Revolving Credit Lender or Term Loan
Lender, as the case may be, (i) the then unpaid principal amount of each
Revolving Credit Loan of such Revolving Credit Lender on the Revolving Credit
Termination Date (or such earlier date on which the Loans become due and payable
pursuant to Section 8) and (ii) the principal amount of each Term Loan of such
Term Loan Lender in installments according to the amortization schedule set
forth in Section 2.3 (or on such earlier date on which the Loans become due and
payable pursuant to Section 8). The Borrowers hereby further agree to pay
interest on the unpaid principal amount of the Loans from time to time
outstanding from the date hereof until payment in full thereof at the rates per
annum, and on the dates, set forth in Section 2.13.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of the Borrowers to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(c) The Administrative Agent, on behalf of the Borrowers, shall
maintain the Register pursuant to Section 10.6(d), and a subaccount therein for
each Lender, in which shall be recorded (i) the amount of each Loan made
hereunder and any Note evidencing such Loan, the Type thereof and each Interest
Period applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Borrowers to each Lender hereunder
and (iii) both the amount of any sum received by the Administrative Agent
hereunder from the Borrowers and each Lender's share thereof.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 2.6(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrowers therein recorded; provided that the failure of any
Lender or the Administrative Agent to maintain the Register or any such account,
or any error therein, shall not in any manner affect the obligation of the
Borrowers to repay (with applicable interest) the Loans made to such Borrowers
by such Lender in accordance with the terms of this Agreement.
(e) The Borrowers agree that, upon the request to the Administrative
Agent by any Lender, the Borrowers will execute and deliver to such Lender (i) a
promissory note of the Borrowers evidencing any Term Loans or Revolving Credit
Loans, as the case may be, of such Lender, substantially in the forms of Exhibit
G-1 or G-2, respectively, with appropriate insertions as to date and principal
amount.
<PAGE> 34
29
2.7 Commitment Fees, etc. (a) The Borrowers agree to pay to the
Administrative Agent for the account of each Revolving Credit Lender a
commitment fee for the period from and including the Closing Date to the last
day of the Revolving Credit Commitment Period, computed at the Commitment Fee
Rate on the average daily amount of the Available Revolving Credit Commitment of
such Lender during the period for which payment is made, payable quarterly in
arrears on the last day of each March, June, September and December and on the
Revolving Credit Termination Date, commencing on the first of such dates to
occur after the date hereof.
(b) The Borrowers agree to pay to the Arranger and the Syndication
Agent the fees in the amounts and on the dates previously agreed to in writing
by the Borrowers and the Arranger and the Syndication Agent.
(c) The Borrowers agree to pay to the Administrative Agent the fees
in the amounts and on the dates from time to time agreed to in writing by the
Borrowers and the Administrative Agent.
2.8 Termination or Reduction of Revolving Credit Commitments. The
Borrowers shall have the right, upon not less than three Business Days' notice
to the Administrative Agent, to terminate the Revolving Credit Commitments or,
from time to time, to reduce the amount of the Revolving Credit Commitments;
provided that no such termination or reduction of Revolving Credit Commitments
shall be permitted if, after giving effect thereto and to any prepayments of the
Revolving Credit Loans made on the effective date thereof, the Total Revolving
Extensions of Credit would exceed the Total Revolving Credit Commitments. Any
such reduction shall be in an amount equal to $1,000,000, or a whole multiple
thereof, and shall reduce permanently the Revolving Credit Commitments then in
effect.
2.9 Optional Prepayments. The Borrowers may at any time and from
time to time prepay the Loans, in whole or in part, without premium or penalty,
upon irrevocable notice delivered to the Administrative Agent at least three
Business Days prior thereto in the case of Eurodollar Loans and at least one
Business Day prior thereto in the case of Base Rate Loans, which notice shall
specify the date and amount of prepayment and whether the prepayment is of
Eurodollar Loans or Base Rate Loans; provided that if a Eurodollar Loan is
prepaid on any day other than the last day of the Interest Period applicable
thereto, the Borrowers shall also pay any amounts owing pursuant to Section
2.19. Upon receipt of any such notice the Administrative Agent shall promptly
notify each relevant Lender thereof. If any such notice is given, the amount
specified in such notice shall be due and payable on the date specified therein,
together with (except in the case of Revolving Credit Loans which are Base Rate
Loans) accrued interest to such date on the amount prepaid. Partial prepayments
of Term Loans and Revolving Credit Loans shall be in an aggregate principal
amount of $1,000,000 or a whole multiple thereof. Optional prepayments of the
Term Loans in accordance with this Section 2.9 shall be applied to the
installments thereof in inverse order of maturity and may not be reborrowed.
Optional prepayments of the Loans may not be refused by the Lenders.
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2.10 Mandatory Prepayments and Commitment Reductions. (a) Unless the
Required Prepayment Lenders shall otherwise agree, if any Indebtedness shall be
Incurred by K&F, the Borrowers or any of their Subsidiaries (excluding any
Indebtedness Incurred in accordance with Section 7.2), an amount equal to 100%
of the Net Cash Proceeds thereof shall be applied on the date of such Incurrence
toward the prepayment of the Term Loans and the reduction of the Revolving
Credit Commitments as set forth in Section 2.10(d).
(b) Unless the Required Prepayment Lenders shall otherwise agree, if
on any date K&F, the Borrowers or any of their Subsidiaries shall receive Net
Cash Proceeds from any Asset Sale or Recovery Event then, unless a Reinvestment
Notice shall be delivered in respect thereof, an amount equal to 100% of such
Net Cash Proceeds shall be applied on such date toward the prepayment of the
Term Loans and the reduction of the Revolving Credit Commitments as set forth in
Section 2.10(d); provided that, notwithstanding the foregoing, (i) the aggregate
Net Cash Proceeds of Asset Sales and Recovery Events that may be excluded from
the foregoing requirement pursuant to a Reinvestment Notice shall not exceed (A)
$1,000,000, in the case of Assets Sales, and (B) so long as such Recovery Event
is not the result of a loss or condemnation that could reasonably be expected to
have a Material Adverse Effect and the Reinvestment Deferred Amount with respect
to such Recovery Event is invested to replace the lost or condemned asset with
an identical or similar asset, $20,000,000 in the case of a Recovery Event, in
each case, in any fiscal year of the Borrowers and (ii) on each Reinvestment
Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with
respect to the relevant Reinvestment Event shall be applied toward the
prepayment of the Term Loans and the reduction of the Revolving Credit
Commitments as set forth in Section 2.10(d).
(c) Unless the Required Prepayment Lenders shall otherwise agree,
if, for any fiscal year of the Borrowers commencing with the fiscal year ending
December 31, 1998, there shall be Excess Cash Flow, the Borrowers shall, on the
relevant Excess Cash Flow Application Date (as defined below), apply the ECF
Percentage of such Excess Cash Flow, after subtracting the amount of any
optional prepayments (with, in the case of an optional prepayment of a Revolving
Credit Loan, a corresponding reduction in the Revolving Credit Commitments),
toward the prepayment of the Term Loans and the reduction of the Revolving
Credit Commitments as set forth in Section 2.10(d), provided that the Tranche B
Term Loan Lenders shall have the right to refuse all or any portion of any
prepayment made under this paragraph (c) and 50% of the amount so refused shall
be applied, first, to the payment in full of the Tranche A Term Loans, second,
to the prepayment in full of the Tranche B Term Loans and, third, to the
permanent reduction of the Revolving Credit Commitments. Each such prepayment
and commitment reduction shall be made on a date (an "Excess Cash Flow
Application Date") no later than five days after the earlier of (i) the date on
which the financial statements of the Borrowers referred to in Section 6.1(a),
for the fiscal year with respect to which such prepayment is made, are required
to be delivered to the Lenders and (ii) the date such financial statements are
actually delivered.
(d) Except as otherwise provided in paragraph (c) above, amounts to
be applied in connection with prepayments and Commitment reductions made
pursuant to Section 2.10
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shall be applied, first, to the prepayment of the Term Loans and, second, to
reduce permanently the Revolving Credit Commitments. Any such reduction of the
Revolving Credit Commitments shall be accompanied by prepayment of the Revolving
Credit Loans to the extent, if any, that the Total Revolving Extensions of
Credit exceed the amount of the Total Revolving Credit Commitments as so
reduced, provided that if the aggregate principal amount of Revolving Credit
Loans then outstanding is less than the amount of such excess (because L/C
Obligations constitute a portion thereof), the Borrowers shall, to the extent of
the balance of such excess, replace outstanding Letters of Credit and/or deposit
an amount in cash in a cash collateral account established with the
Administrative Agent for the benefit of the Lenders on terms and conditions
satisfactory to the Administrative Agent. Except as otherwise provided in
paragraph (c) above, each prepayment of the Term Loans as set forth in this
Section 2.10 shall be applied to the Tranche A Term Loans and the Tranche B Term
Loans pro rata and to the installments thereof in inverse order of maturity and
may not be reborrowed. The application of any prepayment pursuant to Section
2.10 shall be made first to Base Rate Loans and second to Eurodollar Loans. Each
prepayment of the Loans under Section 2.10 (except in the case of Revolving
Credit Loans that are Base Rate Loans) shall be accompanied by accrued interest
to the date of such prepayment on the amount prepaid.
2.11 Conversion and Continuation Options. (a) The Borrowers may
elect from time to time to convert Eurodollar Loans to Base Rate Loans by giving
the Administrative Agent at least two Business Days' prior irrevocable notice of
such election, provided that any such conversion of Eurodollar Loans may only be
made on the last day of an Interest Period with respect thereto. The Borrowers
may elect from time to time to convert Base Rate Loans to Eurodollar Loans by
giving the Administrative Agent at least three Business Days' prior irrevocable
notice of such election (which notice shall specify the length of the initial
Interest Period therefor), provided that no Base Rate Loan under a particular
Facility may be converted into a Eurodollar Loan (i) when any Event of Default
has occurred and is continuing and the Administrative Agent or the Majority
Facility Lenders in respect of such Facility have determined in its or their
sole discretion not to permit such conversions or (ii) after the date that is
one month prior to the final scheduled termination or maturity date of such
Facility. Upon receipt of any such notice the Administrative Agent shall
promptly notify each relevant Lender thereof.
(b) Any Eurodollar Loan may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrowers giving
irrevocable notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1, of
the length of the next Interest Period to be applicable to such Loans, provided
that no Eurodollar Loan under a particular Facility may be continued as such (i)
when any Event of Default has occurred and is continuing and the Administrative
Agent has or the Majority Facility Lenders in respect of such Facility have
determined in its or their sole discretion not to permit such continuations or
(ii) after the date that is one month prior to the final scheduled termination
or maturity date of such Facility, and, provided, further, that if the Borrowers
shall fail to give any required notice as described above in this paragraph or
if such continuation is not permitted pursuant to the preceding proviso such
Loans shall be automatically converted to Base Rate Loans on the last day of
such then
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32
expiring Interest Period. Upon receipt of any such notice the Administrative
Agent shall promptly notify each relevant Lender thereof.
2.12 Minimum Amounts and Maximum Number of Eurodollar Tranches.
Notwithstanding anything to the contrary in this Agreement, all borrowings,
conversions, continuations and optional prepayments of Eurodollar Loans
hereunder and all selections of Interest Periods hereunder shall be in such
amounts and be made pursuant to such elections so that, (a) after giving effect
thereto, the aggregate principal amount of the Eurodollar Loans comprising each
Eurodollar Tranche shall be equal to $5,000,000 or a whole multiple of
$1,000,000 in excess thereof and (b) no more than ten Eurodollar Tranches shall
be outstanding at any one time.
2.13 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.
(b) Each Base Rate Loan shall bear interest at a rate per annum
equal to the Base Rate plus the Applicable Margin.
(c) (i) If all or a portion of the principal amount of any Loan or
Reimbursement Obligation shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), all outstanding Loans and Reimbursement
Obligations (whether or not overdue) shall bear interest at a rate per annum
which is equal to (x) in the case of the Loans, the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this Section 2.13
plus 2% or (y) in the case of Reimbursement Obligations, the rate applicable to
Base Rate Loans under the Revolving Credit Facility plus 2%, and (ii) if all or
a portion of any interest payable on any Loan or Reimbursement Obligation or any
commitment fee or other amount payable hereunder shall not be paid when due
(whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest at a rate per annum equal to the rate applicable to
Base Rate Loans under the relevant Facility plus 2% (or, in the case of any such
other amounts that do not relate to a particular Facility, the Base Rate plus
4%), in each case, with respect to clauses (i) and (ii) above, from the date of
such non-payment until such amount is paid in full (as well after as before
judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this Section
2.13 shall be payable from time to time on demand.
2.14 Computation of Interest and Fees. (a) Interest, fees and
commissions payable pursuant hereto shall be calculated on the basis of a
360-day year for the actual days elapsed, except that, with respect to Base Rate
Loans the rate of interest on which is calculated on the basis of the Prime
Rate, the interest thereon shall be calculated on the basis of a 365- (or 366-,
as the case may be) day year for the actual days elapsed. The Administrative
Agent shall as soon as practicable notify the Borrowers and the relevant Lenders
of each determination of a Eurodollar Rate. Any change in the interest rate on a
Loan resulting from a
<PAGE> 38
33
change in the Base Rate or the Eurocurrency Reserve Requirements shall become
effective as of the opening of business on the day on which such change becomes
effective. The Administrative Agent shall as soon as practicable notify the
Borrowers and the relevant Lenders of the effective date and the amount of each
such change in interest rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrowers and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrowers, deliver to the
Borrowers a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.13(a).
2.15 Inability to Determine Interest Rate. If prior to the first day
of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrowers in the
absence of manifest error) that, by reason of circumstances affecting the
relevant market, adequate and reasonable means do not exist for
ascertaining the Eurodollar Rate for such Interest Period, or
(b) the Administrative Agent shall have received notice from the
Majority Facility Lenders in respect of the relevant Facility that the
Eurodollar Rate determined or to be determined for such Interest Period
will not adequately and fairly reflect the cost to such Lenders (as
conclusively certified by such Lenders) of making or maintaining their
affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrowers and the relevant Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans under the relevant Facility requested
to be made on the first day of such Interest Period shall be made as Base Rate
Loans, (y) any Loans under the relevant Facility that were to have been
converted on the first day of such Interest Period to Eurodollar Loans shall be
continued as Base Rate Loans and (z) any outstanding Eurodollar Loans under the
relevant Facility shall be converted, on the first day of such Interest Period,
to Base Rate Loans. Until such notice has been withdrawn by the Administrative
Agent, no further Eurodollar Loans under the relevant Facility shall be made or
continued as such, nor shall the Borrowers have the right to convert Loans under
the relevant Facility to Eurodollar Loans.
2.16 Pro Rata Treatment and Payments. (a) Each borrowing by the
Borrowers from the Lenders hereunder, each payment by the Borrowers on account
of any commitment fee and any reduction of the Commitments of the Lenders shall
be made pro rata according to the respective Tranche A Term Loan Percentages,
Tranche B Term Loan Percentages or Revolving Credit Percentages, as the case may
be, of the relevant Lenders.
(b) Each payment (including each prepayment) by the Borrowers on
account of principal of and interest on the Term Loans shall be made pro rata
according to the respective outstanding principal amounts of the Term Loans then
held by the Term Loan Lenders. The
<PAGE> 39
34
amount of each principal prepayment of the Term Loans shall be applied to reduce
the then remaining installments of the Tranche A Term Loans and Tranche B Term
Loans, as the case may be, pro rata based upon the then remaining principal
amount thereof. Amounts prepaid on account of the Tranche B Term Loans may not
be reborrowed.
(c) Each payment (including each prepayment) by the Borrowers on
account of principal of and interest on the Revolving Credit Loans shall be made
pro rata according to the respective outstanding principal amounts of the
Revolving Credit Loans then held by the Revolving Credit Lenders.
(d) All payments (including prepayments) to be made by the Borrowers
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without setoff or counterclaim and shall be made prior to 12:00 Noon,
New York City time, on the due date thereof to the Administrative Agent, for the
account of the Lenders, at the Payment Office, in Dollars and in immediately
available funds. Payments received after such time shall be deemed to have been
received on the next Business Day. The Administrative Agent shall distribute
such payments to the Lenders promptly upon receipt in like funds as received. If
any payment hereunder (other than payments on the Eurodollar Loans) becomes due
and payable on a day other than a Business Day, such payment shall be extended
to the next succeeding Business Day. If any payment on a Eurodollar Loan becomes
due and payable on a day other than a Business Day, the maturity thereof shall
be extended to the next succeeding Business Day unless the result of such
extension would be to extend such payment into another calendar month, in which
event such payment shall be made on the immediately preceding Business Day. In
the case of any extension of any payment of principal pursuant to the preceding
two sentences, interest thereon shall be payable at the then applicable rate
during such extension.
(e) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrowers a
corresponding amount. If such amount is not made available to the Administrative
Agent by the required time on the Borrowing Date therefor, such Lender shall pay
to the Administrative Agent, on demand, such amount with interest thereon at a
rate equal to the daily average Federal Funds Effective Rate for the period
until such Lender makes such amount immediately available to the Administrative
Agent. A certificate of the Administrative Agent submitted to any Lender with
respect to any amounts owing under this Section 2.16(e) shall be conclusive in
the absence of manifest error. If such Lender's share of such borrowing is not
made available to the Administrative Agent by such Lender within three Business
Days of such Borrowing Date, the Administrative Agent shall promptly notify the
Borrowers and shall also be entitled to recover such amount with interest
thereon at the rate per annum applicable to Base Rate Loans under the relevant
Facility, payable within 2 days from demand, from the Borrowers.
<PAGE> 40
35
(f) Unless the Administrative Agent shall have been notified in
writing by the Borrowers prior to the date of any payment being made hereunder
that the Borrowers will not make such payment to the Administrative Agent, the
Administrative Agent may assume that the Borrowers are making such payment, and
the Administrative Agent may, but shall not be required to, in reliance upon
such assumption, make available to the Lenders their respective pro rata shares
of a corresponding amount. If such payment is not made to the Administrative
Agent by the Borrowers within three Business Days of such required date, the
Administrative Agent shall be entitled to recover, on demand, from each Lender
to which any amount which was made available pursuant to the preceding sentence,
such amount with interest thereon at the rate per annum equal to the daily
average Federal Funds Effective Rate. Nothing herein shall be deemed to limit
the rights of the Administrative Agent or any Lender against the Borrowers.
2.17 Requirements of Law. (a) If the adoption of or any change in
any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever with
respect to this Agreement, any Letter of Credit, any Application or any
Eurodollar Loan made by it, or change the basis of taxation of payments to
such Lender in respect thereof (except for Non-Excluded Taxes covered by
Section 2.18 and changes in the rate of tax on the overall net income of
such Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit, or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrowers shall promptly pay such Lender,
upon its demand, any additional amounts necessary to compensate such Lender (or
an after-tax basis) for such increased cost or reduced amount receivable. If any
Lender becomes entitled to claim any additional amounts pursuant to this Section
2.17, it shall promptly notify the Borrowers (with a copy to the Administrative
Agent) of the event by reason of which it has become so entitled.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any
<PAGE> 41
36
request or directive regarding capital adequacy (whether or not having the force
of law) from any Governmental Authority made subsequent to the date hereof shall
have the effect of reducing the rate of return on such Lender's or such
corporation's capital as a consequence of its obligations hereunder or under or
in respect of any Letter of Credit to a level below that which such Lender or
such corporation could have achieved but for such adoption, change or compliance
(taking into consideration such Lender's or such corporation's policies with
respect to capital adequacy) by an amount deemed by such Lender to be material,
then from time to time, after submission by such Lender to the Borrowers (with a
copy to the Administrative Agent) of a written request therefor setting forth
the basis of such Lender's determination, the Borrowers shall pay to such Lender
such additional amount or amounts as will compensate such Lender (on an
after-tax basis) for such reduction; provided that the Borrowers shall not be
required to compensate a Lender pursuant to this paragraph for any amounts
incurred more than six months prior to the date that such Lender notifies the
Borrowers of such Lender's intention to claim compensation therefor. If a Lender
becomes entitled to claim any additional amounts pursuant to this paragraph, it
shall promptly notify the Borrowers.
(c) A certificate as to any additional amounts payable pursuant to
this Section 2.17 submitted by any Lender to the Borrowers (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
obligations of the Borrowers pursuant to this Section 2.17 shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.18 Taxes. (a) All payments made by either of the Borrowers under
this Agreement shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on any Agent or any Lender as a result of a
present or former connection between such Agent or such Lender and the
jurisdiction of the Governmental Authority imposing such tax or any political
subdivision or taxing authority thereof or therein (other than any such
connection arising solely from such Agent or such Lender having executed,
delivered or performed its obligations or received a payment under, or enforced,
this Agreement or any other Loan Document). If any such non-excluded taxes,
levies, imposts, duties, charges, fees, deductions or withholdings
("Non-Excluded Taxes") or Other Taxes are required to be withheld from any
amounts payable to any Agent or any Lender hereunder, the amounts so payable to
such Agent or such Lender shall be increased to the extent necessary to yield to
such Agent or such Lender (after payment of all Non-Excluded Taxes and Other
Taxes) interest or any such other amounts payable hereunder at the rates or in
the amounts specified in this Agreement, provided, however, that the Borrowers
shall not be required to increase any such amounts payable to any Lender with
respect to any Non-Excluded Taxes (i) that are attributable to such Lender's
failure to comply with the requirements of paragraph (d) or (e) of this Section
or (ii) that are United States withholding taxes imposed on amounts payable to
such Lender at the time the Lender becomes a party to this Agreement, except to
the extent that such Lender's assignor (if any) was
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37
entitled, at the time of assignment, to receive additional amounts from the
Borrowers with respect to such Non-Excluded Taxes pursuant to Section 2.18(a).
(b) In addition, the Borrowers shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are payable by
either of the Borrowers, as promptly as possible thereafter the Borrowers shall
send to the Administrative Agent for the account of the relevant Agent or
Lender, as the case may be, a certified copy of an original official receipt
received by either of the Borrowers showing payment thereof. If either of the
Borrowers fail to pay any Non-Excluded Taxes or Other Taxes when due to the
appropriate taxing authority or fails to remit to the Agents the required
receipts or other required documentary evidence, the Borrowers shall indemnify
the Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by any Agent or any Lender as a result of any
such failure. The agreements in this Section 2.18 shall survive the termination
of this Agreement and the payment of the Loans and all other amounts payable
hereunder.
(d) Each Lender (or Transferee) that is not a citizen or resident of
the United States, a corporation, partnership or other entity created or
organized in or under the laws of the United States (or any jurisdiction
thereof), or any estate or trust that is subject to federal income taxation
regardless of the source of its income (a "Non-U.S. Lender") shall deliver to
the Borrowers and the Administrative Agent (or, in the case of a Participant, to
the Lender from which the related participation shall have been purchased) two
copies of either U.S. Internal Revenue Service Form 1001 or Form 4224, or, in
the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding
tax under Section 871(h) or 881(c) of the Code with respect to payments of
"portfolio interest" a statement substantially in the form of Exhibit J and a
Form W-8, or any subsequent versions thereof or successors thereto properly
completed and duly executed by such Non-U.S. Lender claiming complete exemption
from, or a reduced rate of, U.S. federal withholding tax on all payments by the
Borrowers under this Agreement and the other Loan Documents. Such forms shall be
delivered by each Non-U.S. Lender on or before the date it becomes a party to
this Agreement (or, in the case of any Participant, on or before the date such
Participant purchases the related participation). In addition, each Non-U.S.
Lender shall deliver such forms promptly upon the obsolescence or invalidity of
any form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender
shall promptly notify the Borrowers at any time it determines that it is no
longer in a position to provide any previously delivered certificate to the
Borrowers (or any other form of certification adopted by the U.S. taxing
authorities for such purpose). Notwithstanding any other provision of this
Section 2.18(d), a Non-U.S. Lender shall not be required to deliver any form
pursuant to this Section 2.18(d) that such Non-U.S. Lender is not legally able
to deliver.
(e) A Lender that is entitled to an exemption from or reduction of
non-U.S. withholding tax under the law of the jurisdiction in which the
Borrowers are located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrowers (with a
copy to the Administrative Agent), at the time or times
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38
prescribed by applicable law or reasonably requested by the Borrowers, such
properly completed and executed documentation prescribed by applicable law as
will permit such payments to be made without withholding or at a reduced rate,
provided that such Lender is legally entitled to complete, execute and deliver
such documentation and in such Lender's reasonable judgment such completion,
execution or submission would not materially prejudice the legal position of
such Lender.
2.19 Indemnity. The Borrowers agree, jointly and severally, to
indemnify each Lender and to hold each Lender harmless from any loss or expense
which such Lender may sustain or incur as a consequence of (a) default by the
Borrowers in making a borrowing of, conversion into or continuation of
Eurodollar Loans after the Borrowers have given a notice requesting the same in
accordance with the provisions of this Agreement, (b) default by the Borrowers
in making any prepayment after the Borrowers have given a notice thereof in
accordance with the provisions of this Agreement or (c) the making of a
prepayment of Eurodollar Loans on a day which is not the last day of an Interest
Period with respect thereto. Such indemnification may include an amount equal to
the excess, if any, of (i) the amount of interest which would have accrued on
the amount so prepaid, or not so borrowed, converted or continued, for the
period from the date of such prepayment or of such failure to borrow, convert or
continue to the last day of such Interest Period (or, in the case of a failure
to borrow, convert or continue, the Interest Period that would have commenced on
the date of such failure) in each case at the applicable rate of interest for
such Loans provided for herein (excluding, however, the Applicable Margin
included therein, if any) over (ii) the amount of interest (as reasonably
determined by such Lender) which would have accrued to such Lender on such
amount by placing such amount on deposit for a comparable period with leading
banks in the interbank eurodollar market. A certificate as to any amounts
payable pursuant to this Section 2.19 submitted to the Borrowers by any Lender
shall be conclusive in the absence of manifest error. This covenant shall
survive the termination of this Agreement and the payment of the Loans and all
other amounts payable hereunder.
2.20 Change of Lending Office. Each Lender agrees that, upon the
occurrence of any event giving rise to the operation of Section 2.17 or 2.18(a)
with respect to such Lender, it will, if requested by the Borrowers, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event with the
object of avoiding the consequences of such event; provided that such
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage, and provided further that nothing in this Section 2.20 shall
affect or postpone any of the obligations of any Borrowers or the rights of any
Lender pursuant to Section 2.17 or 2.18(a).
2.21 Maximum Liability. Notwithstanding anything in this Agreement
to the contrary, the maximum liability of each Borrower hereunder in respect of
the other Borrower's obligations and liabilities hereunder, whether on account
of principal, interest, fees, reimbursement obligations, indemnities, costs,
expenses or otherwise shall not exceed such other Borrower's Maximum Liability.
As used herein, "Maximum Liability" for any Borrower shall mean the maximum
amount of liability which such Borrower is permitted to
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39
incur in respect of the obligations and liabilities of the other Borrower
hereunder in accordance with applicable Federal and state laws relating to
insolvency of debtors.
2.22 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert Base Rate Loans to Eurodollar Loans shall forthwith be cancelled and (b)
such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be
converted automatically to Base Rate Loans on the respective last days of the
then current Interest Periods with respect to such Loans or within such earlier
period as required by law. If any such conversion of a Eurodollar Loan occurs on
a day which is not the last day of the then current Interest Period with respect
thereto, the Borrower shall pay to such Lender such amounts, if any, as may be
required pursuant to Section 2.19.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions hereof, the
Issuing Lender, in reliance on the agreements of the other Revolving Credit
Lenders set forth in Section 3.4(a), agrees to issue letters of credit ("Letters
of Credit") for the account of the Borrowers on any Business Day during the
Revolving Credit Commitment Period in such form as may be approved from time to
time by the Issuing Lender; provided that the Issuing Lender shall have no
obligation to issue any Letter of Credit if, after giving effect to such
issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the
aggregate amount of the Available Revolving Credit Commitments would be less
than zero. Each Letter of Credit shall (i) be denominated in Dollars, German
Deutschemarks, French Francs or British pounds and (ii) expire no later than the
earlier of (x) the first anniversary of its date of issuance and (y) the date
which is five Business Days prior to the Revolving Credit Termination Date,
provided that (A) any Letter of Credit with a one-year term may provide for the
renewal thereof for additional one-year periods (which shall in no event extend
beyond the date referred to in clause (y) above) and (B) any Letter of Credit
denominated in a currency other than Dollars shall be issued and shall remain
outstanding pursuant to procedures and on terms (including the effect of
exchange rate fluctuations) to be agreed upon by the Borrowers and the Issuing
Lender (which procedures and terms shall not be inconsistent with the procedures
and terms of this Agreement). The Dollar equivalent (determined by the
Administrative Agent in good faith according to customary methods and
procedures) of any Letter of Credit denominated in a currency other than Dollars
shall be monitored at the discretion of the Administrative Agent (but not less
frequently than monthly); provided that the reimbursement obligations of the
Revolving Credit Lenders shall be limited as set forth in Section 3.4. If at any
time the Total Revolving Extensions of Credit shall exceed the Total Revolving
Credit Commitments then, upon notice from the Administrative Agent, the
Borrowers shall prepay Revolving Credit Loans, replace outstanding Letters of
Credit or collateralize outstanding Letters of Credit on terms and conditions
satisfactory to the Administrative Agent to the extent necessary so that the
Total Revolving Extensions of Credit do not exceed the Total Revolving Credit
Commitments.
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(b) Each Letter of Credit shall be subject to the Uniform Customs
and, to the extent not inconsistent therewith, the laws of the State of New
York.
(c) The Issuing Lender shall not at any time be obligated to issue
any Letter of Credit hereunder if such issuance would conflict with, or cause
the Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
3.2 Procedure for Issuance of Letter of Credit. The Borrowers may
from time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender at its address for notices specified herein an
Application therefor, completed to the satisfaction of the Issuing Lender, and
such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of any Application, the Issuing Lender
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Borrowers. The Issuing Lender shall furnish a copy of
such Letter of Credit to the Borrowers promptly following the issuance thereof.
The Issuing Lender shall promptly furnish to the Administrative Agent, which
shall in turn promptly furnish to the Lenders, notice of the issuance of each
Letter of Credit (including the amount thereof).
3.3 Commissions, Fees and Other Charges. (a) The Borrowers will pay
a commission on all outstanding Letters of Credit at a per annum rate equal to
the Applicable Margin then in effect with respect to Eurodollar Loans under the
Revolving Credit Facility shared ratably among the Revolving Credit Lenders and
payable quarterly in arrears on each L/C Fee Payment Date after the issuance
date. In addition, the Borrowers shall pay to the Issuing Lender for its own
account a fronting fee of 1/8 of 1% per annum of the undrawn and unexpired
amount of the Letter of Credit, payable quarterly in arrears on each L/C Fee
Payment Date after the Issuance Date.
(b) In addition to the foregoing fees and commissions, the Borrowers
shall pay or reimburse the Issuing Lender for such normal and customary costs
and expenses as are incurred or charged by the Issuing Lender in issuing,
negotiating, effecting payment under, amending or otherwise administering any
Letter of Credit.
3.4 L/C Participations. (a) The Issuing Lender irrevocably agrees to
grant and hereby grants to each L/C Participant, and, to induce the Issuing
Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably
agrees to accept and purchase and hereby accepts and purchases from the Issuing
Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Revolving Credit Percentage in the Issuing Lender's obligations
and rights under each Letter of Credit issued hereunder and the amount of each
draft paid by the Issuing Lender
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thereunder. Each L/C Participant unconditionally and irrevocably agrees with the
Issuing Lender that, if a draft is paid under any Letter of Credit for which the
Issuing Lender is not reimbursed in full by the Borrowers in accordance with the
terms of this Agreement, such L/C Participant shall pay to the Issuing Lender
upon demand at the Issuing Lender's address for notices specified herein an
amount in Dollars equal to such L/C Participant's Revolving Credit Percentage of
the amount of such draft, or any part thereof, which is not so reimbursed;
provided that a Revolving Credit Lender shall not be obligated to make Revolving
Credit Loans and participate in Letters of Credit in an aggregate amount in
excess of such Lender's Revolving Credit Commitment.
(b) If any amount required to be paid by any L/C Participant to the
Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion
of any payment made by the Issuing Lender under any Letter of Credit is paid to
the Issuing Lender within three Business Days after the date such payment is
due, such L/C Participant shall pay to the Issuing Lender on demand an amount
equal to the product of (i) such amount, times (ii) the daily average Federal
Funds Effective Rate during the period from and including the date such payment
is required to the date on which such payment is immediately available to the
Issuing Lender, times (iii) a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any L/C Participant pursuant to Section
3.4(a) is not made available to the Issuing Lender by such L/C Participant
within three Business Days after the date such payment is due, the Issuing
Lender shall be entitled to recover from such L/C Participant, on demand, such
amount with interest thereon calculated from such due date at the rate per annum
applicable to Base Rate Loans under the Revolving Credit Facility. A certificate
of the Issuing Lender submitted to any L/C Participant with respect to any
amounts owing under this Section shall be conclusive in the absence of manifest
error.
(c) Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit and has received from any L/C Participant its pro
rata share of such payment in accordance with Section 3.4(a), the Issuing Lender
receives any payment related to such Letter of Credit (whether directly from the
Borrowers or otherwise, including proceeds of collateral applied thereto by the
Issuing Lender), or any payment of interest on account thereof, the Issuing
Lender will distribute to such L/C Participant its pro rata share thereof;
provided, however, that in the event that any such payment received by the
Issuing Lender shall be required to be returned by the Issuing Lender, such L/C
Participant shall return to the Issuing Lender the portion thereof previously
distributed by the Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrowers. The Borrowers agree,
jointly and severally, to reimburse the Issuing Lender on each date on which the
Issuing Lender notifies the Borrowers of the date and amount of a draft
presented under any Letter of Credit and paid by the Issuing Lender for the
amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs
or expenses incurred by the Issuing Lender in connection with such payment. Each
such payment shall be made to the Issuing Lender at its address for notices
specified herein in lawful money of the United States and in immediately
available funds. Interest shall be payable on any and all amounts remaining
unpaid by the Borrowers under this
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Section from the date such amounts become payable (whether at stated maturity,
by acceleration or otherwise) until payment in full at the rate set forth in
Section 2.13(c). Each drawing under any Letter of Credit shall (unless an event
of the type described in clause (i) or (ii) of Section 8(f) shall have occurred
and be continuing with respect to the Borrowers, in which case the procedures
specified in Section 3.4 for funding by L/C Participants shall apply) constitute
a request by the Borrowers to the Administrative Agent for a borrowing pursuant
to Section 2.5 of Base Rate Loans in the amount of such drawing. The Borrowing
Date with respect to such borrowing shall be the date of such drawing.
3.6 Obligations Absolute. The Borrowers' obligations under this
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment which the
Borrowers may have or have had against the Issuing Lender, any beneficiary of a
Letter of Credit or any other Person. The Borrowers also agree with the Issuing
Lender that the Issuing Lender shall not be responsible for, and the Borrowers'
Reimbursement Obligations under Section 3.5 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among the Borrowers and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or any claims whatsoever of the Borrowers against any
beneficiary of such Letter of Credit or any such transferee. The Issuing Lender
shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
the Issuing Lender. The Borrowers agree that any action taken or omitted by the
Issuing Lender under or in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence or willful
misconduct and in accordance with the standards or care specified in the Uniform
Commercial Code of the State of New York, shall be binding on the Borrowers and
shall not result in any liability of the Issuing Lender to the Borrowers.
3.7 Letter of Credit Payments. If any draft shall be presented for
payment under any Letter of Credit, the Issuing Lender shall promptly notify the
Borrowers of the date and amount thereof. The responsibility of the Issuing
Lender to the Borrowers in connection with any draft presented for payment under
any Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are substantially in conformity with such
Letter of Credit.
3.8 Applications. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the provisions
of this Section 3, the provisions of this Section 3 shall apply.
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SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Agents and the Lenders to enter into this Agreement
and to make the Loans and issue or participate in the Letters of Credit, each of
the Borrowers hereby represents and warrants to each Agent and each Lender that:
4.1 Financial Condition. (a) The unaudited pro forma consolidated
balance sheet of K&F and its consolidated Subsidiaries as at September 30, 1997
(including the notes thereto) (the "Pro Forma Balance Sheet"), copies of which
have heretofore been furnished to each Lender, has been prepared in accordance
with GAAP giving effect (as if such events had occurred on such date) to (i) the
consummation of the Recapitalization and the other Transactions, (ii) the Loans
to be made and the Senior Subordinated Notes to be issued on the Closing Date
and the use of proceeds thereof and (iii) the payment of fees and expenses in
connection with the foregoing. The Pro Forma Balance Sheet has been prepared
based on the best information available to K&F as of the date of delivery
thereof, and presents fairly on a pro forma basis the estimated financial
position of K&F and its consolidated Subsidiaries as at September 30, 1997,
assuming that the events specified in the preceding sentence had actually
occurred at such date.
(b) The audited consolidated and consolidating balance sheets of K&F
and its consolidated Subsidiaries as at March 31, 1996 and December 31, 1996,
and the related consolidated and consolidating statements of income and of cash
flows for the fiscal years ended on such dates, reported on by and accompanied
by an unqualified report from Deloitte & Touche, LLP, present fairly the
consolidated and consolidating financial condition of K&F and its Subsidiaries
as at such date, and the consolidated and consolidating results of its
operations and its consolidated and consolidating cash flows for the respective
fiscal years then ended. The unaudited consolidated and consolidating balance
sheet of K&F and its consolidated Subsidiaries as at June 30, 1997, and the
related unaudited consolidated and consolidating statements of income and cash
flows for the six-month period ended on such date, certified by a Responsible
Officer of K&F, present fairly the consolidated and consolidating financial
condition of K&F and its consolidated Subsidiaries as at such date, and the
consolidated and consolidating results of its operations and its consolidated
and consolidating cash flows for the six-month period then ended (subject to
normal year-end audit adjustments). All such financial statements, including the
related schedules and notes thereto, have been prepared in accordance with GAAP
applied consistently throughout the periods involved (except as approved by the
aforementioned firm of accountants or Responsible Officer, as the case may be,
and disclosed therein). Neither K&F nor any of its consolidated Subsidiaries
have any material Guarantee Obligations, contingent liabilities and liabilities
for taxes, or any long-term leases or unusual forward or long-term commitments,
including, without limitation, any interest rate or foreign currency swap or
exchange transaction or other obligation in respect of derivatives, which are
not reflected in the most recent financial statements referred to in this
paragraph (b). During the period from December 31, 1996 to and including the
date hereof there has been no Disposition by K&F or its Subsidiaries of any
material part of its business or Property.
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4.2 No Change. Since December 31, 1996 there has been no development
or event which has had or could reasonably be expected to have a Material
Adverse Effect. Since December 31, 1996 there has been no material adverse
change in the business, operations, property or financial or other condition of
either of the Borrowers nor has either Borrower incurred any material
obligation, contingent or otherwise, which has had a Material Adverse Effect and
during the period from December 31, 1996 to and including the date of this
Agreement, no dividends or other distributions have been declared, paid or made
upon the Capital Stock of K&F or any Subsidiary nor has any of the Capital Stock
of K&F or any Subsidiary been redeemed, retired, purchased or otherwise acquired
for value by K&F or any of its Subsidiaries, except pursuant to the
Recapitalization.
4.3 Corporate Existence; Compliance with Law. Each of the Borrowers
and its respective Subsidiaries (a) is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, (b) has
the corporate power and authority, and the legal right, to own and operate its
Property, to lease the Property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of Property or the conduct of its business
requires such qualification and (d) is in compliance with all Requirements of
Law except to the extent that the failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations. Each
Loan Party has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrowers, to borrow hereunder. Each Loan Party has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Loan Documents to which it is a party and, in the case of the Borrowers, to
authorize the borrowings on the terms and conditions of this Agreement. No
consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the Recapitalization or the other Transactions and the
borrowings hereunder or with the execution, delivery, performance, validity or
enforceability of this Agreement or any of the Loan Documents, except (i)
consents, authorizations, filings and notices that, when required, have been
obtained or made and are in full force and effect and (ii) the filings referred
to in Section 4.20(b). Each Loan Document has been duly executed and delivered
on behalf of each Loan Party party thereto. This Agreement constitutes, and each
other Loan Document upon execution will constitute, a legal, valid and binding
obligation of each Loan Party party thereto, enforceable against each such Loan
Party in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law).
4.5 No Legal Bar. The execution, delivery and performance of this
Agreement and the other Loan Documents, the issuance of Letters of Credit, the
borrowings hereunder
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and the use of the proceeds thereof will not violate any Requirement of Law or
any Contractual Obligation of either of the Borrowers or any of the Subsidiaries
and will not result in, or require, the creation or imposition of any Lien on
any of their respective properties or revenues pursuant to any Requirement of
Law or any such Contractual Obligation (other than the Liens created by the
Security Documents) the consequences of which violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
4.6 No Material Litigation. Except as set forth in Schedule 4.6, no
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of either of the
Borrowers, threatened by or against either of the Borrowers or any of the
Subsidiaries or against any of their respective properties or revenues (a) with
respect to any of the Loan Documents or any of the transactions contemplated
hereby or thereby, or (b) which could reasonably be expected to have a Material
Adverse Effect.
4.7 No Default. Neither of the Borrowers nor any of their
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which could reasonably be expected to have a Material
Adverse Effect. No Default or Event of Default has occurred and is continuing.
4.8 Ownership of Property; Liens. Each of the Borrowers and their
Subsidiaries has title in fee simple to, or a valid leasehold interest in, all
its real property, and good title to, or a valid leasehold interest in, all its
other Property, and none of such Property is subject to any Lien except as
permitted by Section 7.3. K&F and its Subsidiaries have (a) title in fee simple
to no real property other than as specified on Schedule 1.1B and (b) a valid
leasehold interest in no real property other than as specified on Schedule 1.1B,
provided that the Borrowers may revise the information set forth on Schedule
1.1B from time to time upon notice to the Administrative Agent.
4.9 Intellectual Property. Each of the Borrowers and their
Subsidiaries owns, or is licensed to use, all Intellectual Property necessary
for the conduct of its business as currently conducted that are material to the
condition (financial or other), business, or operations of the Borrowers and the
Subsidiaries taken as a whole. Except as set forth on Schedule 4.6, to the best
of each Borrower's knowledge after reasonable inquiry, no material claim has
been asserted and is pending by any Person challenging or questioning the use of
any Intellectual Property or the validity or effectiveness of any Intellectual
Property, nor do the Borrowers know of any valid basis for any such claim. The
use of Intellectual Property by the Borrowers and the Subsidiaries does not
infringe on the rights of any Person in any material respect.
4.10 No Burdensome Restrictions. No Requirement of Law or
Contractual Obligation of the Borrowers or any of their Subsidiaries exists that
could reasonably be expected to have a Material Adverse Effect.
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4.11 Taxes. Each of the Borrowers and their Subsidiaries has filed
or caused to be filed all Federal, state and other material tax returns which
are required to be filed and has paid all taxes shown to be due and payable on
said returns or on any assessments made against it or any of its Property and
all other taxes, fees or other charges imposed on it or any of its Property by
any Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of either Borrower or any Subsidiaries, as the case may be); no tax Lien
has been filed, and, to the knowledge of each of the Borrowers, no claim is
being asserted, with respect to any such tax, fee or other charge.
4.12 Federal Regulations. No part of the proceeds of any Loans will
be used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation G or Regulation U as now
and from time to time hereafter in effect or for any purpose which violates the
provisions of the Regulations of the Board. If requested by any Lender or the
Administrative Agent, the Borrowers will furnish to the Administrative Agent and
each Lender a statement to the foregoing effect in conformity with the
requirements of FR Form G-3 or FR Form U-1 referred to in Regulation G or
Regulation U, as the case may be.
4.13 Labor Matters. There are no strikes or other labor disputes
against the Borrowers or any of the Subsidiaries pending or, to the knowledge of
the Borrowers, threatened that (individually or in the aggregate) could
reasonably be expected to have a Material Adverse Effect. Hours worked by and
payment made to employees of the Borrowers and the Subsidiaries have not been in
violation of the Fair Labor Standards Act or any other applicable Requirement of
Law dealing with such matters that (individually or in the aggregate) could
reasonably be expected to have a Material Adverse Effect. All payments due from
the Borrowers or any of the Subsidiaries on account of employee health and
welfare insurance that (individually or in the aggregate) could reasonably be
expected to have a Material Adverse Effect if not paid have been paid or accrued
as a liability on the books of the Borrowers or the relevant Subsidiary.
4.14 ERISA. Neither a Reportable Event (other than the
Recapitalization) nor an "accumulated funding deficiency" (within the meaning of
Section 412 of the Code or Section 302 of ERISA) has occurred during the
five-year period prior to the date on which this representation is made or
deemed made with respect to any Plan, and each Plan has complied in all material
respects with the applicable provisions of ERISA and the Code. No termination of
a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan
has arisen, during such five-year period. The present value of all accrued
benefits under each Single Employer Plan (based on those assumptions used to
fund such Plans) did not, as of the last annual valuation date prior to the date
on which this representation is made or deemed made, exceed the value of the
assets of such Plan allocable to such accrued benefits by more than $8,000,000.
Neither of the Borrowers nor any Commonly Controlled Entity has had a complete
or partial withdrawal from any Multiemployer Plan which has resulted or could
reasonably be expected to result in a material liability under ERISA, and
neither of the
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Borrowers nor any Commonly Controlled Entity would become subject to any
material liability under ERISA if either of the Borrowers or any such Commonly
Controlled Entity were to withdraw completely from all Multiemployer Plans as of
the valuation date most closely preceding the date on which this representation
is made or deemed made. No such Multiemployer Plan is in Reorganization or
Insolvent.
4.15 Investment Company Act; Other Regulations. No Loan Party is an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board) which limits its ability to incur Indebtedness.
4.16 Subsidiaries. The Subsidiaries listed on Schedule 4.16
constitute all the direct and indirect Subsidiaries of K&F at the date hereof,
(b) each such Subsidiary was incorporated on the date and in the jurisdiction
set forth opposite such Subsidiary's name on such Schedule 4.16 and (c) the
approximate book value of the assets of each such Subsidiary is set forth
opposite such Subsidiary's name on Schedule 4.16, provided that the Borrowers
may revise the information set forth on Schedule 4.16 upon notice to the
Administrative Agent.
4.17 Use of Proceeds. The proceeds of the Term Loans shall be used
to finance a portion of the Recapitalization and the other Transactions and to
pay related fees and expenses. The proceeds of the Revolving Credit Loans and
the Letters of Credit, shall be used to finance the Transactions and to finance
the working capital and general corporate needs of the Borrowers and their
Subsidiaries in the ordinary course of business.
4.18 Environmental Matters. Except as in the aggregate could not
reasonably be expected to result in the payment of a Material Environmental
Amount:
(a) The facilities and properties owned, leased or operated by K&F,
the Borrowers or any of their Subsidiaries (the "Business Properties") do not
contain, and have not previously contained, any Materials of Environmental
Concern in amounts or concentrations or under circumstances which (i) constitute
or constituted a violation of, or (ii) could give rise to liability under, any
Environmental Law.
(b) The Business Properties and all operations at the Business
Properties are in material compliance, and have in the last five years been in
material compliance, with all applicable Environmental Laws, and there is no
contamination at, under or about the Business Properties or violation of any
Environmental Law with respect to the Business Properties or the business
operated by K&F, the Borrowers or any of their Subsidiaries (the "Business")
which could reasonably be expected to materially interfere with the continued
operations of the Properties or that could reasonably be expected to result in a
material liability under the Environmental Laws. Neither K&F, the Borrowers nor
any of their Subsidiaries has assumed any liability of any other Person under
Environmental Laws.
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(c) Neither K&F, the Borrowers nor any of their Subsidiaries has
received or is aware of any notice of violation, alleged violation,
non-compliance, liability or potential liability regarding environmental matters
or compliance with Environmental Laws with regard to any of the Business
Properties or the Business, nor does K&F or the Borrowers have knowledge or
reason to believe that any such notice will be received or is being threatened.
(d) To the knowledge of K&F, the Borrowers or any of their
Subsidiaries, Materials of Environmental Concern have not been transported or
disposed of from the Business Properties in violation of, or in a manner or to a
location which could give rise to liability under, any Environmental Law, nor
have any Materials of Environmental Concern been generated, treated, stored or
disposed of at, on or under any of the Business Properties in violation of, or
in a manner that could give rise to liability under, any applicable
Environmental Law.
(e) No judicial proceeding or governmental or administrative action
is pending or, to the knowledge of K&F, the Borrowers or any of their
Subsidiaries, threatened, under any Environmental Law to which K&F, the
Borrowers or any of their Subsidiaries is or will be named as a party with
respect to the Business Properties or the Business, nor are there any consent
decrees or other decrees, consent orders, administrative orders or other orders,
or other administrative or judicial requirements outstanding under any
Environmental Law with respect to the Business Properties or the Business.
(f) There has been no release or threat of release of Materials of
Environmental Concern at or from the Business Properties, or arising from or
related to the operations of K&F, the Borrowers or any of their Subsidiaries in
connection with the Business Properties or otherwise in connection with the
Business, in violation of or in amounts or in a manner that could give rise to
liability under Environmental Laws.
For purposes of Section 8(b) of this Agreement, each of the
foregoing representations and warranties contained in this Section 4.18 that are
qualified by the knowledge of any party shall be deemed not to be so qualified.
4.19 Accuracy of Information, etc. No statement or information
contained in this Agreement, any other Loan Document, the Confidential
Information Memorandum, the Offering Memorandum or any other document,
certificate or statement furnished to the Administrative Agent or the Lenders or
any of them, by or on behalf of any Loan Party for use in connection with the
transactions contemplated by this Agreement or the other Loan Documents,
contained as of the date such statement, information, document or certificate
was so furnished (or, in the case of the Confidential Information Memorandum, as
of the date of this Agreement), any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
contained herein or therein, when taken as a whole, not misleading. The
projections and pro forma financial information contained in the materials
referenced above are based upon good faith estimates and assumptions believed by
management of the Borrowers to be reasonable at the time made, it being
recognized by the Lenders that such financial information as it relates to
future events is not to be viewed as fact
<PAGE> 54
49
and that actual results during the period or periods covered by such financial
information may differ from the projected results set forth therein by a
material amount. As of the date hereof, the representations and warranties
contained in the Recapitalization Documentation are true and correct in all
material respects. There is no fact known to any Loan Party that could
reasonably be expected to have a Material Adverse Effect that has not been
expressly disclosed herein, in the other Loan Documents, in the Confidential
Information Memorandum or in any other documents, certificates and statements
furnished to the Administrative Agent and the Lenders for use in connection with
the transactions contemplated hereby and by the other Loan Documents.
4.20 Security Documents. (a) The Guarantee and Collateral Agreement
is effective to create in favor of the Administrative Agent, for the benefit of
the Lenders, a legal, valid and enforceable security interest in the Collateral
described therein and proceeds thereof. In the case of the Pledged Stock
described in the Guarantee and Collateral Agreement, when stock certificates
representing such Pledged Stock are delivered to the Administrative Agent, and
in the case of the other Collateral described in the Guarantee and Collateral
Agreement, when financing statements in appropriate form are filed in the
offices specified on Schedule 4.20(a), the Guarantee and Collateral Agreement
shall constitute a fully perfected Lien on, and security interest in, all right,
title and interest of the Loan Parties in such Collateral and the proceeds
thereof, as security for the Obligations (as defined in the Guarantee and
Collateral Agreement), in each case prior and superior in right to any other
Person (except, in the case of Collateral other than Pledged Stock, Liens
permitted by Section 7.3).
(b) Each of the Mortgages is effective to create in favor of the
Administrative Agent, for the benefit of the Lenders, a legal, valid and
enforceable Lien on the Mortgaged Properties described therein and proceeds
thereof, and when the Mortgages are filed in the offices specified on Schedule
4.20(b), each such Mortgage shall constitute a fully perfected Lien on, and
security interest in, all right, title and interest of the Loan Parties in the
Mortgaged Properties and the proceeds thereof, as security for the Obligations
(as defined in the relevant Mortgage), in each case prior and superior in right
to any other Person, except for Liens permitted by Section 7.3.
4.21 Solvency. Each Loan Party is, and after giving effect to the
Recapitalization and the incurrence of all Indebtedness and obligations being
incurred in connection herewith and therewith will be and will continue to be,
Solvent.
4.22 Senior Indebtedness. The Obligations constitute "Senior
Indebtedness" of the Borrowers under and as defined in the Senior Subordinated
Note Indenture. The obligations of K&F under the Guarantee and Collateral
Agreement constitute "Senior Indebtedness" of such Guarantor under and as
defined in the Senior Subordinated Note Indenture.
4.23 Regulation H. No Mortgage encumbers improved real property
which is located in an area that has been identified by the Secretary of Housing
and Urban Development
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50
as an area having special flood hazards and in which flood insurance has been
made available under the National Flood Insurance Act of 1968.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The agreement of each
Lender to make the initial extension of credit requested to be made by it is
subject to the satisfaction, prior to or concurrently with the making of such
extension of credit on the Closing Date, of the following conditions precedent:
(a) Loan Documents. The Administrative Agent shall have received (i)
this Agreement, executed and delivered by a duly authorized officer of
each of the Borrowers, (ii) the Guarantee and Collateral Agreement,
executed and delivered by a duly authorized officer of K&F and the
Borrowers, (iii) the Intercreditor Agreement, executed and delivered by a
duly authorized officer of each party thereto, (iv) each of the
Subordination Agreements, executed and delivered by a duly authorized
officer of each party thereto, (v) the K&F Agreement, executed and
delivered by a duly authorized officer of K&F and (vi) for the account of
each relevant Lender, Notes conforming to the requirements hereof and
executed and delivered by a duly authorized officer of the Borrowers.
(b) Recapitalization, and the other Transactions. The following
transactions shall have been consummated, in each case on terms and
conditions reasonably satisfactory to the Lenders:
(i) The definitive documentation relating to the
Recapitalization (the "Recapitalization Documentation") shall be in
form and substance satisfactory to the Syndication Agent and the
Recapitalization Documentation shall be in full force and effect. No
provision of the Recapitalization Documentation shall have been
amended, supplemented, waived or otherwise modified in any respect
that is adverse to the Lenders without the prior written consent of
the Syndication Agent;
(ii) On or prior to the Closing Date, K&F shall have
issued $185,000,000 in Senior Subordinated Notes, which shall be
unsecured and shall have no scheduled principal payments payable
prior to the date which is ten years after the Closing Date. In
addition, the interest rate, covenants, defaults, subordination
provisions, remedies and all other terms of such Senior Subordinated
Notes shall be satisfactory to the Syndication Agent;
(iii) (1) K&F shall have consummated (A) the redemption
of $70,000,000 in aggregate principal amount of the Senior Secured
Notes and (B) the purchase of $140,000,000 in aggregate principal
amount of the 2004 Notes, in each case, pursuant to documentation
satisfactory to the Syndication Agent, and (2) no other existing
indebtedness of K&F and its subsidiaries shall be
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51
outstanding other than such indebtedness as may be permitted to
remain outstanding pursuant to this Agreement;
(iv) The other Transactions shall have been consummated
in a manner and pursuant to documentation satisfactory to the
Syndication Agent. The capital, tax and legal structure of each Loan
Party after the Transactions shall be satisfactory in all respects
(upon completion of the Syndication Agent's due diligence).
(c) Pro Forma Balance Sheet; Financial Statements. The Lenders shall
have received (i) the Pro Forma Balance Sheet, (ii) satisfactory audited
consolidated and consolidating financial statements of K&F for the two
most recent fiscal years ended prior to the Closing Date and (iii)
satisfactory unaudited interim consolidated and consolidating financial
statements of K&F for each quarterly period ended subsequent to the date
of the latest applicable financial statements delivered pursuant to clause
(ii) of this paragraph as to which such financial statements are
available, and such financial statements shall not, in the reasonable
judgment of the Lenders, reflect any material adverse change in the
consolidated financial condition of K&F, as reflected in the financial
statements or projections contained in the Confidential Information
Memorandum.
(d) Officer's Certificate. The Lenders shall have received a
certificate of the chief financial officer of K&F showing pro forma
compliance by K&F and its Subsidiaries with the financial covenants
provided for in Section 7.1.
(e) Approvals. All governmental and third party approvals (including
landlords' and other consents) necessary or, in the discretion of the
Syndication Agent, advisable in connection with the Recapitalization, the
other Transactions, the continuing operations of K&F, the Borrowers and
their Subsidiaries and the transactions contemplated hereby shall have
been obtained and be in full force and effect, and all applicable waiting
periods shall have expired without any action being taken or threatened by
any competent authority which would restrain, prevent or otherwise impose
adverse conditions on the Recapitalization, the other Transactions, or the
financing contemplated hereby.
(f) Related Agreements. The Administrative Agent shall have received
(in a form reasonably satisfactory to the Syndication Agent), with a copy
for each Lender, true and correct copies, certified as to authenticity by
the Borrowers, of such other documents or instruments as may be reasonably
requested by the Syndication Agent, including, without limitation, the
Settlement Agreement, the Stockholders Agreement and any other debt
instrument, security agreement or other material contract to which the
Loan Parties may be a party.
(g) Termination of Existing Credit Agreement. The Agents shall have
received evidence satisfactory to the Agents that the Existing Credit
Agreement shall be
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52
simultaneously terminated, all amounts thereunder shall be simultaneously
paid in full and arrangements satisfactory to the Agents shall have been
made for the termination of Liens and security interests granted in
connection therewith.
(h) Fees. The Lenders, the Arranger, the Syndication Agent and the
Administrative Agent shall have received all fees required to be paid, and
all expenses for which invoices have been presented, including, without
limitation, the reasonable fees and disbursements of legal counsel, on or
before the Closing Date.
(i) Business Plan. The Lenders shall have received a satisfactory
business plan for fiscal years 1997-2004 and a satisfactory written
analysis of the business and prospects of the Borrowers and their
Subsidiaries for the period from the Closing Date through the final
maturity of the Tranche B Term Loans.
(j) Solvency Analysis. The Lenders shall have received a
satisfactory solvency opinion from an independent valuation firm
satisfactory to the Syndication Agent which shall document the solvency of
K&F and its Subsidiaries after giving effect to the Transactions and the
other transactions contemplated hereby. It is agreed that Marshall &
Stevens Incorporated is an acceptable valuation consultant.
(k) Lien Searches. The Administrative Agent shall have received the
results of a recent lien search in each of the jurisdictions where assets
of the Loan Parties are located, and such search shall reveal no liens on
any of the assets of the Borrowers or their Subsidiaries except for liens
permitted by Section 7.3 or liens to be discharged on or prior to the
Closing Date pursuant to documentation satisfactory to the Syndication
Agent.
(l) Closing Certificate. The Administrative Agent shall have
received, with a counterpart for each Lender, a certificate of each Loan
Party, dated the Closing Date, substantially in the form of Exhibit C,
with appropriate insertions and attachments.
(m) Legal Opinions. The Administrative Agent shall have received the
following executed legal opinions:
(i) the legal opinion of O'Sullivan Graev & Karabell,
LLP, counsel to the Borrowers and their Subsidiaries, substantially
in the form of Exhibit F-1;
(ii) the legal opinion of Ronald Kisner, Esq., general
counsel of the Borrowers and their Subsidiaries, substantially in
the form of Exhibit F-2; and
(iii) the legal opinion of local counsel in each of
Georgia and Ohio and of such other special and local counsel as may
be required by the Syndication Agent.
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53
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Syndication Agent may
reasonably require.
(n) Pledged Stock; Stock Powers. The Administrative Agent shall have
received (i) the certificates representing the shares of Capital Stock
pledged pursuant to the Guarantee and Collateral Agreement, together with
an undated stock power for each such certificate executed in blank by a
duly authorized officer of the pledgor thereof and (ii) each promissory
note pledged to the Administrative Agent pursuant to the Guarantee and
Collateral Agreement endorsed (without recourse) in blank (or accompanied
by an executed transfer form in blank satisfactory to the Syndication
Agent) by the pledgor thereof.
(o) Filings, Registrations and Recordings. Each document (including,
without limitation, any Uniform Commercial Code financing statement)
required by the Security Documents or under law or reasonably requested by
the Administrative Agent to be filed, registered or recorded in order to
create in favor of the Administrative Agent, for the benefit of the
Lenders, a perfected Lien on the Collateral described therein, prior and
superior in right to any other Person (other than with respect to Liens
expressly permitted by Section 7.3), shall be in proper form for filing,
registration or recordation.
(p) Mortgages, etc. (i) The Administrative Agent shall have received
a Mortgage with respect to each Mortgaged Property, executed and delivered
by a duly authorized officer of each party thereto.
(ii) If requested by the Administrative Agent, the
Administrative Agent shall have received, and the title insurance company
issuing the policy referred to in Section 5.1(p)(iii) (the "Title
Insurance Company") shall have received, maps or plats of an as-built
survey of the sites of the Mortgaged Properties certified to the
Administrative Agent and the Title Insurance Company in a manner
satisfactory to them, dated a date satisfactory to the Administrative
Agent and the Title Insurance Company by an independent professional
licensed land surveyor satisfactory to the Administrative Agent and the
Title Insurance Company, which maps or plats and the surveys on which they
are based shall be made in accordance with the Minimum Standard Detail
Requirements for Land Title Surveys jointly established and adopted by the
American Land Title Association and the American Congress on Surveying and
Mapping in 1992, and, without limiting the generality of the foregoing,
there shall be surveyed and shown on such maps, plats or surveys the
following: (A) the locations on such sites of all the buildings,
structures and other improvements and the established building setback
lines; (B) the lines of streets abutting the sites and width thereof; (C)
all access and other easements appurtenant to the sites; (D) all roadways,
paths, driveways, easements, encroachments and overhanging projections and
similar encumbrances affecting the site, whether recorded, apparent from a
physical inspection of the sites or otherwise known to the surveyor; (E)
any encroachments on any adjoining property by the building structures and
improvements on the sites; (F) if the
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54
site is described as being on a filed map, a legend relating the survey to
said map; and (G) the flood zone designations, if any, in which the
Mortgaged Properties are located.
(iii) The Administrative Agent shall have received in respect
of each Mortgaged Property a mortgagee's title insurance policy (or
policies) or marked up unconditional binder for such insurance. Each such
policy shall (A) be in an amount satisfactory to the Administrative Agent;
(B) be issued at ordinary rates; (C) insure that the Mortgage insured
thereby creates a valid first Lien on such Mortgaged Property free and
clear of all defects and encumbrances, except as disclosed therein; (D)
name the Administrative Agent for the benefit of the Lenders as the
insured thereunder; (E) be in the form of ALTA Loan Policy - 1970 (Amended
10/17/70 and 10/17/84) (or equivalent policies); (F) contain such
endorsements and affirmative coverage as the Administrative Agent may
reasonably request and (G) be issued by title companies satisfactory to
the Administrative Agent (including any such title companies acting as
co-insurers or reinsurers, at the option of the Administrative Agent). The
Administrative Agent shall have received evidence satisfactory to it that
all premiums in respect of each such policy, all charges for mortgage
recording tax, and all related expenses, if any, have been paid.
(iv) If requested by the Administrative Agent, the
Administrative Agent shall have received (A) a policy of flood insurance
which (1) covers any parcel of improved real property which is encumbered
by any Mortgage, (2) is written in an amount not less than the outstanding
principal amount of the indebtedness secured by such Mortgage which is
reasonably allocable to such real property or the maximum limit of
coverage made available with respect to the particular type of property
under the National Flood Insurance Act of 1968, whichever is less, and (3)
has a term ending not later than the maturity of the Indebtedness secured
by such Mortgage and (B) confirmation that the Borrowers have received the
notice required pursuant to Section 208(e)(3) of Regulation H of the
Board.
(v) The Administrative Agent shall have received a copy of all
recorded documents referred to, or listed as exceptions to title in, the
title policy or policies referred to in Section 5.1(p)(iii) and a copy of
all other material documents affecting the Mortgaged Properties.
(q) Insurance. The Administrative Agent shall have received
insurance certificates satisfying the requirements of Section 6.5 and
Section 5.3 of the Guarantee and Collateral Agreement.
5.2 Conditions to Each Extension of Credit. The agreement of each
Lender to make any extension of credit requested to be made by it on any date
(including, without limitation, its initial extension of credit) is subject to
the satisfaction of the following conditions precedent:
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55
(a) Representations and Warranties. Each of the representations and
warranties made by any Loan Party in or pursuant to the Loan Documents
shall be true and correct on and as of such date as if made on and as of
such date.
(b) No Default. No Default or Event of Default shall have occurred
and be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrowers
hereunder shall constitute a representation and warranty by the Borrowers as of
the date of such extension of credit that the conditions contained in this
Section 5.2 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrowers hereby jointly and severally agree that, so long as
the Commitments remain in effect, any Letter of Credit remains outstanding or
any Loan or other amount is owing to any Lender or any Agent hereunder, each
Borrower shall and (except in the case of delivery of financial information,
reports and notices) shall cause each of its Subsidiaries to:
6.1 Financial Statements. Furnish to each Agent and each Lender:
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of K&F, commencing with the fiscal year ended
December 31, 1997, a copy of (i) the audited consolidated balance sheet of
K&F and its consolidated Subsidiaries as at the end of such year and the
related audited consolidated statements of income and of cash flows for
such year, certified by a Responsible Officer of K&F, setting forth in
each case in comparative form the figures for the previous year, reported
on without a "going concern" or like qualification or exception, or
qualification arising out of the scope of the audit, by Deloitte & Touche,
LLP or other independent certified public accountants of nationally
recognized standing not unacceptable to the Required Lenders and (ii) the
consolidating balance sheet of K&F and its consolidated Subsidiaries
(other than Foreign Subsidiaries) as at the end of such year and the
related consolidating statement of earnings for such year, setting forth
in each case in comparative form the figures for the previous year,
certified by a Responsible Officer of K&F as being fairly stated in all
material respects when considered in relation to the consolidated
financial statements of K&F and its consolidated Subsidiaries; and
(b) as soon as available, but in any event not later than 60 days
after the end of each of the first three quarterly periods of each fiscal
year of K&F, (i) the unaudited consolidated balance sheet of K&F and its
consolidated Subsidiaries as at the end of such quarter and the related
unaudited consolidated statements of income and of cash flows of K&F and
its consolidated Subsidiaries for such quarter and the portion of the
fiscal year through the end of such quarter, certified by a Responsible
Officer of K&F (subject to normal year-end adjustments) and (ii) the
consolidating balance sheet of
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56
K&F and its consolidated Subsidiaries (other than Foreign Subsidiaries) as
at the end of each such quarter and the related consolidating statement of
earnings for the portion of the fiscal year through such date, setting
forth in each case in comparative form the figures for the previous year,
certified by a Responsible Officer of K&F (subject to normal year-end
audit adjustments); and
(c) as soon as available, but in any event within 30 days after the
end of each month (other than the third, sixth, ninth and twelfth such
month), beginning with the month ended October 31, 1997, the unaudited
consolidated balance sheet of K&F and its consolidated Subsidiaries, and
the unaudited consolidating balance sheet of K&F and its consolidated
Subsidiaries (other than Foreign Subsidiaries) as at the end of each such
month and the related unaudited consolidated and consolidating statements
of earnings and cash flow or similar statements for such monthly period
and the portion of the fiscal year through such date, setting forth in
each case in comparative form the figures for the previous year certified
by a Responsible Officer of K&F as being fairly stated in all material
respects (subject to normal year-end audit adjustments);
all such financial statements shall (i) contain such information as may be
necessary to calculate compliance with Sections 7.1 and 7.7 for the 12-month
period ending on the date of such balance sheets and (ii) be complete and
correct in all material respects and shall be prepared in reasonable detail and
in accordance with GAAP applied consistently throughout the periods reflected
therein and with prior periods (except as approved by such accountants or
officer, as the case may be, and disclosed therein).
6.2 Certificates; Other Information. Furnish to each Agent and each
Lender, or, in the case of clause (h), to the relevant Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 6.1(a), a certificate of the independent certified
public accountants reporting on such financial statements stating that in
making the examination necessary therefor no knowledge was obtained of any
Default or Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of any financial statements
pursuant to Section 6.1(a) and (b), (i) a certificate of a Responsible
Officer of K&F stating that, to the best of such Responsible Officer's
knowledge, each Loan Party during such period has observed or performed
all of its covenants and other agreements, and satisfied every condition,
contained in this Agreement and the other Loan Documents to which it is a
party to be observed, performed or satisfied by it, and that such
Responsible Officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate and (ii) in the case of
quarterly or annual financial statements, (x) a Compliance Certificate
containing all information necessary for determining compliance by K&F,
the Borrowers and their Subsidiaries with the provisions of this Agreement
referred to therein as of the last day of the fiscal quarter or fiscal
year of the Borrowers, as the case may be, and (y) to the extent not
previously
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disclosed to the Administrative Agent, a listing of any county or state
within the United States where any Loan Party keeps inventory or equipment
and of any Intellectual Property acquired by any Loan Party since the date
of the most recent list delivered pursuant to this clause (y) (or, in the
case of the first such list so delivered, since the Closing Date);
(c) as soon as available, and in any event no later than 90 days
after the end of each fiscal year of K&F, a detailed consolidated budget
of K&F and its consolidated Subsidiaries for the following fiscal year
(including a projected consolidated balance sheet of K&F and its
consolidated Subsidiaries as of the end of the following fiscal year, and
the related consolidated statements of projected cash flow, projected
changes in financial position and projected income), and, as soon as
available, significant revisions, if any, of such budget and projections
with respect to such fiscal year (collectively, the "Projections"), which
Projections shall in each case be accompanied by a certificate of a
Responsible Officer of K&F stating that such Projections are based on
reasonable estimates, information and assumptions and that such
Responsible Officer has no reason to believe that such Projections are
incorrect or misleading in any material respect; provided, that each
Lender recognizes that such Projections are not to be viewed as fact and
that actual results during the period or periods covered by such
Projections may differ from the projected results set forth therein by a
material amount;
(d) within 60 days after the end of each fiscal quarter of K&F, a
narrative discussion and analysis of the financial condition and results
of operations of K&F and its consolidated Subsidiaries for such fiscal
quarter and for the period from the beginning of the then current fiscal
year to the end of such fiscal quarter, as compared to the portion of the
Projections covering such periods and to the comparable periods of the
previous year;
(e) no later than 10 Business Days prior to the effectiveness
thereof, copies of substantially final drafts of any proposed amendment,
supplement, waiver or other modification with respect to the Senior
Subordinated Note Indenture;
(f) within five days after the same are sent, copies of all
financial statements and reports which K&F or either Borrower sends to the
holders of any class of its debt securities or public equity securities
and within five days after the same are filed, copies of all financial
statements and reports which K&F or the Borrowers may make to, or file
with, the Securities and Exchange Commission or any successor or analogous
Governmental Authority;
(g) promptly after K&F's receipt thereof, a copy of any "management
letter" received by K&F from its independent certified public accountants;
and
(h) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
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6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at
or before maturity or before they become delinquent, as the case may be, all its
material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Borrowers or their Subsidiaries, as the case may be.
6.4 Conduct of Business and Maintenance of Existence, etc. (a) (i)
Continue to engage in business of the same general type as now conducted by it,
(ii) preserve, renew and keep in full force and effect its corporate existence
and (iii) take all reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal conduct of its business, except,
in each case, as otherwise permitted by Section 7.4 and except, in the case of
clause (iii) above, to the extent that failure to do so could not reasonably be
expected to have a Material Adverse Effect; and (b) comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
6.5 Maintenance of Property; Insurance. (a) Keep all Property useful
and necessary in its business in good working order and condition, ordinary wear
and tear excepted and (b) maintain with financially sound and reputable
insurance companies insurance on all its Property in at least such amounts and
against at least such risks (but including in any event public liability,
product liability and business interruption) as are usually insured against in
the same general area by companies engaged in the same or a similar business;
and furnish to each Lender, upon written request, full information as to the
insurance carried. Each of the Borrowers and the Subsidiaries shall retain the
right to self-insure all or a portion of the required coverages (other than
property insurance and product liability insurance relating to aircraft and
aerospace products; provided that deductibles consistent with past practice
shall not be considered self-insurance for purposes of this sentence) to the
extent such self-insurance is reasonable and customary.
6.6 Inspection of Property; Books and Records; Discussions. (a) Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities and (b) permit
representatives of any Lender during normal business hours and without any
unreasonable disruption to visit and inspect any of its properties and examine
and make abstracts from any of its books and records at any reasonable time and
as often as may reasonably be desired and to discuss the business, operations,
properties and financial and other condition of the Borrowers and their
Subsidiaries with officers and employees of the Borrowers and their Subsidiaries
and with its independent certified public accountants.
6.7 Notices. Promptly give notice to the Administrative Agent and
each Lender of:
(a) the occurrence of any Default or Event of Default;
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(b) any (i) default or event of default under any Contractual
Obligation of any Borrower or any of the Subsidiaries or (ii) litigation,
investigation or proceeding which may exist at any time between either of
the Borrowers or any of the Subsidiaries and any Governmental Authority,
which in either case, if not cured or if adversely determined, as the case
may be, could reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting K&F, the Borrowers or any
of their Subsidiaries in which the amount involved is $2,000,000 or more
and not covered by insurance or in which injunctive or similar relief is
sought;
(d) the following events, as soon as possible and in any event
within 30 days after either of the Borrowers knows or has reason to know
thereof: (i) the occurrence of any Reportable Event with respect to any
Plan, a failure to make any required contribution to a Plan, the creation
of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the
termination, Reorganization or Insolvency of, any Multiemployer Plan or
(ii) the institution of proceedings or the taking of any other action by
the PBGC or either of the Borrowers or any Commonly Controlled Entity or
any Multiemployer Plan with respect to the withdrawal from, or the
termination, Reorganization or Insolvency of, any Plan; and
(e) any development or event which has had or could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this Section 6.7 shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the relevant Loan Party proposes to take with
respect thereto.
6.8 Environmental Laws. (a) Comply in all material respects with,
and use reasonable efforts to ensure compliance in all material respects by all
tenants and subtenants, if any, with, all applicable Environmental Laws, and
obtain and comply in all material respects with and maintain, and ensure that
all tenants and subtenants obtain and comply in all material respects with and
maintain, any and all licenses, approvals, notifications, registrations or
permits required by applicable Environmental Laws.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws.
6.9 Interest Rate Protection. In the case of the Borrowers, within
90 days after the Closing Date, enter into Interest Rate Protection Agreements
to the extent necessary to provide that at least 30% of the aggregate principal
amount of the Term Loans is subject to either a fixed interest rate or interest
rate protection for a period of not less than three years,
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which Interest Rate Protection Agreements shall have terms and conditions
reasonably satisfactory to the Syndication Agent.
6.10 Additional Collateral, etc. (a) With respect to any Property
acquired after the Closing Date by the Borrowers or any Subsidiary (other than
an Excluded Foreign Subsidiary) (other than (x) any Property described in
paragraph (b), (c) or (d) below and (y) any Property subject to a Lien expressly
permitted by Section 7.3(g)) as to which the Administrative Agent, for the
benefit of the Lenders, does not have a perfected Lien, promptly (and in any
event within 30 days after the acquisition thereof) (i) execute and deliver to
the Administrative Agent such amendments to the Guarantee and Collateral
Agreement or such other documents as the Administrative Agent deems necessary or
advisable in order to grant to the Administrative Agent, for the benefit of the
Lenders, a security interest in such Property and (ii) take all actions
necessary or advisable to grant to the Administrative Agent, for the benefit of
the Lenders, a perfected first priority security interest in such Property,
including without limitation, the filing of Uniform Commercial Code financing
statements in such jurisdictions as may be required by the Guarantee and
Collateral Agreement or by law or as may be requested by the Administrative
Agent.
(b) With respect to any fee interest in any real estate having a
value (together with improvements thereof) of at least $1,000,000 acquired after
the Closing Date by either of the Borrowers or any Subsidiary (other than an
Excluded Foreign Subsidiary) (other than any such real estate subject to a Lien
expressly permitted by Section 7.3(g)), promptly (i) execute and deliver a first
priority mortgage or deed of trust, as the case may be, in favor of the
Administrative Agent, for the benefit of the Lenders, covering such real estate,
in form and substance reasonably satisfactory to the Administrative Agent, (ii)
if requested by the Administrative Agent, provide the Lenders with (x) title and
extended coverage insurance covering such real estate in an amount at least
equal to the purchase price of such real estate (or such other amount as shall
be reasonably specified by the Administrative Agent) as well as a current ALTA
survey thereof, together with a surveyor's certificate and (y) any consents or
estoppels reasonably deemed necessary or advisable by the Administrative Agent
in connection with such mortgage or deed of trust, each of the foregoing in form
and substance reasonably satisfactory to the Administrative Agent and (iii) if
requested by the Administrative Agent, deliver to the Administrative Agent legal
opinions relating to the matters described above, which opinions shall be in
form and substance, and from counsel, reasonably satisfactory to the
Administrative Agent.
(c) With respect to any new Subsidiary or any Subsidiary not a party
to the Guarantee and Collateral Agreement that owns assets or property with a
fair market value in excess of $100,000 (other than an Excluded Foreign
Subsidiary) created or acquired after the Closing Date by K&F (which, for the
purposes of this paragraph (c), shall include any existing Subsidiary that
ceases to be an Excluded Foreign Subsidiary), the Borrowers or any of their
Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement as the Administrative Agent
deems necessary or advisable in order to grant to the Administrative Agent, for
the benefit of the Lenders, a perfected first priority security interest in the
Capital Stock of such new Subsidiary which is
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owned by K&F, the Borrowers or any of their Subsidiaries, (ii) deliver to the
Administrative Agent the certificates representing such Capital Stock, together
with undated stock powers, in blank, executed and delivered by a duly authorized
officer of K&F, the Borrowers or such Subsidiary, as the case may be, (iii)
cause such new Subsidiary (A) to become a party to the Guarantee and Collateral
Agreement and (B) to take such actions necessary or advisable to grant to the
Administrative Agent for the benefit of the Lenders a perfected first priority
security interest in the Collateral described in the Guarantee and Collateral
Agreement with respect to such new Subsidiary, including, without limitation,
the filing of Uniform Commercial Code financing statements in such jurisdictions
as may be required by the Guarantee and Collateral Agreement or by law or as may
be requested by the Administrative Agent, and (iv) if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described above, which opinions shall be in form and
substance, and from counsel, reasonably satisfactory to the Administrative
Agent.
(d) With respect to any new Excluded Foreign Subsidiary created or
acquired after the Closing Date by K&F, the Borrowers or any of their
Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement as the Administrative Agent
deems necessary or advisable in order to grant to the Administrative Agent, for
the benefit of the Lenders, a perfected first priority security interest in the
Capital Stock of such new Subsidiary which is owned by K&F, the Borrowers or any
of their Subsidiaries (provided that in no event shall more than 65% of the
total outstanding Capital Stock of any such new Subsidiary be required to be so
pledged), (ii) deliver to the Administrative Agent the certificates representing
such Capital Stock, together with undated stock powers, in blank, executed and
delivered by a duly authorized officer of K&F, the Borrowers or such Subsidiary,
as the case may be and (iii) if requested by the Administrative Agent, deliver
to the Administrative Agent legal opinions relating to the matters described
above, which opinions shall be in form and substance, and from counsel,
reasonably satisfactory to the Administrative Agent.
(e) Dissolve, liquidate or otherwise terminate the existence of
Texas Aircraft Braking Systems Corporation, a Texas corporation, that is a
Subsidiary of KBF, within 180 days after the Closing Date unless the Borrowers
have complied with the requirements of Section 6.10(c) with respect to such
Subsidiary.
(f) Deliver to the Administrative Agent within seven Business Days
of the Closing Date any shares of Capital Stock pledged pursuant to the
Guarantee and Collateral Agreement and any other instruments and stock powers
required to have been delivered pursuant to Section 5.1(n) that have not
previously been delivered to the Administrative Agent.
6.11 Environmental Audit. Within 45 days of the Closing Date,
furnish to the Lenders a satisfactory phase I environmental audit with respect
to the real property owned or leased by the Borrowers and their Subsidiaries
from a firm satisfactory to the Syndication Agent.
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6.12 Corporate Separateness. Take all such action as is necessary to
keep its operations separate and apart from those of K&F, of each other
Subsidiary and of each other Borrower, including, without limitation, insuring
that all customary formalities regarding the corporate existence of each of the
Borrowers and each Subsidiary, including holding regular meetings and
maintenance of current minute books, are followed; and maintain its own payroll
and separate books of account and pay its respective liabilities, including all
administrative expenses, from its own separate assets, and cause assets of each
Subsidiary to be separately identified and segregated.
6.13 Government Contracts. At such times as the Administrative Agent
may reasonably request, furnish the Administrative Agent with a list of all
contracts entered into between the United States Government and either of the
Borrowers.
SECTION 7. NEGATIVE COVENANTS
The Borrowers hereby jointly and severally agree that, so long as
the Commitments remain in effect, any Letter of Credit remains outstanding or
any Loan or other amount is owing to any Lender or any Agent hereunder, each
Borrower shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly:
7.1 Financial Condition Covenants.
(a) Consolidated Leverage Ratio. Permit the Consolidated Leverage
Ratio of K&F and its Subsidiaries as at the day set forth below to exceed the
ratio set forth below opposite such day:
Consolidated
Date Leverage Ratio
---- --------------
December 31, 1997 7.00 to 1.00
March 31, 1998 7.00 to 1.00
June 30, 1998 7.00 to 1.00
September 30, 1998 7.00 to 1.00
December 31, 1998 7.00 to 1.00
March 31, 1999 7.00 to 1.00
June 30, 1999 7.00 to 1.00
September 30, 1999 7.00 to 1.00
December 31, 1999 6.75 to 1.00
March 31, 2000 6.55 to 1.00
June 30, 2000 6.35 to 1.00
September 30, 2000 6.15 to 1.00
December 30, 2000 6.00 to 1.00
March 31, 2001 5.80 to 1.00
June 30, 2001 5.60 to 1.00
September 30, 2001 5.40 to 1.00
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December 31, 2001 5.25 to 1.00
March 31, 2002 5.15 to 1.00
June 30, 2002 5.00 to 1.00
September 30, 2002 4.85 to 1.00
December 31, 2002 4.75 to 1.00
March 31, 2003 4.30 to 1.00
June 30, 2003 4.00 to 1.00
September 30, 2003 4.00 to 1.00
December 31, 2003 3.75 to 1.00
Thereafter 3.50 to 1.00
(b) Consolidated Cash Interest Coverage Ratio. Permit the
Consolidated Cash Interest Coverage Ratio of K&F and its Subsidiaries for any
day set forth below to be less than the ratio set forth below opposite such day:
Consolidated Cash Interest
Date Coverage Ratio
---- --------------------------
December 31, 1997 1.35 to 1.00
March 31, 1998 1.35 to 1.00
June 30, 1998 1.35 to 1.00
September 30, 1998 1.40 to 1.00
December 31, 1998 1.45 to 1.00
March 31, 1999 1.45 to 1.00
June 30, 1999 1.50 to 1.00
September 30, 1999 1.50 to 1.00
December 31, 1999 1.55 to 1.00
March 31, 2000 1.60 to 1.00
June 30, 2000 1.65 to 1.00
September 30, 2000 1.70 to 1.00
December 31, 2000 1.75 to 1.00
March 31, 2001 1.80 to 1.00
June 30, 2001 1.85 to 1.00
September 30, 2001 1.90 to 1.00
December 31, 2001 1.95 to 1.00
March 31, 2002 2.05 to 1.00
June 30, 2002 2.10 to 1.00
September 30, 2002 2.15 to 1.00
December 31, 2002 2.20 to 1.00
March 31, 2003 2.30 to 1.00
June 30, 2003 2.40 to 1.00
September 30, 2003 2.50 to 1.00
Thereafter 2.50 to 1.00
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(c) Subsidiary Cash Interest Coverage Ratio. Permit the Subsidiary
Cash Interest Coverage Ratio for any day set forth below to be less than the
ratio set forth below opposite such day:
Consolidated Cash
Date Interest Coverage Ratio
---- -----------------------
December 31, 1997 2.50 to 1.00
March 31, 1998 2.55 to 1.00
June 30, 1998 2.60 to 1.00
September 30, 1998 2.63 to 1.00
December 31, 1998 2.65 to 1.00
March 31, 1999 2.75 to 1.00
June 30, 1999 2.85 to 1.00
September 30, 1999 2.90 to 1.00
December 31, 1999 3.00 to 1.00
March 31, 2000 3.15 to 1.00
June 30, 2000 3.30 to 1.00
September 30, 2000 3.45 to 1.00
December 31, 2000 3.60 to 1.00
March 31, 2001 3.75 to 1.00
June 30, 2001 3.90 to 1.00
September 30, 2001 4.05 to 1.00
December 31, 2001 4.25 to 1.00
March 31, 2002 4.45 to 1.00
June 30, 2002 4.65 to 1.00
September 30, 2002 4.80 to 1.00
December 31, 2002 4.95 to 1.00
March 31, 2003 5.10 to 1.00
June 30, 2003 5.25 to 1.00
September 30, 2003 5.50 to 1.00
December 31, 2003 5.75 to 1.00
Thereafter 5.75 to 1.00
(d) Consolidated Adjusted Net Worth. Permit the Consolidated
Adjusted Net Worth of K&F and its Subsidiaries at any time during any fiscal
year of K&F and its Subsidiaries to be less than the sum of (i) $50,000,000 plus
(ii) 50% of Consolidated Net Income (excluding any consolidated net deficit for
any fiscal period of K&F and its Subsidiaries) on a cumulative basis since June
30, 1997 plus (iii) Net Cash Proceeds from the sale of Capital Stock of K&F on a
cumulative basis since the Closing Date.
7.2 Limitation on Indebtedness. Create, incur, assume or suffer to
exist (in each case, to "Incur") any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
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(b) Indebtedness of either Borrower to any Subsidiary and of any
Subsidiary to either Borrower or any other Subsidiary;
(c) Indebtedness secured by Liens permitted by Section 7.3(g) in an
aggregate principal amount not to exceed $25,000,000 at any one time
outstanding, provided that during any fiscal year of either of the
Borrowers, the Borrowers and the Subsidiaries do not incur more than
$10,000,000 in aggregate principal amount of such other Indebtedness;
(d) Indebtedness outstanding on the date hereof and listed on
Schedule 7.2(d) and any refinancings, refundings, renewals or extensions
thereof (without any increase in the principal amount thereof), provided
that the aggregate principal amount owed pursuant to such Indebtedness is
not increased by such refinancings, refundings, renewals or extensions
thereof, and provided further that any refinancing, refunding, renewal or
extension of the Intercompany Loans shall be with K&F;
(e) Indebtedness in the aggregate not exceeding the lesser of the
unused L/C Commitment and the Revolving Credit Commitment in respect of
trade letters of credit and standby letters of credit issued for the
purpose of supporting (i) workers' compensation liabilities of the
Borrowers or any of the Subsidiaries as required by law, (ii) performance,
payment, deposit or surety obligations of the Borrowers or any of the
Subsidiaries and (iii) environmental liabilities of the Borrowers or any
of the Subsidiaries as required by law;
(f) Guarantee Obligations existing on the Closing Date and listed on
Schedule 7.2(f) and any renewals, extensions or refundings thereof in an
amount not exceeding the amount thereof immediately prior to such
renewals, extensions or refundings;
(g) Guarantee Obligations of either of the Borrowers or any
Subsidiary with respect to any obligation or liability of either of the
Borrowers or any Subsidiary;
(h) Guarantee Obligations incurred after the date hereof in an
aggregate principal amount not to exceed $1,000,000 at any time
outstanding;
(i) Indebtedness outstanding pursuant to the Settlement Agreement in
an aggregate principal amount not to exceed $4,500,000 plus the minimum
statutory contributions required by the terms thereof; and
(j) Indebtedness in respect of Capital Lease Obligations incurred in
a sale and leaseback transaction permitted by Section 7.11.
7.3 Limitation on Liens. Create, incur, assume or suffer to exist
any Lien upon any of its Property or revenues, whether now owned or hereafter
acquired, except for:
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(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the Borrowers or their
Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
which are not overdue for a period of more than 60 days or which are being
contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the Property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrowers or any of their Subsidiaries;
(f) Liens in existence on the date hereof listed on Schedule 7.3(f),
securing Indebtedness permitted by Section 7.2(d), provided that no such
Lien is spread to cover any additional Property after the Closing Date and
that the amount of Indebtedness secured thereby is not increased;
(g) Liens securing Indebtedness of the Borrowers or any other
Subsidiary incurred pursuant to Section 7.2(c) to finance the acquisition
of fixed or capital assets, provided that (i) such Liens shall be created
substantially simultaneously with the acquisition of such fixed or capital
assets, (ii) such Liens do not at any time encumber any Property other
than the Property financed by such Indebtedness and (iii) the amount of
Indebtedness secured thereby is not increased;
(h) Liens created pursuant to the Security Documents;
(i) any interest or title of a lessor under any lease entered into
by the Borrowers or any other Subsidiary in the ordinary course of its
business and covering only the assets so leased, including, without
limitation, in connection with Indebtedness permitted by Section 7.2(j);
(j) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
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(k) judgment Liens in an aggregate amount not in excess of
$2,000,000; and
(l) Liens on goods the purchase price of which is financed by a
documentary letter of credit issued for the account of either of the
Borrowers or any of the Subsidiaries where such Lien secures the
obligations of such Borrower or such Subsidiary in respect of such letter
of credit.
7.4 Limitation on Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or Dispose of, all or substantially all
of its Property or business, or make any material change in its present method
of conducting business, except:
(a) any Wholly Owned Subsidiary may be merged or consolidated with
or into either of the Borrowers (provided that a Borrower shall be the
continuing or surviving corporation) or with or into any Wholly Owned
Subsidiary (provided that the surviving entity is a Domestic Subsidiary if
the merged entity is a Domestic Subsidiary);
(b) any Subsidiary may Dispose of any or all of its assets (upon
voluntary liquidation or otherwise) to either of the Borrowers or any
Subsidiary Guarantor; and
(c) as permitted by Section 7.5.
7.5 Limitation on Sale of Assets. Dispose of any of its Property or
business (including, without limitation, receivables and leasehold interests),
whether now owned or hereafter acquired, or, in the case of any Subsidiary,
issue or sell any shares of such Subsidiary's Capital Stock to any Person,
except:
(a) the Disposition of obsolete or worn out property in the ordinary
course of business;
(b) the sale of inventory in the ordinary course of business and the
sale of Cash Equivalents from time to time;
(c) Dispositions permitted by Section 7.4(b);
(d) as permitted by Section 7.11;
(e) Asset Sales of any property or assets (other than inventory or
Cash Equivalents) for cash, provided that the Net Cash Proceeds thereof
shall be applied to the prepayment of the Term Loans and the permanent
reduction of the Revolving Credit Commitments as provided in subsection
2.10(b); and
(f) Asset Sales of any property or assets (other than inventory or
Cash Equivalents) in an amount not to exceed $1,000,000 per fiscal year so
long as the Net Cash Proceeds of such Asset Sale are reinvested in
accordance with Section 2.10(b).
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7.6 Limitation on Dividends. Declare or pay any dividend (other than
dividends payable solely in common stock of the Person making such dividend) on,
or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of Capital Stock of either of the
Borrowers or any Subsidiary or any warrants or options to purchase any such
Capital Stock, whether now or hereafter outstanding, make any other distribution
in respect thereof, either directly or indirectly, whether in cash or property
or in obligations of K&F, the Borrowers or any Subsidiary or make any loan or
advance or other payment to K&F (collectively, "Restricted Payments"), except,
so long as no Default or Event of Default would be in existence after giving
effect thereto:
(a) to the extent necessary to permit K&F to make the interest
payments on its permitted Indebtedness as provided in Section 2(c) of the
K&F Agreement;
(b) other payments contemplated by Section 2(c) of the K&F
Agreement;
(c) any Subsidiary may make Restricted Payments to either of the
Borrowers or any Subsidiary Guarantor;
(d) in an aggregate amount not to exceed $30,000,000 so long as the
Consolidated Leverage Ratio after giving effect thereto is less than 4.00
to 1.00;
(e) Restricted Payments in connection with the Recapitalization as
described on Annex B; and
(f) scheduled payments of principal and interest on the Intercompany
Loans.
7.7 Limitation on Capital Expenditures. Make or commit to make (by
way of the acquisition of securities of a Person or otherwise) any Capital
Expenditure (excluding any such asset acquired in connection with normal
replacement and maintenance programs properly charged to current operations but
including development participation payments) except for expenditures in the
ordinary course of business not exceeding, in the aggregate for the Borrowers
and their Subsidiaries during any of the fiscal years of the Borrowers set forth
below, the amount set forth opposite such fiscal year below:
Fiscal Year Ended Amount
----------------- ------
December 1997 $20,000,000
December 1998 $20,000,000
December 1999 $17,000,000
Thereafter $17,000,000
; provided that any such amount if not so expended in the fiscal year for which
it is permitted above may be carried over for expenditure in the next following
fiscal year, and provided
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further that any amount so carried forward shall be deemed to be the amount
expended first in the following fiscal year.
7.8 Limitation on Investments, Loans and Advances. Make any advance,
loan, extension of credit (by way of guaranty or otherwise) or capital
contribution to, or purchase any stock, bonds, notes, debentures or other
securities of or any assets constituting all or a material part of a business
unit of, or make any other investment in, any Person, except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) Guarantee Obligations permitted by Section 7.2;
(d) loans and advances to employees of K&F, the Borrowers or their
Subsidiaries in the ordinary course of business (including, without
limitation, for travel, entertainment and relocation expenses) in an
aggregate amount for K&F, the Borrowers and their Subsidiaries not to
exceed $750,000 at any one time outstanding;
(e) each of the Borrowers may make advances, loans or capital
contributions to, or investments in, Subsidiary Guarantors;
(f) to the extent permitted by Section 7.6;
(g) Capital Expenditures to the extent permitted by Section 7.7;
(h) investments made by the Borrowers or any of their Subsidiaries
with the proceeds of any Reinvestment Deferred Amount;
(i) loans and advances in the ordinary course of business to
customers, suppliers, franchises and licensees of the Borrowers and the
Subsidiaries in an aggregate principal amount not to exceed $2,000,000 at
any one time outstanding;
(j) acquisitions by either of the Borrowers or any of their
Subsidiaries in a business or assets in the same or similar line of
business as the Borrowers on the Closing Date in an aggregate amount
(valued at cost) not to exceed $20,000,000 during the term of this
Agreement so long as (i) the Consolidated Leverage Ratio prior to and
after giving effect thereto is less than 5.00 to 1.00 and (ii) no Default
or Event of Default shall have occurred and be continuing.
7.9 Limitation on Optional Payments and Modifications of Debt
Instruments, etc. (a) Make or offer to make any payment, prepayment, repurchase
or redemption of or otherwise defease or segregate funds with respect to the
Senior Subordinated Notes (other than scheduled interest payments required to be
made in cash), (b) amend, modify, waive or otherwise change, or consent or agree
to any amendment, modification, waiver or other
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change to, any of the terms of the Senior Subordinated Notes or the Settlement
Agreement (other than any such amendment, modification, waiver or other change
which (i) would extend the maturity or reduce the amount of any payment of
principal thereof or which would reduce the rate or extend the date for payment
of interest thereon and (ii) does not involve the payment of a consent fee), (c)
designate any Indebtedness as "Designated Senior Indebtedness" for the purposes
of the Senior Subordinated Note Indenture or (d) amend its certificate of
incorporation in any manner determined by the Administrative Agent to be adverse
to the Lenders without the prior written consent of the Required Lenders.
7.10 Limitation on Transactions with Affiliates. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of Property, the rendering of any service or the payment of any
management, advisory or similar fees, with any Affiliate (other than the
Borrowers or any Subsidiary Guarantor) unless such transaction is (a) otherwise
permitted under this Agreement, (b) in the ordinary course of business of K&F,
the Borrowers or such Subsidiary, as the case may be, and (c) upon fair and
reasonable terms no less favorable to K&F, the Borrowers or such Subsidiary, as
the case may be, than it would obtain in a comparable arm's length transaction
with a Person which is not an Affiliate, except for the repurchase of shares of,
or options to purchase shares of, K&F's common stock held by employees of K&F
(other than any member of the BLS Group) or any of its Subsidiaries pursuant to
the forms of agreements under which such employees purchase, or are granted the
option to purchase, shares of such common stock in an aggregate amount not to
exceed $3,000,000 in any fiscal year; provided that the amount available in any
given fiscal year shall be increased by the excess, if any, of (A) $3,000,000
over (B) the amount used pursuant to this clause in the immediately preceding
fiscal year.
7.11 Limitation on Sales and Leasebacks. Enter into any arrangement
with any Person providing for the leasing by either of the Borrowers or any
Subsidiary of real or personal property which has been or is to be sold or
transferred by such Borrower or such Subsidiary to such Person or to any other
Person to whom funds have been or are to be advanced by such Person on the
security of such property or rental obligations of such Borrower or such
Subsidiary except:
(a) any sale and leaseback otherwise permitted by Section 7.5 or
7.12; and
(b) other sales and leaseback transactions in an aggregate amount
not to exceed $30,000,000, provided that the Net Cash Proceeds in excess
of $10,000,000 shall be applied to prepay the Term Loans and permanently
reduce the Revolving Credit Commitments as provided for pursuant to
Section 2.10(b).
7.12 Limitation on Negative Pledge Clauses. Enter into or suffer to
exist or become effective any agreement which prohibits or limits the ability of
the Borrowers or any of their Subsidiaries to create, incur, assume or suffer to
exist any Lien upon any of its Property or revenues, whether now owned or
hereafter acquired, other than (a) this Agreement and the other Loan Documents
and the Senior Subordinated Note Indenture, and (b) any agreements governing any
purchase money Liens or Capital Lease Obligations otherwise
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permitted hereby (in which case, any prohibition or limitation shall only be
effective against the assets financed thereby).
7.13 Limitation on Restrictions on Subsidiary Distributions. Enter
into or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Subsidiary of the Borrowers to (a) pay
dividends or make any other distributions in respect of any Capital Stock of
such Subsidiary held by, or pay any Indebtedness owed to, the Borrowers or any
other Subsidiary of the Borrowers, (b) make loans or advances to the Borrowers
or any other Subsidiary of the Borrowers or (c) transfer any of its assets to
the Borrowers or any other Subsidiary of the Borrowers, except for such
encumbrances or restrictions existing under or by reason of (i) any restrictions
existing under the Loan Documents and (ii) any restrictions with respect to a
Subsidiary imposed pursuant to an agreement which has been entered into in
connection with the Disposition of all or substantially all of the Capital Stock
or assets of such Subsidiary.
7.14 Limitation on Lines of Business. Enter into any business,
either directly or through any Subsidiary, except for those businesses in which
the Borrowers and their Subsidiaries are engaged on the date of this Agreement
or which are reasonably related thereto.
7.15 Limitation on Changes in Fiscal Year. Permit the fiscal year of
the Borrower to end on a day other than December 31.
7.16 Subsidiaries. Have any Subsidiaries other than those listed on
Schedule 4.16 and other than Wholly Owned Subsidiaries.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) Any Borrower shall fail to pay any principal of any Loan or
Reimbursement Obligation when due in accordance with the terms hereof; or
any Borrower shall fail to pay any interest on any Loan or Reimbursement
Obligation, or any fee or other amount payable hereunder or under any
other Loan Document, within five days after any such interest or other
amount becomes due in accordance with the terms hereof; or
(b) Any representation or warranty made or deemed made by any Loan
Party herein or in any other Loan Document or which is contained in any
certificate, document or financial or other statement furnished by it at
any time under or in connection with this Agreement or any such other Loan
Document shall prove to have been inaccurate in any material respect on or
as of the date made or deemed made; or
(c) Any Loan Party shall default in the observance or performance of
any agreement contained in Section 6.7(a), Section 7, Section 5.6 of the
Guarantee and Collateral Agreement or Section 2 of the K&F Agreement; or
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72
(d) Any Loan Party shall default in the observance or performance of
any other agreement contained in this Agreement or any other Loan Document
(other than as provided in paragraphs (a) through (c) of this Section),
and such default shall continue unremedied for a period of 30 days; or
(e) K&F, either Borrower or any of their Subsidiaries shall (i)
default in making any payment of any principal of any Indebtedness
(including, without limitation, any Guarantee Obligation, but excluding
the Loans) on the scheduled or original due date with respect thereto; or
(ii) default in making any payment of any interest on any such
Indebtedness beyond the period of grace, if any, provided in the
instrument or agreement under which such Indebtedness was created; or
(iii) default in the observance or performance of any other agreement or
condition relating to any such Indebtedness or contained in any instrument
or agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or beneficiary of such
Indebtedness (or a trustee or agent on behalf of such holder or
beneficiary) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity or (in the case of
any such Indebtedness constituting a Guarantee Obligation) to become
payable; provided that a default, event or condition described in clause
(i), (ii) or (iii) of this paragraph (e) shall not at any time constitute
an Event of Default under this Agreement unless, at such time, one or more
defaults, events or conditions of the type described in clauses (i), (ii)
and (iii) of this paragraph (e) shall have occurred and be continuing with
respect to Indebtedness the outstanding principal amount of which exceeds
in the aggregate $500,000; or
(f) (i) K&F, either Borrower or any of their Subsidiaries shall
commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian, conservator or other
similar official for it or for all or any substantial part of its assets,
or K&F, the Borrowers or any of their Subsidiaries shall make a general
assignment for the benefit of its creditors; or (ii) there shall be
commenced against K&F, the Borrowers or any of their Subsidiaries any
case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced
against K&F, the Borrowers or any of their Subsidiaries any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial
part of its assets which results in the entry of an order for any such
relief which shall not have been vacated, discharged, or stayed or bonded
pending appeal within 60 days from the entry thereof; or (iv) K&F, the
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73
Borrowers or any of their Subsidiaries shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence
in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v)
K&F, the Borrowers or any of their Subsidiaries shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrowers or any Commonly Controlled Entity, (iii) a Reportable Event
(other than the Recapitalization) shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall
be appointed, to administer or to terminate, any Single Employer Plan,
which Reportable Event or commencement of proceedings or appointment of a
trustee is, in the reasonable opinion of the Required Lenders, likely to
result in the termination of such Plan for purposes of Title IV of ERISA,
(iv) any Single Employer Plan shall terminate for purposes of Title IV of
ERISA, (v) the Borrowers or any Commonly Controlled Entity shall, or in
the reasonable opinion of the Required Lenders is likely to, incur any
liability in connection with a withdrawal from, or the Insolvency or
Reorganization of, a Multiemployer Plan or (vi) any other event or
condition shall occur or exist with respect to a Plan; and in each case in
clauses (i) through (vi) above, such event or condition, together with all
other such events or conditions, if any, could, in the sole judgment of
the Required Lenders, reasonably be expected to have a Material Adverse
Effect; or
(h) One or more judgments or decrees shall be entered against either
Borrower or any of its Subsidiaries involving in the aggregate a liability
(not paid or fully covered by insurance as to which the relevant insurance
company has acknowledged coverage) of $2,000,000 or more, and all such
judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within 60 days from the entry thereof; or
(i) Any of the Security Documents shall cease, for any reason, to be
in full force and effect, or any Loan Party or any Affiliate of any Loan
Party shall so assert, or any Lien created by any of the Security
Documents shall cease to be enforceable and of the same effect and
priority purported to be created thereby; or
(j) The guarantee contained in Section 2 of the Guarantee and
Collateral Agreement shall cease, for any reason, to be in full force and
effect or any Loan Party or any Affiliate of any Loan Party shall so
assert; or
(k) (i) The BLS Group shall cease to own and control, of record and
beneficially, directly, at least 25% of the Capital Stock with voting
power for the election of directors of K&F (determined on a fully diluted
basis); or (ii) BLS and the
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74
Lehman Investors shall cease to control the election of a majority of the
Board of Directors of K&F or (iii) K&F shall cease to own and control, of
record and beneficially, directly, 100% of each class of outstanding
Capital Stock of each of the Borrowers free and clear of all Liens (other
than Liens created by the Guarantee and Collateral Agreement); or
(l) (i) The Senior Subordinated Notes shall cease, for any reason,
to be validly subordinated to the Obligations as provided in the Senior
Subordinated Note Indenture, or any Loan Party, any Affiliate of any Loan
Party, the trustee in respect of the Senior Subordinated Notes or the
holders of at least 25% in aggregate principal amount of the Senior
Subordinated Notes shall so assert or (ii) either of the Intercompany
Notes shall cease, for any reason, to be validly subordinated to the
Obligations, as provided in the applicable Subordination Agreement, or any
Loan Party or any Affiliate of any Loan Party shall so assert;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to either of the
Borrowers, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement and the other Loan Documents (including, without
limitation, all amounts of L/C Obligations, whether or not the beneficiaries of
the then outstanding Letters of Credit shall have presented the documents
required thereunder) shall immediately become due and payable, and (B) if such
event is any other Event of Default, either or both of the following actions may
be taken: (i) with the consent of the Majority Revolving Credit Facility
Lenders, the Administrative Agent may, or upon the request of the Majority
Revolving Credit Facility Lenders, the Administrative Agent shall, by notice to
the Borrowers declare the Revolving Credit Commitments to be terminated
forthwith, whereupon the Revolving Credit Commitments shall immediately
terminate; and (ii) with the consent of the Required Lenders, the Administrative
Agent may, or upon the request of the Required Lenders, the Administrative Agent
shall, by notice to the Borrowers, declare the Loans hereunder (with accrued
interest thereon) and all other amounts owing under this Agreement and the other
Loan Documents (including, without limitation, all amounts of L/C Obligations,
whether or not the beneficiaries of the then outstanding Letters of Credit shall
have presented the documents required thereunder) to be due and payable
forthwith, whereupon the same shall immediately become due and payable. With
respect to all Letters of Credit with respect to which presentment for honor
shall not have occurred at the time of an acceleration pursuant to this
paragraph, the Borrowers shall at such time deposit in a cash collateral account
opened by the Administrative Agent an amount equal to the aggregate then undrawn
and unexpired amount of such Letters of Credit. Amounts held in such cash
collateral account shall be applied by the Administrative Agent to the payment
of drafts drawn under such Letters of Credit, and the unused portion thereof
after all such Letters of Credit shall have expired or been fully drawn upon, if
any, shall be applied to repay other obligations of the Borrowers hereunder and
under the other Loan Documents. After all such Letters of Credit shall have
expired or been fully drawn upon, all Reimbursement Obligations shall have been
satisfied and all other obligations of the Borrowers hereunder and under the
other Loan
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Documents shall have been paid in full, the balance, if any, in such cash
collateral account shall be returned to the Borrowers (or such other Person as
may be lawfully entitled thereto).
SECTION 9. THE AGENTS
9.1 Appointment. Each Lender hereby irrevocably designates and
appoints the Agents as the agents of such Lender under this Agreement and the
other Loan Documents, and each such Lender irrevocably authorizes each Agent, in
such capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the such Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, no Agent shall have any duties or responsibilities,
except those expressly set forth herein, or any fiduciary relationship with any
Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against any Agent.
9.2 Delegation of Duties. Each Agent may execute any of its duties
under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. No Agent shall be responsible for the
negligence or misconduct of any agents or attorneys in-fact selected by it with
reasonable care.
9.3 Exculpatory Provisions. Neither any Agent nor any of their
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except to the extent that any of the foregoing are found by
a final and nonappealable decision of a court of competent jurisdiction to have
resulted from its or such Person's own gross negligence or willful misconduct)
or (ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any Loan Party or any officer
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agents under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of any Loan Party a party thereto to perform its obligations
hereunder or thereunder. The Agents shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Loan Party.
9.4 Reliance by Administrative Agent. Each Agent shall be entitled
to rely, and shall be fully protected in relying, upon any instrument, writing,
resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal
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counsel (including, without limitation, counsel to K&F or the Borrowers),
independent accountants and other experts selected by the Administrative Agent.
The Agents may deem and treat the payee of any Note as the owner thereof for all
purposes unless a written notice of assignment, negotiation or transfer thereof
shall have been filed with the Administrative Agent. Each Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Required Lenders (or, if so specified by this Agreement, all Lenders) as it
deems appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. Each Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement and the other Loan Documents in accordance with a request of the
Required Lenders (or, if so specified by this Agreement, all Lenders), and such
request and any action taken or failure to act pursuant thereto shall be binding
upon all the Lenders and all future holders of the Loans.
9.5 Notice of Default. No Agent shall be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless
such Agent has received notice from a Lender, K&F or the Borrowers referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default". In the event that the Administrative Agent
receives such a notice, the Administrative Agent shall give notice thereof to
the Lenders. The Administrative Agent shall take such action with respect to
such Default or Event of Default as shall be reasonably directed by the Required
Lenders (or, if so specified by this Agreement, all Lenders); provided that
unless and until the Administrative Agent shall have received such directions,
the Administrative Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Lenders.
9.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly
acknowledges that neither the Agents nor any of their respective officers,
directors, employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by any Agent hereinafter
taken, including any review of the affairs of a Loan Party or any affiliate of a
Loan Party, shall be deemed to constitute any representation or warranty by any
Agent to any Lender. Each Lender represents to the Agents that it has,
independently and without reliance upon any Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Loan Parties and their
affiliates and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon any Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Loan Parties and their affiliates. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent
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77
hereunder, no Agent shall have any duty or responsibility to provide any Lender
with any credit or other information concerning the business, operations,
property, condition (financial or otherwise), prospects or creditworthiness of
any Loan Party or any affiliate of a Loan Party which may come into the
possession of such Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates.
9.7 Indemnification. The Lenders agree to indemnify each Agent in
its capacity as such (to the extent not reimbursed by K&F or the Borrowers and
without limiting the obligation of K&F or the Borrowers to do so), ratably
according to their respective Revolving Credit Percentages, Tranche A Term Loan
Percentages and Tranche B Term Loan Percentages in effect on the date on which
indemnification is sought under this Section 9.7 (or, if indemnification is
sought after the date upon which the Commitments shall have terminated and the
Loans shall have been paid in full, ratably in accordance with such Percentages
immediately prior to such date), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Loans)
be imposed on, incurred by or asserted against such Agent in any way relating to
or arising out of, the Commitments, this Agreement, any of the other Loan
Documents or any documents contemplated by or referred to herein or therein or
the transactions contemplated hereby or thereby or any action taken or omitted
by such Agent under or in connection with any of the foregoing; provided that no
Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements which are found by a final and nonappealable decision
of a court of competent jurisdiction to have resulted from such Agent's gross
negligence or willful misconduct. The agreements in this Section 9.7 shall
survive the payment of the Loans and all other amounts payable hereunder.
9.8 Agent in Its Individual Capacity. Each Agent and its affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with any Loan Party as though such Agent was not an Agent. With respect
to its Loans made or renewed by it and with respect to any Letter of Credit
issued or participated in by it, each Agent shall have the same rights and
powers under this Agreement and the other Loan Documents as any Lender and may
exercise the same as though it were not an Agent, and the terms "Lender" and
"Lenders" shall include each Agent in its individual capacity.
9.9 Successor Agents. The Administrative Agent may resign as
Administrative Agent upon 10 days' notice to the Lenders and the Borrowers. If
the Administrative Agent shall resign as Administrative Agent under this
Agreement and the other Loan Documents, then the Required Lenders shall appoint
from among the Lenders a successor agent for the Lenders, which successor agent
shall (unless an Event of Default under Section 8(a) or Section 8(f) with
respect to either of the Borrowers shall have occurred and be continuing) be
approved by the Borrowers (which approval shall not be unreasonably withheld or
delayed), whereupon such successor agent shall succeed to the rights, powers and
duties of the Administrative Agent, and the term "Administrative Agent" shall
mean such successor agent effective upon such appointment and approval, and the
former Administrative Agent's rights,
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powers and duties as Administrative Agent shall be terminated, without any other
or further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement or any holders of the Loans. If no successor agent
has accepted appointment as Administrative Agent by the date that is 10 days
following a retiring Administrative Agent's notice of resignation, the retiring
Administrative Agent's resignation shall nevertheless thereupon become effective
and the Lenders shall assume and perform all of the duties of the Administrative
Agent hereunder until such time, if any, as the Required Lenders appoint a
successor agent as provided for above. The Collateral Agent may resign as
Collateral Agent upon 10 days' notice to the Lenders and the Borrowers. If the
Collateral Agent shall resign as Collateral Agent under the Loan Documents, then
the Required Lenders shall appoint from among the Lenders a successor agent for
the Lenders, which successor agent shall (unless an Event of Default under
Section 8(a) or Section 8(f) with respect to either of the Borrowers shall have
occurred and be continuing) be approved by the Borrowers (which approval shall
not be unreasonably withheld or delayed), whereupon such successor agent shall
succeed to the rights, powers and duties of the Collateral Agent, and the term
"Collateral Agent" shall mean such successor agent effective upon such
appointment and approval, and the former Collateral Agent's rights, powers and
duties as Collateral Agent shall be terminated, without any other or further act
or deed on the part of such former Collateral Agent or any of the parties to
this Agreement or any holders of the Loans. If no successor agent has accepted
appointment as Collateral Agent by the date that is 10 days following a retiring
Collateral Agent's notice of resignation, the retiring Collateral Agent's
resignation shall nevertheless thereupon become effective and the Lenders shall
assume and perform all of the duties of the Collateral Agent under the Loan
Documents until such time, if any, as the Required Lenders appoint a successor
agent as provided for above. The Syndication Agent may, at any time, by notice
to the Lenders and the Administrative Agent, resign as Syndication Agent
hereunder, whereupon the duties, rights, obligations and responsibilities
hereunder shall automatically be assumed by, and inure to the benefit of, the
Administrative Agent, without any further act by the Syndication Agent, the
Administrative Agent or any Lender. After any retiring Agent's resignation as
Agent, the provisions of this Section 9 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement and the other Loan Documents.
9.10 Authorization to Release Liens. The Administrative Agent is
hereby irrevocably authorized by each of the Lenders to release any Lien
covering any Property of the Borrowers or any of their Subsidiaries that is the
subject of a Disposition which is permitted by this Agreement or which has been
consented to in accordance with Section 10.1.
9.11 Arranger. The Arranger, in its capacity as such, shall not have
any duties or any responsibilities hereunder nor any fiduciary relationship with
any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or otherwise exist
against the Arranger in its capacity as such.
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SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, any other Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Required Lenders and each Loan Party party to the relevant Loan Document may, or
(with the written consent of the Required Lenders) the Agents and each Loan
Party party to the relevant Loan Document may, from time to time, (a) enter into
written amendments, supplements or modifications hereto and to the other Loan
Documents for the purpose of adding any provisions to this Agreement or the
other Loan Documents or changing in any manner the rights of the Lenders or of
the Loan Parties hereunder or thereunder or (b) waive, on such terms and
conditions as the Required Lenders, or the Agents, as the case may be, may
specify in such instrument, any of the requirements of this Agreement or the
other Loan Documents or any Default or Event of Default and its consequences;
provided, however, that no such waiver and no such amendment, supplement or
modification shall (i) forgive or reduce the principal amount or extend or waive
the final scheduled date of maturity of any Loan, extend the scheduled date of
any amortization payment in respect of any Term Loan, reduce the stated rate of
any interest, fee or letter of credit commission payable hereunder or extend or
waive the scheduled date of any payment thereof, increase the amount or extend
the expiration date of any Lender's Revolving Credit Commitment, or amend,
modify or waive any material provision of Section 2.16, in each case without the
consent of each Lender directly affected thereby; (ii) amend, modify or waive
any provision of this Section 10.1 or reduce any percentage specified in the
definition of Required Lenders or Required Prepayment Lenders, consent to the
assignment or transfer by the Borrowers of any of its rights and obligations
under this Agreement and the other Loan Documents, release all or substantially
all of the Collateral or release all or substantially all of the Guarantors from
their obligations under the Guarantee and Collateral Agreement, in each case
without the written consent of all Lenders; (iii) amend, modify or waive any
condition precedent to any extension of credit under the Revolving Credit
Facility set forth in Section 5.2 (including, without limitation, in connection
with any waiver of an existing Default or Event of Default) without the written
consent of the Majority Revolving Credit Facility Lenders; (iv) reduce the
percentage specified in the definition of Majority Facility Lenders without the
written consent of all Lenders under each affected Facility; (v) amend, modify
or waive any provision of Section 9 without the written consent of the Agents;
or (vi) amend, modify or waive any provision of Section 3 without the written
consent of the Issuing Lender. Any such waiver and any such amendment,
supplement or modification shall apply equally to each of the Lenders and shall
be binding upon the Loan Parties, the Lenders, the Administrative Agent and all
future holders of the Loans. In the case of any waiver, the Loan Parties, the
Lenders and the Administrative Agent shall be restored to their former position
and rights hereunder and under the other Loan Documents, and any Default or
Event of Default waived shall be deemed to be cured and not continuing; but no
such waiver shall extend to any subsequent or other Default or Event of Default,
or impair any right consequent thereon.
10.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise
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expressly provided herein, shall be deemed to have been duly given or made when
delivered, or three Business Days after being deposited in the mail, postage
prepaid, or, in the case of telecopy notice, when received, addressed as follows
in the case of K&F, the Borrowers and the Administrative Agent, and as set forth
in an administrative questionnaire delivered to the Administrative Agent in the
case of the Lenders, or to such other address as may be hereafter notified by
the respective parties hereto:
The Borrowers: Aircraft Braking Systems Corporation
c/o K&F Industries, Inc.
600 Third Avenue
New York, New York 10016
Attention: Kenneth M. Schwartz
Executive Vice President
Telecopy (212) 867-1182
Engineered Fabrics Corporation
c/o K&F Industries, Inc.
600 Third Avenue
New York, New York 10016
Attention: Kenneth M. Schwartz
Executive Vice President
Telecopy (212) 867-1182
The Syndication Agent: Lehman Commercial Paper Inc.
3 World Financial Center
New York, New York 10285
Attention: Michele Swanson
Telecopy: (212) 528-0819
Telephone: (212) 526-0330
The Administrative Agent and
the Collateral Agent: NBD Bank
611 Woodward Avenue, 2nd Floor
Detroit, Michigan 48232
Attention: William J. McCaffrey
Telecopy: (313) 225-3444
Telephone: (313) 225-1212
; provided that any notice, request or demand to or upon the either Agent or the
Lenders shall not be effective until received.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the either Agent or any Lender, any right,
remedy, power or privilege hereunder or under the other Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder
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preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights, remedies, powers
and privileges provided by law.
10.4 Survival of Representations and Warranties. All representations
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans hereunder.
10.5 Payment of Expenses. The Borrowers jointly and severally agree
(a) to pay or reimburse the Agents for all their reasonable out-of-pocket costs
and expenses incurred in connection with the development, preparation and
execution of, and any amendment, supplement or modification to, this Agreement
and the other Loan Documents and any other documents prepared in connection
herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to the Administrative Agent, (b) to
pay or reimburse each Lender and the Agents for all its costs and expenses
incurred in connection with the enforcement or preservation of any rights under
this Agreement, the other Loan Documents and any such other documents,
including, without limitation, the fees and disbursements of counsel (including
the allocated fees and expenses of in-house counsel) to each Lender and of
counsel to the Agents, (c) to pay, indemnify, and hold each Lender and the
Agents harmless from, any and all recording and filing fees or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, the other Loan Documents and any such other documents, and (d)
to pay, indemnify, and hold each Lender and the Agents and their respective
officers, directors, trustees, employees, affiliates, agents and controlling
persons (each, an "indemnitee") harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents and any such other documents, including,
without limitation, any of the foregoing relating to the use of proceeds of the
Loans or the violation of, noncompliance with or liability under, any
Environmental Law applicable to the operations of K&F, the Borrowers, any of
their Subsidiaries or any of the Business Properties and the reasonable legal
fees and expenses of counsel in connection with claims, actions or proceedings
by any indemnitee against any Borrower hereunder (all the foregoing in this
clause (d), collectively, the "indemnified liabilities"), provided that the
Borrowers shall have no obligation hereunder to any indemnitee with respect to
indemnified liabilities to the extent such indemnified liabilities (i) are found
by a final and nonappealable decision of a court of competent jurisdiction to
have resulted from the gross negligence or willful misconduct of such
indemnitee, (ii) arise from legal proceedings commenced against any Agent or any
such Lender by any security holder or creditor thereof arising out of and based
upon rights afforded any such security holder or creditor solely in its capacity
as such, or (iii) arise from legal proceedings commenced against any Agent or
any such Lender by any other Lender or by any Assignee (as defined in subsection
10.6(d)), any Agent or any such Lender. Without limiting the foregoing, and to
the extent permitted by applicable law, the Borrowers agree not to assert and to
cause its
<PAGE> 87
82
Subsidiaries not to assert, and hereby waive and agree to cause their
Subsidiaries to so waive, all rights for contribution or any other rights of
recovery with respect to all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, under or
related to Environmental Laws, that any of them might have by statute or
otherwise against any indemnitee. The agreements in this Section 10.5 shall
survive repayment of the Loans and all other amounts payable hereunder.
10.6 Successors and Assigns; Participations and Assignments. (a)
This Agreement shall be binding upon and inure to the benefit of K&F, the
Borrowers, the Lenders, the Agents, all future holders of the Loans and their
respective successors and assigns, except that the Borrowers may not assign or
transfer any of their rights or obligations under this Agreement without the
prior written consent of the Agents and each Lender.
(b) Any Lender may, without the consent of the Borrowers, in
accordance with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "Participant") participating interests
in any Loan owing to such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan Documents. In the
event of any such sale by a Lender of a participating interest to a Participant,
such Lender's obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, such Lender shall remain solely responsible
for the performance thereof, such Lender shall remain the holder of any such
Loan for all purposes under this Agreement and the other Loan Documents, and the
Borrowers and the Agents shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement and the other Loan Documents. In no event shall any Participant under
any such participation have any right to approve any amendment or waiver of any
provision of any Loan Document, or any consent to any departure by any Loan
Party therefrom, except to the extent that such amendment, waiver or consent
would reduce the principal of, or interest on, the Loans or any fees payable
hereunder, or postpone the date of the final maturity of the Loans, in each case
to the extent subject to such participation. The Borrowers agree that if amounts
outstanding under this Agreement and the Loans are due or unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of an
Event of Default, each Participant shall, to the maximum extent permitted by
applicable law, be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement, provided that, in purchasing such participating
interest, such Participant shall be deemed to have agreed to share with the
Lenders the proceeds thereof as provided in Section 10.7(a) as fully as if it
were a Lender hereunder. The Borrowers also agree that each Participant shall be
entitled to the benefits of Sections 2.17, 2.18 and 2.19 with respect to its
participation in the Commitments and the Loans outstanding from time to time as
if it was a Lender; provided that, in the case of Section 2.18, such Participant
shall have complied with the requirements of said Section and provided further
that no Participant shall be entitled to receive any greater amount pursuant to
any such Section than the transferor Lender would have been entitled to receive
in respect of the amount of the participation transferred by such transferor
Lender to such Participant had no such transfer occurred.
<PAGE> 88
83
(c) Any Lender (an "Assignor") may, in accordance with applicable
law and with notice to the Syndication Agent, with the consent of the Borrowers
and the Agents (which, in each case, shall not be unreasonably withheld or
delayed) (provided that no such consent need be obtained with respect to any
assignment (x) by or to the Syndication Agent for the 15 Business Day period
following the Closing Date in connection with the initial syndication of the
Facilities, (y) by a Lender to any Person under common management ("under common
management" being deemed for purposes of this agreement to include, in the case
of an investment fund, another fund having as its investment advisor the same
investment advisor or an affiliate thereof) with such Lender or (z) with respect
to any assignment to any Lender or an affiliate thereof, unless, in each case as
the result of such assignment a Lender would have Revolving Credit Commitments
and Loans exceeding 20% of the aggregate Revolving Credit Commitments and
Loans), to an additional bank, financial institution or other entity (an
"Assignee") all or any part of its rights and obligations under this Agreement
pursuant to an Assignment and Acceptance (an "Assignment and Acceptance"),
substantially in the form of Exhibit E, executed by such Assignee, such
Assignor, the Syndication Agent and the Administrative Agent (and, where the
consent of the Borrowers is required pursuant to the foregoing provisions, by
the Borrowers) and delivered to the Administrative Agent for its acceptance and
recording in the Register; provided that no such assignment to an Assignee
(other than any Lender or any affiliate thereof or to any Person under common
management with such Lender) shall be in an aggregate principal amount of less
than $5,000,000 (other than in the case of an assignment of all of a Lender's
interests under this Agreement), and, after giving effect thereto, the assigning
Lender shall have Revolving Credit Commitments and Loans aggregating at least
$5,000,000 (other than in the case of an assignment of all of a Lender's
interests under this Agreement), unless otherwise agreed by the Borrowers, the
Syndication Agent and the Administrative Agent. Any such assignment need not be
ratable as among the Facilities. Upon such execution, delivery, acceptance and
recording, from and after the effective date determined pursuant to such
Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto
and, to the extent provided in such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder with a Commitment and/or Loans as set
forth therein, and (y) the Assignor thereunder shall, to the extent provided in
such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all of an
Assignor's rights and obligations under this Agreement, such assigning Lender
shall cease to be a party hereto, except for the obligations of the Borrowers
under Section 10.5 which shall survive such assignment). Notwithstanding any
provision of this Section 10.6, the consent of the Borrowers shall not be
required for any assignment which occurs at any time when any of the events
described in Sections 8(a) or 8(f) shall have occurred and be continuing.
(d) The Administrative Agent shall maintain at its address referred
to in Section 10.2 a copy of each Assignment and Acceptance delivered to it and
a register (the "Register") for the recordation of the names and addresses of
the Lenders and the Commitment of, and principal amount of the Loans owing to,
each Lender from time to time and any Notes evidencing such Loans. The entries
in the Register shall be conclusive, in the absence of manifest error, and the
Borrowers, the Administrative Agent and the Lenders shall treat each Person
whose name is recorded in the Register as the owner of the Loan and any Note
<PAGE> 89
84
evidencing such Loan recorded therein for all purposes of this Agreement. Any
assignment of any Loan whether or not evidenced by a Note shall be effective
only upon appropriate entries with respect thereto being made in the Register
(and each Note shall expressly so provide). Any assignment or transfer of all or
part of a Loan evidenced by a Note shall be registered on the Register only upon
surrender for registration of assignment or transfer of the Note evidencing such
Loan, accompanied by a duly executed Assignment and Acceptance, and thereupon
one or more new Notes in the same aggregate principal amount shall be issued to
the designated Assignee and the old Notes shall be returned by the
Administrative Agent to the Borrowers marked "cancelled". The Register shall be
available for inspection by the Borrowers or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof or a Person under common management with
such Lender, by the Borrowers, the Administrative Agent and the Syndication
Agent) together with payment to the Administrative Agent of a registration and
processing fee of $4,000 (except that (y) no such registration and processing
fee shall be payable in the case of an Assignee which is already a Lender or is
an affiliate of a Lender or a Person under common management with a Lender and
(z) in the case of contemporaneous assignments by a Lender to up to two Persons
under common management, only a single fee in the amount of $4,000 shall be
payable), the Administrative Agent shall (i) promptly accept such Assignment and
Acceptance and (ii) on the effective date determined pursuant thereto record the
information contained therein in the Register and give notice of such acceptance
and recordation to the Lenders and the Borrowers. On or prior to such effective
date, the Borrowers, at their own expense, upon request, shall execute and
deliver to the Administrative Agent (in exchange for the Revolving Credit Note
and/or Term Notes, as the case may be, of the assigning Lender) a new Revolving
Credit Note and/or Term Notes, as the case may be, to the order of such Assignee
in an amount equal to the Revolving Credit Commitment and/or applicable Term
Loans, as the case may be, assumed or acquired by it pursuant to such Assignment
and Acceptance and, if the assigning Lender has retained a Revolving Credit
Commitment and/or Term Loans, as the case may be, upon request, a new Revolving
Credit Note and/or Term Notes, as the case may be, to the order of the assigning
Lender in an amount equal to the Revolving Credit Commitment and/or applicable
Term Loans, as the case may be, retained by it hereunder. Such new Notes shall
be dated the Closing Date and shall otherwise be in the form of the Note
replaced thereby.
(f) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this Section 10.6 concerning assignments of
Loans and Notes relate only to absolute assignments and that such provisions do
not prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
10.7 Adjustments; Set-off. (a) Except to the extent that this
Agreement provides for payments to be allocated to the Lenders under a
particular Facility, if any Lender (a "Benefitted Lender") shall at any time
receive any payment of all or part of its Loans or the
<PAGE> 90
85
Reimbursement Obligations owing to it, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in Section 8(f), or
otherwise), in a greater proportion than any such payment to or collateral
received by any other Lender, if any, in respect of such other Lender's Loans or
the Reimbursement Obligations owing to such other Lender, or interest thereon,
such Benefitted Lender shall purchase for cash from the other Lenders a
participating interest in such portion of each such other Lender's Loan and/or
of the Reimbursement Obligations owing to each such other Lender, or shall
provide such other Lenders with the benefits of any such collateral, or the
proceeds thereof, as shall be necessary to cause such Benefitted Lender to share
the excess payment or benefits of such collateral or proceeds ratably with each
of the Lenders; provided, however, that if all or any portion of such excess
payment or benefits is thereafter recovered from such Benefitted Lender, such
purchase shall be rescinded, and the purchase price and benefits returned, to
the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided
by law, each Lender shall have the right, without prior notice to K&F or the
Borrowers, any such notice being expressly waived by K&F and the Borrowers to
the extent permitted by applicable law, upon any amount becoming due and payable
by K&F or the Borrowers hereunder (whether at the stated maturity, by
acceleration or otherwise) to set off and appropriate and apply against such
amount any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in any
currency, in each case whether direct or indirect, absolute or contingent,
matured or unmatured, at any time held or owing by such Lender or any branch or
agency thereof to or for the credit or the account of K&F or the Borrowers. Each
Lender agrees promptly to notify K&F, the Borrowers and the Administrative Agent
after any such setoff and application made by such Lender, provided that the
failure to give such notice shall not affect the validity of such setoff and
application.
10.8 Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts (including
by telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Borrowers and the
Administrative Agent.
10.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents
represent the agreement of K&F, the Borrowers, the Administrative Agent and the
Lenders with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent or any
Lender relative to subject matter hereof not expressly set forth or referred to
herein or in the other Loan Documents.
<PAGE> 91
86
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. Each of K&F and each of
the Borrowers hereby irrevocably and unconditionally:
(a) submits for itself and its Property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts
of the State of New York, the courts of the United States for the Southern
District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to K&F or
either of the Borrowers, as the case may be at its address set forth in
Section 10.2 or at such other address of which the Administrative Agent
shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred
to in this Section 10.12 any special, exemplary, punitive or consequential
damages.
10.13 Acknowledgements. Each of K&F and each of the Borrowers hereby
acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any
fiduciary relationship with or duty to K&F or either of the Borrowers
arising out of or in connection with this Agreement or any of the other
Loan Documents, and the relationship between Administrative Agent and
Lenders, on one hand, and K&F and the Borrowers, on the other hand, in
connection herewith or therewith is solely that of debtor and creditor;
and
<PAGE> 92
87
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions contemplated
hereby among the Lenders or among K&F, the Borrowers and the Lenders.
10.14 WAIVERS OF JURY TRIAL. K&F, EACH OF THE BORROWERS, THE AGENTS
AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
10.15 Confidentiality. Each of the Agents and each Lender agrees to
keep confidential all non-public information provided to it by any Loan Party
pursuant to this Agreement that is designated by such Loan Party as
confidential; provided that nothing herein shall prevent any Agent or any Lender
from disclosing any such information (a) to the Administrative Agent, any other
Lender or any affiliate of any Lender, (b) to any Participant or Assignee (each,
a "Transferee") or prospective Transferee or to any direct or indirect
contractual counterparties in swap agreements relating to the Loans or to the
professional advisors of such swap counterparties, in each case, which agrees to
comply with the provisions of this Section 10.15, (c) to the employees,
directors, trustees, agents, attorneys, accountants and other professional
advisors of such Lender or its affiliates, (d) upon the request or demand of any
Governmental Authority having jurisdiction over the such Agent or such Lender,
(e) in response to any order of any court or other Governmental Authority or as
may otherwise be required pursuant to any Requirement of Law, (f) if reasonably
requested or required to do so in connection with any litigation or similar
proceeding, (g) which has been publicly disclosed other than in breach of this
Section 10.15, (h) to the National Association of Insurance Commissioners or any
similar organization or any nationally recognized rating agency that requires
access to information about a Lender's investment portfolio in connection with
ratings issued with respect to such Lender, or (i) in connection with the
exercise of any remedy hereunder or under any other Loan Document.
<PAGE> 93
88
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
AIRCRAFT BRAKING SYSTEMS
CORPORATION
By: /s/ Kenneth M. Schwartz
-------------------------------------
Name: Kenneth M. Schwartz
Title:
ENGINEERED FABRICS CORPORATION
By: /s/ Kenneth M. Schwartz
-------------------------------------
Name: Kenneth M. Schwartz
Title:
LEHMAN COMMERCIAL PAPER INC., as
Syndication Agent and as a Lender
By: /s/ Dennis Dee
-------------------------------------
Name: Dennis Dee
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as Administrative Agent, as Issuing
Lender and as a Lender
By: /s/ William J. McCaffrey
-------------------------------------
Name: William J. McCaffrey
Title: Vice President
<PAGE> 94
Annex A
PRICING GRID
<TABLE>
<CAPTION>
Consolidated Commitment
Leverage Applicable Margin Applicable Margin Fee
Ratio for Eurodollar Loans for Base Rate Loans Rate
Revolving Tranche A Tranche B Revolving Tranche A Tranche
Credit Term Term Credit Term B Term
Loans Loans Loans Loans Loans Loans
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
>= 5.50 to 1.00 2.250% 2.250% 2.375% 1.250% 1.250% 1.375% .500%
< 5.50 to 1.00 2.000% 2.000% 2.375% 1.000% 1.000% 1.375% .500%
but >= 5.00 to 1.00
< 5.00 to 1.00 1.750% 1.750% 2.250% 0.750% 0.750% 1.250% .375%
but >= 4.50 to 1.00
< 4.50 to 1.00 1.500% 1.500% 2.250% 0.500% 0.500% 1.250% .250%
</TABLE>
Changes in the Applicable Margin with respect to Revolving Credit Loans, Tranche
A Term Loans, Tranche B Term Loans or in the Commitment Fee Rate resulting from
changes in the Consolidated Leverage Ratio shall become effective on the date
(the "Adjustment Date") on which financial statements are delivered to the
Lenders pursuant to Section 6.1 (but in any event not later than the 60th day
after the end of each of the first three quarterly periods of each fiscal year
or the 90th day after the end of each fiscal year, as the case may be) and shall
remain in effect until the next change to be effected pursuant to this
paragraph. If any financial statements referred to above are not delivered
within the time periods specified above, then, until such financial statements
are delivered, the Consolidated Leverage Ratio as at the end of the fiscal
period that would have been covered thereby shall for the purposes of this
definition be deemed to be greater than 5.50 to 1.00. In addition, at all times
while an Event of Default shall have occurred and be continuing, the
Consolidated Leverage Ratio shall for the purposes of this definition be deemed
to be greater than 5.50 to 1.00. Each determination of the Consolidated Leverage
Ratio pursuant to this definition shall be made with respect to the period of
four consecutive fiscal quarters of K&F and its Subsidiaries ending at the end
of the period covered by the relevant financial statements.
<PAGE> 95
Annex B
Sources and Uses
(in millions)
Sources Uses
------- ----
Senior Secured Credit $ 346 Payment to Existing Equity $ 230.3
Facilities
Senior Subordinated Debt 185 Refinance 10.75% Senior Subordinated 141.8
Notes due 2004
Refinance 11.875% Senior Secured 73.1
Notes due 200
Refinance Existing Credit Agreement 49.8*
Fees, Expenses & Premiums 36.0
------ --------
Total Sources $ 531 Total Uses $ 531
====== ========
Non-Cash Rollover $ 130 Non-Cash Rollover Equity $ 130
Equity
------ --------
$ 661 $ 661
====== ========
* Net of estimated cash on hand at closing of $5,000,000.
<PAGE> 96
SCHEDULE 1.1A
COMMITMENTS: LENDING OFFICES AND ADDRESSES
Commitments
-----------
Name of Lender and Tranche A Tranche B
Information for Notices Revolving Credit Term Loans Term Loan
- ----------------------- ---------------- ---------- ---------
<PAGE> 1
Exhibit 10.28
EXECUTION COPY
================================================================================
GUARANTEE AND COLLATERAL AGREEMENT
made by
K&F INDUSTRIES, INC.
AIRCRAFT BRAKING SYSTEMS CORPORATION
ENGINEERED FABRICS CORPORATION
and certain of their Subsidiaries
in favor of
THE FIRST NATIONAL BANK OF CHICAGO,
as Collateral Agent
Dated as of October 15, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINED TERMS ................................................... 2
1.1 Definitions ........................................................ 2
1.2 Other Definitional Provisions ...................................... 5
SECTION 2. GUARANTEE ....................................................... 5
2.1 Guarantee .......................................................... 5
2.2 Right of Contribution .............................................. 6
2.3 No Subrogation ..................................................... 6
2.4 Amendments, etc. with respect to the Borrower Obligations .......... 6
2.5 Guarantee Absolute and Unconditional ............................... 7
2.6 Reinstatement ...................................................... 8
2.7 Payments ........................................................... 8
SECTION 3. GRANT OF SECURITY INTEREST ...................................... 8
SECTION 4. REPRESENTATIONS AND WARRANTIES .................................. 9
4.1 Representations in Credit Agreement; K&F Representations ........... 9
4.2 Title; No Other Liens .............................................. 11
4.3 Perfected First Priority Liens ..................................... 11
4.4 Chief Executive Office ............................................. 11
4.5 Inventory and Equipment ............................................ 11
4.6 Farm Products ...................................................... 12
4.7 Pledged Securities ................................................. 12
4.8 Receivables ........................................................ 12
4.9 Intellectual Property .............................................. 12
SECTION 5. COVENANTS ....................................................... 13
5.1 Covenants in Credit Agreement ...................................... 13
5.2 Delivery of Instruments and Chattel Paper .......................... 13
5.3 Maintenance of Insurance ........................................... 13
5.4 Payment of Obligations ............................................. 13
5.5 Maintenance of Perfected Security Interest; Further Documentation .. 13
5.6 Changes in Locations, Name, etc .................................... 14
5.7 Notices ............................................................ 14
5.8 Pledged Securities ................................................. 14
5.9 Receivables ........................................................ 15
5.10 Intellectual Property ............................................. 16
5.11 Vehicles .......................................................... 17
SECTION 6. REMEDIAL PROVISIONS ............................................. 17
6.1 Certain Matters Relating to Receivables ............................ 17
6.2 Communications with Obligors; Grantors Remain Liable ............... 18
6.3 Pledged Stock ...................................................... 18
6.4 Proceeds to be Turned Over To Collateral Agent ..................... 19
6.5 Application of Proceeds ............................................ 19
6.6 Code and Other Remedies ............................................ 20
i
<PAGE> 3
Page
----
6.7 Registration Rights ................................................ 20
6.8 Waiver; Deficiency ................................................. 21
SECTION 7. THE COLLATERAL AGENT ............................................ 21
7.1 Collateral Agent's Appointment as Attorney-in-Fact, etc ............ 21
7.2 Duty of Collateral Agent ........................................... 23
7.3 Execution of Financing Statements .................................. 23
7.4 Authority of Collateral Agent ...................................... 23
7.5 Appointment of the Collateral Agent ................................ 24
SECTION 8. MISCELLANEOUS ................................................... 24
8.1 Amendments in Writing .............................................. 24
8.2 Notices ............................................................ 24
8.3 No Waiver by Course of Conduct; Cumulative Remedies ................ 24
8.4 Enforcement Expenses; Indemnification .............................. 25
8.5 Successors and Assigns ............................................. 25
8.6 Set-Off ............................................................ 25
8.7 Counterparts ....................................................... 26
8.8 Severability ....................................................... 26
8.9 Section Headings ................................................... 26
8.10 Integration ........................................................ 26
8.11 GOVERNING LAW ...................................................... 26
8.12 Submission To Jurisdiction; Waivers ................................ 26
8.13 Acknowledgements ................................................... 27
8.14 WAIVER OF JURY TRIAL ............................................... 27
8.15 Additional Grantors ................................................ 27
8.16 Releases ........................................................... 27
ii
<PAGE> 4
FORM OF
GUARANTEE AND COLLATERAL AGREEMENT
GUARANTEE AND COLLATERAL AGREEMENT, dated as of October 15, 1997,
made by each of the signatories hereto (together with any other entity that may
become a party hereto as provided herein, the "Grantors"), in favor of The First
National Bank of Chicago, as agent for and representative of (in such capacity
herein, the "Collateral Agent") for (i) the banks and other financial
institutions or other entities (the "Lenders") from time to time parties to the
Credit Agreement, dated as of October 15, 1997 (as amended, supplemented or
otherwise modified from time to time, and as renewed, refunded, refinanced or
replaced, the "Credit Agreement"), among Aircraft Braking Systems Corporation
and Engineered Fabrics Corporation (collectively, the "Borrowers"; individually,
a "Borrower"), the Lenders, Lehman Commercial Paper Inc., as Syndication Agent,
Lehman Brothers Inc., as Arranger, and the Administrative Agent and (ii) the
Pension Benefit Guaranty Corporation (the "PBGC").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have
severally agreed to make extensions of credit to the Borrowers upon the terms
and subject to the conditions set forth therein;
WHEREAS, the Borrowers are members of an affiliated group of
companies that includes each other Grantor;
WHEREAS, the proceeds of the extensions of credit under the Credit
Agreement will be used in part to enable the Borrowers to make valuable
transfers to one or more of the other Grantors in connection with the operation
of their respective businesses;
WHEREAS, the Borrowers and the other Grantors are engaged in related
businesses, and each Grantor will derive substantial direct and indirect benefit
from the making of the extensions of credit under the Credit Agreement;
WHEREAS, the Borrowers have entered into a Settlement Agreement,
dated as of October 15, 1997 (as amended from time to time, the "Settlement
Agreement"), with the PBGC, and have agreed thereunder to enter into this
Agreement, to grant the security interests granted to the PBGC hereunder and to
undertake the obligations contemplated by this Agreement; and
WHEREAS, it is a condition precedent to the obligation of the
Lenders to make their respective extensions of credit to the Borrowers under the
Credit Agreement that the Grantors shall have executed and delivered this
Agreement to the Collateral Agent for the ratable benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective extensions of credit to the
Borrowers thereunder, each Grantor hereby agrees with the Collateral Agent as
follows:
<PAGE> 5
2
SECTION 1. DEFINED TERMS
1.1 Definitions. (a) Unless otherwise defined herein, terms defined
in the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement, and the following terms which are defined in the Uniform
Commercial Code in effect in the State of New York on the date hereof are used
herein as so defined: Accounts, Chattel Paper, Documents, Equipment, Farm
Products, Instruments, Inventory and Investment Property.
(b) The following terms shall have the following meanings:
"Agreement": this Guarantee and Collateral Agreement, as the same
may be amended, supplemented or otherwise modified from time to time.
"Bank Obligations": (i) in the case of either of the Borrowers, the
Borrower Obligations, and (ii) in the case of each Guarantor, its
Guarantor Obligations.
"Borrower Obligations": the collective reference to the unpaid
principal of and interest on the Loans and Reimbursement Obligations and
all other obligations and liabilities of the Borrowers (including, without
limitation, interest accruing at the then applicable rate provided in the
Credit Agreement after the maturity of the Loans and Reimbursement
Obligations and interest accruing at the then applicable rate provided in
the Credit Agreement after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like proceeding,
relating to either of the Borrowers, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding) to
the Administrative Agent, the Collateral Agent or any Lender (or, in the
case of any Hedge Agreement referred to below, any Affiliate of any
Lender), whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under,
out of, or in connection with, the Credit Agreement, this Agreement, the
other Loan Documents, any Letter of Credit or any Hedge Agreement entered
into by either Borrower with any Lender (or any Affiliate of any Lender)
or any other document made, delivered or given in connection therewith, in
each case whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise (including,
without limitation, all fees and disbursements of counsel to the
Administrative Agent, the Collateral Agent or to the Lenders that are
required to be paid by the Borrowers pursuant to the terms of any of the
foregoing agreements).
"Collateral": as defined in Section 3(b).
"Collateral Account": any collateral account established by the
Collateral Agent as provided in Section 6.1 or 6.4.
"Copyrights": (i) all copyrights arising under the laws of the
United States, any other country or any political subdivision thereof,
whether registered or unregistered and whether published or unpublished
(including, without limitation, those listed in Schedule 6), all
registrations and recordings thereof, and all applications in connection
therewith, including, without limitation, all registrations, recordings
and applications in the United States Copyright Office, and (ii) the right
to obtain all renewals thereof.
<PAGE> 6
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"Copyright Licenses": any written agreement naming any Grantor as
licensor or licensee (including, without limitation, those listed in
Schedule 6), granting any right under any Copyright, including, without
limitation, the grant of rights to manufacture, distribute, exploit and
sell materials derived from any Copyright.
"General Intangibles": all "general intangibles" as such term is
defined in Section 9- 106 of the Uniform Commercial Code in effect in the
State of New York on the date hereof and, in any event, including, without
limitation, with respect to any Grantor, all contracts, agreements,
instruments and indentures in any form, and portions thereof, to which
such Grantor is a party or under which such Grantor has any right, title
or interest or to which such Grantor or any property of such Grantor is
subject, as the same may from time to time be amended, supplemented or
otherwise modified, including, without limitation, (i) all rights of such
Grantor to receive moneys due and to become due to it thereunder or in
connection therewith, (ii) all rights of such Grantor to damages arising
thereunder and (iii) all rights of such Grantor to perform and to exercise
all remedies thereunder, in each case to the extent the grant by such
Grantor of a security interest pursuant to this Agreement in its right,
title and interest in such contract, agreement, instrument or indenture is
not prohibited by such contract, agreement, instrument or indenture
without the consent of any other party thereto, would not give any other
party to such contract, agreement, instrument or indenture the right to
terminate its obligations thereunder, or is permitted with consent if all
necessary consents to such grant of a security interest have been obtained
from the other parties thereto (it being understood that the foregoing
shall not be deemed to obligate such Grantor to obtain such consents);
provided that the foregoing limitation shall not affect, limit, restrict
or impair the grant by such Grantor of a security interest pursuant to
this Agreement in any Receivable or any money or other amounts due or to
become due under any such contract, agreement, instrument or indenture.
"Guarantor Obligations": with respect to any Guarantor, the
collective reference to (i) the Borrower Obligations and (ii) all
obligations and liabilities of such Guarantor which may arise under or in
connection with this Agreement or any other Loan Document to which such
Guarantor is a party, in each case whether on account of guarantee
obligations, reimbursement obligations, fees, indemnities, costs, expenses
or otherwise (including, without limitation, all fees and disbursements of
counsel to the Administrative Agent, the Collateral Agent or to the
Lenders that are required to be paid by such Guarantor pursuant to the
terms of this Agreement or any other Loan Document).
"Guarantors": the collective reference to each Grantor other than
the Borrowers.
"Hedge Agreements": as to any Person, all interest rate swaps, caps
or collar agreements or similar arrangements entered into by such Person
providing for protection against fluctuations in interest rates or
currency exchange rates or the exchange of nominal interest obligations,
either generally or under specific contingencies.
"Intellectual Property": the collective reference to all rights,
priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including, without limitation, the Copyrights, the Copyright Licenses, the
Patents, the Patent Licenses, the Trademarks and the Trademark Licenses,
and all rights to sue at law or in equity for any infringement or other
impairment thereof, including the right to receive all proceeds and
damages therefrom.
<PAGE> 7
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"Intercompany Note": any promissory note evidencing loans made by
any Grantor to K&F or any of its Subsidiaries.
"Issuers": the collective reference to each issuer of a Pledged
Security.
"Lender Collateral": as defined in Section 3(a).
"Lender Priority Collateral": as defined in Section 3(b).
"New York UCC": the Uniform Commercial Code as from time to time in
effect in the State of New York.
"Obligations": collectively, the Bank Obligation and the PBGC
Obligations.
"Patents": (i) all letters patent of the United States, any other
country or any political subdivision thereof, all reissues and extensions
thereof and all goodwill associated therewith, including, without
limitation, any of the foregoing referred to in Schedule 6, (ii) all
applications for letters patent of the United States or any other country
and all divisions, continuations and continuations-in-part thereof,
including, without limitation, any of the foregoing referred to in
Schedule 6, and (iii) all rights to obtain any reissues or extensions of
the foregoing.
"Patent License": all agreements, whether written or oral, providing
for the grant by or to any Grantor of any right to manufacture, use or
sell any invention covered in whole or in part by a Patent, including,
without limitation, any of the foregoing referred to in Schedule 6.
"PBGC Obligations": the obligations and contributions specified in
Section 4 of the Settlement Agreement, as amended, supplemented or
otherwise modified in accordance with the Credit Agreement.
"Pledged Notes": all promissory notes listed on Schedule 2
(including, without limitation, the Intercompany Notes issued in respect
of the Intercompany Loans), all Intercompany Notes at any time issued to
any Grantor and all other promissory notes issued to or held by any
Grantor (other than promissory notes issued in connection with extensions
of trade credit by any Grantor in the ordinary course of business).
"Pledged Securities": the collective reference to the Pledged Notes
and the Pledged Stock.
"Pledged Stock": the shares of Capital Stock listed on Schedule 2,
together with any other shares, stock certificates, options or rights of
any nature whatsoever in respect of the Capital Stock of any Person that
may be issued or granted to, or held by, any Grantor while this Agreement
is in effect.
"Proceeds": all "proceeds" as such term is defined in Section
9-306(1) of the Uniform Commercial Code in effect in the State of New York
on the date hereof and, in any event, shall include, without limitation,
all dividends or other income from the Pledged Securities, collections
thereon or distributions or payments with respect thereto.
<PAGE> 8
5
"Receivable": any right to payment for goods sold or leased or for
services rendered, whether or not such right is evidenced by an Instrument
or Chattel Paper and whether or not it has been earned by performance
(including, without limitation, any Account).
"Securities Act": the Securities Act of 1933, as amended.
"Trademarks": (i) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers, and all
goodwill associated therewith, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications
in connection therewith, whether in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any State
thereof or any other country or any political subdivision thereof, or
otherwise, and all common-law rights related thereto, including, without
limitation, any of the foregoing referred to in Schedule 6, and (ii) the
right to obtain all renewals thereof.
"Trademark License": any agreement, whether written or oral,
providing for the grant by or to any Grantor of any right to use any
Trademark, including, without limitation, any of the foregoing referred to
in Schedule 6.
"Vehicles": all cars, trucks, trailers, construction and earth
moving equipment and other vehicles covered by a certificate of title law
of any state.
1.2 Other Definitional Provisions. (a) The words "hereof," "herein",
"hereto" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement, and Section and Schedule references are to this Agreement unless
otherwise specified.
(b) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(c) Where the context requires, terms relating to the Collateral or
any part thereof, when used in relation to a Grantor, shall refer to such
Grantor's Collateral or the relevant part thereof.
SECTION 2. GUARANTEE
2.1 Guarantee. (a) Each of the Guarantors hereby, jointly and
severally, unconditionally and irrevocably, guarantees to the Collateral Agent,
for the ratable benefit of the Lenders and their respective successors,
indorsees, transferees and assigns, the prompt and complete payment and
performance by the Borrowers when due (whether at the stated maturity, by
acceleration or otherwise) of the Borrower Obligations.
(b) Anything herein or in any other Loan Document to the contrary
notwithstanding, the maximum liability of each Guarantor hereunder and under the
other Loan Documents shall in no event exceed the amount which can be guaranteed
by such Guarantor under applicable federal and state laws relating to the
insolvency of debtors (after giving effect to the right of contribution
established in Section 2.2).
<PAGE> 9
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(c) Each Guarantor agrees that the Borrower Obligations may at any
time and from time to time exceed the amount of the liability of such Guarantor
hereunder without impairing the guarantee contained in this Section 2 or
affecting the rights and remedies of the Collateral Agent or any Lender
hereunder.
(d) The guarantee contained in this Section 2 shall remain in full
force and effect until all the Borrower Obligations and the obligations of each
Guarantor under the guarantee contained in this Section 2 shall have been
satisfied by payment in full, no Letter of Credit shall be outstanding and the
Commitments shall be terminated, notwithstanding that from time to time during
the term of the Credit Agreement the Borrowers may be free from any Borrower
Obligations.
(e) No payment made by either of the Borrowers, any of the
Guarantors, any other guarantor or any other Person or received or collected by
the Collateral Agent or any Lender from either of the Borrowers, any of the
Guarantors, any other guarantor or any other Person by virtue of any action or
proceeding or any set-off or appropriation or application at any time or from
time to time in reduction of or in payment of the Borrower Obligations shall be
deemed to modify, reduce, release or otherwise affect the liability of any
Guarantor hereunder which shall, notwithstanding any such payment (other than
any payment made by such Guarantor in respect of the Borrower Obligations or any
payment received or collected from such Guarantor in respect of the Borrower
Obligations), remain liable for the Borrower Obligations up to the maximum
liability of such Guarantor hereunder until the Borrower Obligations are paid in
full, no Letter of Credit shall be outstanding and the Commitments are
terminated.
2.2 Right of Contribution. Each Subsidiary Guarantor hereby agrees
that to the extent that a Subsidiary Guarantor shall have paid more than its
proportionate share of any payment made hereunder, such Subsidiary Guarantor
shall be entitled to seek and receive contribution from and against any other
Subsidiary Guarantor hereunder which has not paid its proportionate share of
such payment. Each Subsidiary Guarantor's right of contribution shall be subject
to the terms and conditions of Section 2.3. The provisions of this Section 2.2
shall in no respect limit the obligations and liabilities of any Subsidiary
Guarantor to the Collateral Agent and the Lenders, and each Subsidiary Guarantor
shall remain liable to the Collateral Agent and the Lenders for the full amount
guaranteed by such Subsidiary Guarantor hereunder.
2.3 No Subrogation. Notwithstanding any payment made by any
Guarantor hereunder or any set-off or application of funds of any Guarantor by
the Collateral Agent or any Lender, no Guarantor shall be entitled to be
subrogated to any of the rights of the Collateral Agent or any Lender against
the Borrowers or any other Guarantor or any collateral security or guarantee or
right of offset held by the Collateral Agent or any Lender for the payment of
the Borrower Obligations, nor shall any Guarantor seek or be entitled to seek
any contribution or reimbursement from either of the Borrowers or any other
Guarantor in respect of payments made by such Guarantor hereunder, until all
amounts owing to the Collateral Agent and the Lenders by the Borrowers on
account of the Borrower Obligations are paid in full, no Letter of Credit shall
be outstanding and the Commitments are terminated. If any amount shall be paid
to any Guarantor on account of such subrogation rights at any time when all of
the Borrower Obligations shall not have been paid in full, such amount shall be
held by such Guarantor in trust for the Collateral Agent and the Lenders,
segregated from other funds of such Guarantor, and shall, forthwith upon receipt
by such Guarantor, be turned over to the Collateral Agent in the exact form
received by such Guarantor (duly indorsed by such Guarantor to the Collateral
Agent, if required), to be applied against the Borrower Obligations, whether
matured or unmatured, in such order as the Collateral Agent may determine.
<PAGE> 10
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2.4 Amendments, etc. with respect to the Borrower Obligations. Each
Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Borrower
Obligations made by the Collateral Agent or any Lender may be rescinded by the
Collateral Agent or such Lender and any of the Borrower Obligations continued,
and the Borrower Obligations, or the liability of any other Person upon or for
any part thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Collateral Agent or any Lender, and the Credit
Agreement and the other Loan Documents and any other documents executed and
delivered in connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as the Collateral Agent (or the Required
Lenders or all Lenders, as the case may be) may deem advisable from time to
time, and any collateral security, guarantee or right of offset at any time held
by the Collateral Agent or any Lender for the payment of the Borrower
Obligations may be sold, exchanged, waived, surrendered or released. Neither the
Collateral Agent nor any Lender shall have any obligation to protect, secure,
perfect or insure any Lien at any time held by it as security for the Borrower
Obligations or for the guarantee contained in this Section 2 or any property
subject thereto.
2.5 Guarantee Absolute and Unconditional. Each Guarantor waives any
and all notice of the creation, renewal, extension or accrual of any of the
Borrower Obligations and notice of or proof of reliance by the Collateral Agent
or any Lender upon the guarantee contained in this Section 2 or acceptance of
the guarantee contained in this Section 2; the Borrower Obligations, and any of
them, shall conclusively be deemed to have been created, contracted or incurred,
or renewed, extended, amended or waived, in reliance upon the guarantee
contained in this Section 2; and all dealings between either of the Borrowers
and any of the Guarantors, on the one hand, and the Collateral Agent and the
Lenders, on the other hand, likewise shall be conclusively presumed to have been
had or consummated in reliance upon the guarantee contained in this Section 2.
Each Guarantor waives diligence, presentment, protest, demand for payment and
notice of default or nonpayment to or upon either of the Borrowers or any of the
Guarantors with respect to the Borrower Obligations. Each Guarantor understands
and agrees that the guarantee contained in this Section 2 shall be construed as
a continuing, absolute and unconditional guarantee of payment without regard to
(a) the validity or enforceability of the Credit Agreement or any other Loan
Document, any of the Borrower Obligations or any other collateral security
therefor or guarantee or right of offset with respect thereto at any time or
from time to time held by the Collateral Agent or any Lender, (b) any defense,
set-off or counterclaim (other than a defense of payment or performance) which
may at any time be available to or be asserted by either of the Borrowers or any
other Person against the Collateral Agent or any Lender, or (c) any other
circumstance whatsoever (with or without notice to or knowledge of either of the
Borrowers or such Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of either of the Borrowers for the
Borrower Obligations, or of such Guarantor under the guarantee contained in this
Section 2, in bankruptcy or in any other instance. When making any demand
hereunder or otherwise pursuing its rights and remedies hereunder against any
Guarantor, the Collateral Agent or any Lender may, but shall be under no
obligation to, make a similar demand on or otherwise pursue such rights and
remedies as it may have against either of the Borrowers, any other Guarantor or
any other Person or against any collateral security or guarantee for the
Borrower Obligations or any right of offset with respect thereto, and any
failure by the Collateral Agent or any Lender to make any such demand, to pursue
such other rights or remedies or to collect any payments from either of the
Borrowers, any other Guarantor or any other Person or to realize upon any such
collateral security or guarantee or to exercise any such right of offset, or any
release of either of the Borrowers, any other Guarantor or any other Person or
any such collateral security, guarantee or right
<PAGE> 11
8
of offset, shall not relieve any Guarantor of any obligation or liability
hereunder, and shall not impair or affect the rights and remedies, whether
express, implied or available as a matter of law, of the Collateral Agent or any
Lender against any Guarantor. For the purposes hereof "demand" shall include the
commencement and continuance of any legal proceedings.
2.6 Reinstatement. The guarantee contained in this Section 2 shall
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Borrower Obligations is rescinded or
must otherwise be restored or returned by the Collateral Agent or any Lender
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
either of the Borrowers or any Guarantor, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, either Borrower or any Guarantor or any substantial part of its
property, or otherwise, all as though such payments had not been made.
2.7 Payments. Each Guarantor hereby guarantees that payments
hereunder will be paid to the Collateral Agent without set-off or counterclaim
in Dollars at the office of the Collateral Agent located at One First National
Plaza, Chicago, Illinois 60670.
2.8 PBGC. The PBGC shall have no rights or obligations pursuant to
or in connection with this Section 2 and shall not benefit from this Section 2
to any extent.
SECTION 3. GRANT OF SECURITY INTEREST
(a) Each Grantor hereby assigns and transfers to the Collateral
Agent, and hereby grants to the Collateral Agent, for the ratable benefit of the
Lenders, a first priority security interest in, all of the following property
now owned or at any time hereafter acquired by such Grantor or in which such
Grantor now has or at any time in the future may acquire any right, title or
interest (collectively, the "Lender Collateral"), as collateral security for the
prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of such Grantor's Bank Obligations:
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Documents;
(iv) all Equipment;
(v) all General Intangibles;
(vi) all Instruments;
(vii) all Intellectual Property;
(viii) all Inventory;
(ix) all Pledged Securities;
<PAGE> 12
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(x) all Investment Property;
(xi) all Vehicles;
(xii) all books and records pertaining to the Collateral; and
(xiii) to the extent not otherwise included, all Proceeds and
products of any and all of the foregoing and all collateral security and
guarantees given by any Person with respect to any of the foregoing.
(b) (i) Each Grantor hereby assigns and transfers to the Collateral
Agent, and hereby grants to the Collateral Agent, for the benefit of the PBGC, a
junior and second priority security interest in, all of such Grantor's right,
title and interest in and to the Lender Collateral (the "Lender Priority
Collateral"; the Lender Collateral and the Lender Priority Collateral,
collectively, the "Collateral"); provided that notwithstanding the foregoing or
any other provision of this Agreement, each Grantor and the PBGC acknowledges
and agrees that this Agreement, including the security interests granted herein,
all rights and remedies of the PBGC hereunder, and all obligations of each
Grantor hereunder, are subject to the provisions of the Intercreditor Agreement,
as used in such Intercreditor Agreement, the term "Guarantee and Collateral
Agreement" refers to this Agreement.
(c) In the case of the PBGC, this Agreement secures to the extent
set forth herein, and the Lender Priority Collateral is collateral security for,
the PBGC Obligations.
(d) For the purposes hereof, so long as the rights of the PBGC
hereunder have not terminated pursuant to the Settlement Agreement, in the event
(a "Second Lien Enforcement Event") that and so long as (i) the Collateral
Agent, on behalf of the Lenders, in exercise of foreclosure or similar remedies
under this Agreement, has disposed of or otherwise realized upon the Lender
Collateral, or has been repaid pursuant to a bankruptcy or similar proceeding at
the commencement of which the security interest in the Lender Priority
Collateral under this Agreement securing the Bank Obligations has not been
terminated, (ii) all of the Bank Obligations have been paid in full, the
commitments under the Credit Agreement have been terminated and no Letters of
Credit are outstanding, (iii) after giving effect thereto any Lender Priority
Collateral remains pledged pursuant to this Agreement and (iv) at such time
there are PBGC Obligations outstanding, then the term "Event of Default"
hereunder shall be deemed to refer to the failure at any time of the Borrowers
to pay when due any PBGC Obligations then owing and the PBGC shall have the
right to enforce the provisions of this Agreement in respect thereof, provided
that for the purposes hereof in such circumstances of a Second Lien Enforcement
Event, (iv) all references to the term "Collateral" herein shall be deemed to
refer only to that portion thereof that constitutes "Lender Priority Collateral"
at such time, (v) all references to the term "Obligations" herein shall be
deemed to refer to the "PBGC Obligations" and (vi) all references to the term
"Required Lenders" shall be deemed to refer to the "PBGC."
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into the
Credit Agreement and the PBGC to enter into the Settlement Agreement and to
induce the Lenders to make their respective extensions of credit to the
Borrowers thereunder, each Grantor hereby represents and warrants to the
Collateral Agent, each Lender and the PBGC that:
<PAGE> 13
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4.1 Representations in Credit Agreement; K&F Representations. (a) In
the case of each Guarantor, the representations and warranties set forth in
Section 4 of the Credit Agreement as they relate to such Guarantor or to the
Loan Documents to which such Guarantor is a party, each of which is hereby
incorporated herein by reference, are true and correct, and the Collateral Agent
and each Lender shall be entitled to rely on each of them as if they were fully
set forth herein, provided that each reference in each such representation and
warranty to each Borrower's knowledge shall, for the purposes of this Section
4.1(a), be deemed to be a reference to such Guarantor's knowledge.
(b) In the case of K&F:
(i) K&F (w) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (x) has
the corporate power and authority, and the legal right, to own and operate
its property, to lease the property it operates as lessee and to conduct
the business in which it is currently engaged, (y) is duly qualified as a
foreign corporation and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of property or the
conduct of its business requires such qualification and (z) is in
compliance with all Requirements of Law, except to the extent that the
failure to comply therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(ii) K&F has the corporate power and authority, and the legal
right, to make, deliver and perform the Loan Documents to which it is a
party and has taken all necessary corporate action to authorize the
execution, delivery and performance of the Loan Documents to which it is a
party. No consent or authorization of, filing with, notice to or other act
by or in respect of, any Governmental Authority or any other Person is
required in connection with the execution, delivery, performance, validity
or enforceability of the Loan Documents to which K&F is a party. This
Agreement has been, and each other Loan Document to which it is a party
will be, duly executed and delivered on behalf of K&F. This Agreement
constitutes, and each other Loan Document to which it is a party when
executed and delivered will constitute, a legal, valid and binding
obligation of K&F enforceable against K&F in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of
good faith and fair dealing.
(iii) The execution, delivery and performance of the Loan
Documents to which K&F is a party will not violate any Requirement of Law
or Contractual Obligation of K&F or of any of its Subsidiaries and will
not result in, or require, the creation or imposition of any Lien on any
of its or their respective properties or revenues pursuant to any such
Requirement of Law or Contractual Obligation (other than pursuant to this
Agreement).
(iv) Except as set forth in Schedule 4.6 to the Credit
Agreement, no litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of
K&F, threatened by or against K&F or any of its Subsidiaries or against
any of its or their respective properties or revenues (x) with respect to
any of the Loan Documents or any of the transactions contemplated hereby
or thereby, or (y) which could reasonably be expected to have a Material
Adverse Effect.
<PAGE> 14
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(v) K&F has filed or caused to be filed all tax returns
required to be filed by it, and has paid all taxes due on said returns or
on any assessments made against it other than those being contested in
good faith by appropriate proceedings for which adequate reserves have
been provided on its books); and
(vi) The audited consolidated and consolidating balance sheets
of K&F and its consolidated Subsidiaries as at March 31, 1996 and December
31, 1996, and the related consolidated and consolidating statements of
income and of cash flows for the fiscal years ended on such dates,
reported on by and accompanied by an unqualified report from Deloitte &
Touche, LLP, present fairly the consolidated and consolidating financial
condition of K&F and its Subsidiaries as at such date, and the
consolidated and consolidating results of its operations and its
consolidated and consolidating cash flows for the respective fiscal years
then ended. The unaudited consolidated and consolidating balance sheet of
K&F and its consolidated Subsidiaries as at June 30, 1997, and the related
unaudited consolidated and consolidating statements of income and cash
flows for the six-month period ended on such date, certified by a
Responsible Officer of K&F, present fairly the consolidated and
consolidating financial condition of K&F and its consolidated Subsidiaries
as at such date, and the consolidated and consolidating results of its
operations and its consolidated and consolidating cash flows for the six
month period then ended (subject to normal year-end audit adjustments).
All such financial statements, including the related schedules and notes
thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by the aforementioned
firm of accountants or Responsible Officer, as the case may be, and
disclosed therein). Neither K&F nor any of its consolidated Subsidiaries
have any material Guarantee Obligations, contingent liabilities and
liabilities for taxes, or any long-term leases or unusual forward or
long-term commitments, including, without limitation, any interest rate or
foreign currency swap or exchange transaction or other obligation in
respect of derivatives, which are not reflected in the most recent
financial statements referred to in this paragraph. During the period form
December 31, 1996 to and including the date hereof there has been no
Disposition by K&F or its Subsidiaries of any material part of its
business or Property. Since December 31, 1996 there has been no
development or event which has had or could reasonably be expected to have
a Material Adverse Effect.
4.2 Title; No Other Liens. Except for the security interests granted
to the Collateral Agent for the benefit of the Lenders and the PBGC (in
accordance with the terms hereof) pursuant to this Agreement and the other Liens
permitted to exist on the Collateral by the Credit Agreement, such Grantor owns
each item of the Collateral free and clear of any and all Liens or claims of
others. No financing statement or other public notice with respect to all or any
part of the Collateral is on file or of record in any public office, except such
as have been filed in favor of the Collateral Agent, for the benefit of the
Lenders and the PBGC (in accordance with the terms hereof), pursuant to this
Agreement or as are permitted by the Credit Agreement.
4.3 Perfected First Priority Liens. The security interests granted
pursuant to this Agreement (a) upon completion of the filings and other actions
specified on Schedule 3 (which, in the case of all filings and other documents
referred to on said Schedule, have been delivered to the Collateral Agent in
completed and duly executed form) will constitute valid perfected security
interests in all of the Collateral in favor of the Collateral Agent, for the
benefit of the Lenders and the PBGC (in accordance with the terms hereof), as
collateral security for such Grantor's Obligations, enforceable in accordance
with the terms hereof against all creditors of such Grantor and any Persons
purporting to purchase any Collateral from such Grantor and (b) are prior to all
other Liens on the Collateral in
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existence on the date hereof except for Liens (in the case of Collateral other
than Pledged Securities) permitted by subsection 7.3 of the Credit Agreement.
4.4 Chief Executive Office. On the date hereof, such Grantor's
jurisdiction of organization and the location of such Grantor's chief executive
office or sole place of business are specified on Schedule 4.
4.5 Inventory and Equipment. On the date hereof, the Inventory and
the Equipment (other than mobile goods) are kept at the locations listed on
Schedule 5.
4.6 Farm Products. None of the Collateral constitutes, or is the
Proceeds of, Farm Products.
4.7 Pledged Securities. (a) The shares of Pledged Stock pledged by
such Grantor hereunder constitute all the issued and outstanding shares of all
classes of the Capital Stock of each Issuer owned by such Grantor.
(b) All the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable.
(c) Each of the Pledged Notes constitutes the legal, valid and
binding obligation of the obligor with respect thereto, enforceable in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
(d) Such Grantor is the record and beneficial owner of, and has good
and marketable title to, the Pledged Securities pledged by it hereunder, free of
any and all Liens or options in favor of, or claims of, any other Person, except
the security interest created by this Agreement to the Collateral Agent for the
benefit of the Lenders and the PBGC (in accordance with this Agreement).
4.8 Receivables. (a) No amount payable to such Grantor under or in
connection with any Receivable is evidenced by any Instrument or Chattel Paper
which has not been delivered to the Collateral Agent.
(b) The amounts represented by such Grantor to the Collateral Agent
from time to time as owing to such Grantor in respect of the Receivables will at
such times be accurate.
4.9 Intellectual Property. (a) Schedule 6 lists all Intellectual
Property owned by such Grantor in its own name on the date hereof.
(b) On the date hereof, all material Intellectual Property is valid,
subsisting, unexpired and enforceable, has not been abandoned and does not
infringe the intellectual property rights of any other Person.
(c) Except as set forth in Schedule 6, on the date hereof, none of
the Intellectual Property is the subject of any licensing or franchise agreement
pursuant to which such Grantor is the licensor or franchisor.
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(d) No holding, decision or judgment has been rendered by any
Governmental Authority which would limit, cancel or question the validity of, or
such Grantor's rights in, any Intellectual Property in any respect that could
reasonably be expected to have a Material Adverse Effect.
(e) Except as set forth in Schedule 4.6 of the Credit Agreement, no
action or proceeding is pending, or, to the knowledge of such Grantor,
threatened, on the date hereof (i) seeking to limit, cancel or question the
validity of any Intellectual Property or such Grantor's ownership interest
therein, or (ii) which, if adversely determined, would have a material adverse
effect on the value of any Intellectual Property.
SECTION 5. COVENANTS
Each Grantor covenants and agrees with the Collateral Agent, the
Lenders and the PBGC that, from and after the date of this Agreement until the
Obligations shall have been paid in full, no Letter of Credit shall be
outstanding and the Commitments and the Settlement Agreement shall have
terminated:
5.1 Covenants in Credit Agreement. In the case of each Guarantor,
such Guarantor shall take, or shall refrain from taking, as the case may be,
each action that is necessary to be taken or not taken, as the case may be, so
that no Default or Event of Default is caused by the failure to take such action
or to refrain from taking such action by such Guarantor or any of its
Subsidiaries.
5.2 Delivery of Instruments and Chattel Paper. If any amount payable
under or in connection with any of the Collateral shall be or become evidenced
by any Instrument or Chattel Paper, such Instrument or Chattel Paper shall be
immediately delivered to the Collateral Agent, duly indorsed in a manner
satisfactory to the Collateral Agent, to be held as Collateral pursuant to this
Agreement.
5.3 Maintenance of Insurance. (a) Such Grantor will maintain, with
financially sound and reputable companies, insurance policies (i) insuring the
Inventory, Equipment and Vehicles against loss by fire, explosion, theft and
such other casualties as may be reasonably satisfactory to the Collateral Agent
and (ii) insuring such Grantor against liability for personal injury and
property damage relating to such Inventory, Equipment and Vehicles, such
policies to be in such form and amounts and having such coverage as may be
reasonably satisfactory to the Collateral Agent.
(b) All such insurance shall (i) provide that no cancellation,
material reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after receipt by the Collateral Agent of
written notice thereof, (ii) name the Collateral Agent as insured party or loss
payee, (iii) if reasonably requested by the Collateral Agent, include a breach
of warranty clause and (iv) be reasonably satisfactory in all other respects to
the Collateral Agent.
(c) Upon the reasonable request of the Collateral Agent, the
Borrowers shall deliver to the Collateral Agent and the Lenders a report of a
reputable insurance broker with respect to such insurance.
5.4 Payment of Obligations. Such Grantor will pay and discharge or
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all taxes, assessments and governmental charges or levies imposed
upon the Collateral or in respect of income or profits
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therefrom, as well as all claims of any kind (including, without limitation,
claims for labor, materials and supplies) against or with respect to the
Collateral, except that no such charge need be paid if the amount or validity
thereof is currently being contested in good faith by appropriate proceedings,
reserves in conformity with GAAP with respect thereto have been provided on the
books of such Grantor and such proceedings could not reasonably be expected to
result in the sale, forfeiture or loss of any material portion of the Collateral
or any interest therein.
5.5 Maintenance of Perfected Security Interest; Further
Documentation. (a) Such Grantor shall maintain the security interest created by
this Agreement as a perfected security interest having at least the priority
described in Section 4.3 and shall defend such security interest against the
claims and demands of all Persons whomsoever.
(b) Such Grantor will furnish to the Collateral Agent from time to
time statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as the Collateral Agent
may reasonably request, all in reasonable detail.
(c) At any time and from time to time, upon the written request of
the Collateral Agent, and at the sole expense of such Grantor, such Grantor will
promptly and duly execute and deliver, and have recorded, such further
instruments and documents and take such further actions as the Collateral Agent
may reasonably request for the purpose of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code (or other similar laws) in effect
in any jurisdiction with respect to the security interests created hereby.
5.6 Changes in Locations, Name, etc. Such Grantor will not, except
upon 15 days' prior written notice to the Collateral Agent and delivery to the
Collateral Agent of (a) all additional executed financing statements and other
documents reasonably requested by the Collateral Agent to maintain the validity,
perfection and priority of the security interests provided for herein and (b) if
applicable, a written supplement to Schedule 5 showing any additional location
at which Inventory or Equipment shall be kept:
(i) permit any of the Inventory or Equipment to be kept at a
location other than those listed on Schedule 5;
(ii) change the location of its chief executive office or sole place
of business from that referred to in Section 4.4; or
(iii) change its name, identity or corporate structure to such an
extent that any financing statement filed by the Collateral Agent in
connection with this Agreement would become misleading.
5.7 Notices. Such Grantor will advise the Collateral Agent promptly,
in reasonable detail, of:
(a) any Lien (other than security interests created hereby or Liens
permitted under the Credit Agreement) on any of the Collateral which would
adversely affect the ability of the Collateral Agent to exercise any of its
remedies hereunder; and
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(b) of the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the aggregate value of the
Collateral or on the security interests created hereby.
5.8 Pledged Securities. (a) If such Grantor shall become entitled to
receive or shall receive any stock certificate (including, without limitation,
any certificate representing a stock dividend or a distribution in connection
with any reclassification, increase or reduction of capital or any certificate
issued in connection with any reorganization), option or rights in respect of
the Capital Stock of any Issuer, whether in addition to, in substitution of, as
a conversion of, or in exchange for, any shares of the Pledged Stock, or
otherwise in respect thereof, such Grantor shall accept the same as the agent of
the Collateral Agent and the Lenders and the PBGC (in accordance with this
Agreement), hold the same in trust for the Collateral Agent and the Lenders and
the PBGC (in accordance with this Agreement) and deliver the same forthwith to
the Collateral Agent in the exact form received, duly indorsed by such Grantor
to the Collateral Agent, if required, together with an undated stock power
covering such certificate duly executed in blank by such Grantor and with, if
the Collateral Agent so requests, signature guaranteed, to be held by the
Collateral Agent, subject to the terms hereof, as additional collateral security
for the Obligations (in accordance with this Agreement). Any sums paid upon or
in respect of the Pledged Securities upon the liquidation or dissolution of any
Issuer shall be paid over to the Collateral Agent to be held by it hereunder as
additional collateral security for the Obligations (in accordance with this
Agreement), and in case any distribution of capital shall be made on or in
respect of the Pledged Securities or any property shall be distributed upon or
with respect to the Pledged Securities pursuant to the recapitalization or
reclassification of the capital of any Issuer or pursuant to the reorganization
thereof, the property so distributed shall, unless otherwise subject to a
perfected security interest in favor of the Collateral Agent, be delivered to
the Collateral Agent to be held by it hereunder as additional collateral
security for the Obligations (in accordance with this Agreement). If any sums of
money or property so paid or distributed in respect of the Pledged Securities
shall be received by such Grantor, such Grantor shall, until such money or
property is paid or delivered to the Collateral Agent, hold such money or
property in trust for the Lenders, segregated from other funds of such Grantor,
as additional collateral security for the Obligations (in accordance with this
Agreement).
(b) Without the prior written consent of the Collateral Agent, such
Grantor will not (i) vote to enable, or take any other action to permit, any
Issuer to issue any stock or other equity securities of any nature or to issue
any other securities convertible into or granting the right to purchase or
exchange for any stock or other equity securities of any nature of any Issuer,
(ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any
option with respect to, the Pledged Securities or Proceeds thereof (except
pursuant to a transaction expressly permitted by the Credit Agreement), (iii)
create, incur or permit to exist any Lien or option in favor of, or any claim of
any Person with respect to, any of the Pledged Securities or Proceeds thereof,
or any interest therein, except for the security interests created by this
Agreement or (iv) enter into any agreement or undertaking restricting the right
or ability of such Grantor or the Collateral Agent to sell, assign or transfer
any of the Pledged Securities or Proceeds thereof.
(c) In the case of each Grantor which is an Issuer, such Issuer
agrees that (i) it will be bound by the terms of this Agreement relating to the
Pledged Securities issued by it and will comply with such terms insofar as such
terms are applicable to it, (ii) it will notify the Collateral Agent promptly in
writing of the occurrence of any of the events described in Section 5.8(a) with
respect to the Pledged Securities issued by it and (iii) the terms of Sections
6.3(c) and 6.7 shall apply to it, mutatis
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mutandis, with respect to all actions that may be required of it pursuant to
Section 6.3(c) or 6.7 with respect to the Pledged Securities issued by it.
5.9 Receivables. (a) Other than in the ordinary course of business
consistent with its past practice, such Grantor will not (i) grant any extension
of the time of payment of any Receivable, (ii) compromise or settle any
Receivable for less than the full amount thereof, (iii) release, wholly or
partially, any Person liable for the payment of any Receivable, (iv) allow any
credit or discount whatsoever on any Receivable or (v) amend, supplement or
modify any Receivable in any manner that could adversely affect the value
thereof.
(b) Such Grantor will deliver to the Collateral Agent a copy of each
material demand, notice or document received by it that questions or calls into
doubt the validity or enforceability of more than 5% of the aggregate amount of
the then outstanding Receivables.
(c) At any time and from time to time, upon the written request of
the Collateral Agent, and at the sole expense of such Grantor, each Grantor will
promptly take such actions required to comply with the Federal Assignment of
Claims Act as set forth in 31 U.S.C. ss. 3727 and 41 U.S.C. ss. 15, as amended
from time to time, with respect to any Receivables of which the obligor is a
Governmental Authority.
5.10 Intellectual Property. (a) Such Grantor (either itself or
through licensees) will (i) continue to use each material Trademark on each and
every trademark class of goods applicable to its current line as reflected in
its current catalogs, brochures and price lists in order to maintain such
Trademark in full force free from any claim of abandonment for non-use, (ii)
maintain as in the past the quality of products and services offered under such
Trademark, (iii) use such Trademark with the appropriate notice of registration
and all other notices and legends required by applicable Requirements of Law,
(iv) not adopt or use any mark which is confusingly similar or a colorable
imitation of such Trademark unless the Collateral Agent, for the benefit of the
Lenders and the PBGC (in accordance with the terms hereof), shall obtain a
perfected security interest in such mark pursuant to this Agreement, and (v) not
(and not permit any licensee or sublicensee thereof to) do any act or knowingly
omit to do any act whereby such Trademark may become invalidated or impaired in
any way.
(b) Such Grantor (either itself or through licensees) will not do
any act, or omit to do any act, whereby any material Patent may become
forfeited, abandoned or dedicated to the public.
(c) Such Grantor (either itself or through licensees) (i) will
employ each material Copyright and (ii) will not (and will not permit any
licensee or sublicensee thereof to) do any act or knowingly omit to do any act
whereby any material portion of the Copyrights may become invalidated or
otherwise impaired. Such Grantor will not (either itself or through licensees)
do any act whereby any material portion of the Copyrights may fall into the
public domain.
(d) Such Grantor (either itself or through licensees) will not do
any act that knowingly uses any material Intellectual Property to infringe the
intellectual property rights of any other Person.
(e) Such Grantor will notify the Collateral Agent immediately if it
knows, or has reason to know, that any application or registration relating to
any material Intellectual Property may become forfeited, abandoned or dedicated
to the public, or of any adverse determination or development (including,
without limitation, the institution of, or any such determination or development
in, any proceeding in the United States Patent and Trademark Office, the United
States
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Copyright Office or any court or tribunal in any country) regarding such
Grantor's ownership of, or the validity of, any material Intellectual Property
or such Grantor's right to register the same or to own and maintain the same.
(f) Whenever such Grantor, either by itself or through any agent,
employee, licensee or designee, shall file an application for the registration
of any Intellectual Property with the United States Patent and Trademark Office,
the United States Copyright Office or any similar office or agency in any other
country or any political subdivision thereof, such Grantor shall report such
filing to the Collateral Agent within five Business Days after the last day of
the fiscal quarter in which such filing occurs. Upon request of the Collateral
Agent, such Grantor shall execute and deliver, and have recorded, any and all
agreements, instruments, documents, and papers as the Collateral Agent may
request to evidence the security interests provided for herein in any Copyright,
Patent or Trademark and the goodwill and general intangibles of such Grantor
relating thereto or represented thereby.
(g) Such Grantor will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark Office, the United States Copyright Office or any similar office
or agency in any other country or any political subdivision thereof, to maintain
and pursue each application (and to obtain the relevant registration) and to
maintain each registration of the material Intellectual Property, including,
without limitation, filing of applications for renewal, affidavits of use and
affidavits of incontestability.
(h) In the event that any material Intellectual Property is
infringed, misappropriated or diluted by a third party, such Grantor shall (i)
take such actions as such Grantor shall reasonably deem appropriate under the
circumstances to protect such Intellectual Property and (ii) if such
Intellectual Property is of material economic value, promptly notify the
Collateral Agent after it learns thereof and sue for infringement,
misappropriation or dilution, to seek injunctive relief where appropriate and to
recover any and all damages for such infringement, misappropriation or dilution.
5.11 Vehicles. (a) No Vehicle shall be removed from the state which
has issued the certificate of title/ownership therefor for a period in excess of
60 days.
(b) Upon the Collateral Agent's request subsequent to and during the
continuance of an Event of Default, all applications for certificates of
title/ownership indicating the Collateral Agent's first priority security
interest in the Vehicle covered by such certificate, and any other necessary
documentation, shall be filed in each office in each jurisdiction which the
Collateral Agent shall deem advisable to perfect its security interests in the
Vehicles.
SECTION 6. REMEDIAL PROVISIONS
6.1 Certain Matters Relating to Receivables. (a) The Collateral
Agent shall have the right to make test verifications of the Receivables in any
manner and through any medium that it reasonably considers advisable, and each
Grantor shall furnish all such assistance and information as the Collateral
Agent may require in connection with such test verifications. At any time and
from time to time, upon the Collateral Agent's request and at the expense of the
relevant Grantor, such Grantor shall cause independent public accountants or
others satisfactory to the Collateral Agent to furnish to the Collateral Agent
reports showing reconciliations, aging and test verifications of, and trial
balances for, the Receivables.
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(b) The Collateral Agent hereby authorizes each Grantor to collect
such Grantor's Receivables, subject to the Collateral Agent's direction and
control, and the Collateral Agent may curtail or terminate said authority at any
time after the occurrence and during the continuance of an Event of Default. If
required by the Collateral Agent at any time after the occurrence and during the
continuance of an Event of Default, any payments of Receivables, when collected
by any Grantor, (i) shall be forthwith (and, in any event, within two Business
Days) deposited by such Grantor in the exact form received, duly indorsed by
such Grantor to the Collateral Agent if required, in a Collateral Account
maintained under the sole dominion and control of the Collateral Agent, subject
to withdrawal by the Collateral Agent for the account of the Lenders and the
PBGC only as provided in Section 6.5, and (ii) until so turned over, shall be
held by such Grantor in trust for the Collateral Agent, the Lenders and the PBGC
in accordance with the terms hereof, segregated from other funds of such
Grantor. Each such deposit of Proceeds of Receivables shall be accompanied by a
report identifying in reasonable detail the nature and source of the payments
included in the deposit.
(c) At the Collateral Agent's request, each Grantor shall deliver to
the Collateral Agent all original and other documents evidencing, and relating
to, the agreements and transactions which gave rise to the Receivables,
including, without limitation, all original orders, invoices and shipping
receipts.
6.2 Communications with Obligors; Grantors Remain Liable. (a) The
Collateral Agent in its own name or in the name of others may at any time after
the occurrence and during the continuance of an Event of Default communicate
with obligors under the Receivables to verify with them to the Collateral
Agent's satisfaction the existence, amount and terms of any Receivables.
(b) Upon the request of the Collateral Agent at any time after the
occurrence and during the continuance of an Event of Default, each Grantor shall
notify obligors on the Receivables that the Receivables have been assigned to
the Collateral Agent for the benefit of the Lenders and the PBGC (in accordance
with the terms of this Agreement) and that payments in respect thereof shall be
made directly to the Collateral Agent.
(c) Anything herein to the contrary notwithstanding, each Grantor
shall remain liable under each of the Receivables to observe and perform all the
conditions and obligations to be observed and performed by it thereunder, all in
accordance with the terms of any agreement giving rise thereto. None of the
Collateral Agent, any Lender or the PBGC shall have any obligation or liability
under any Receivable (or any agreement giving rise thereto) by reason of or
arising out of this Agreement or the receipt by the Collateral Agent, any Lender
or the PBGC of any payment relating thereto, nor shall the Collateral Agent, any
Lender or the PBGC be obligated in any manner to perform any of the obligations
of any Grantor under or pursuant to any Receivable (or any agreement giving rise
thereto), to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party thereunder, to present or file any claim, to take any
action to enforce any performance or to collect the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.
6.3 Pledged Stock. (a) Unless an Event of Default shall have
occurred and be continuing and the Collateral Agent shall have given notice to
the relevant Grantor of the Collateral Agent's intent to exercise its
corresponding rights pursuant to Section 6.3(b), each Grantor shall be permitted
to receive all cash dividends paid in respect of the Pledged Stock and all
payments made in respect of the Pledged Notes, in each case paid in the normal
course of business of the relevant Issuer and consistent with past practice, to
the extent permitted in the Credit Agreement, and to exercise all
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voting and corporate rights with respect to the Pledged Securities; provided,
however, that no vote shall be cast or corporate right exercised or other action
taken which, in the Collateral Agent's reasonable judgment, would impair the
Collateral or which would be inconsistent with or result in any violation of any
provision of the Credit Agreement, this Agreement or any other Loan Document.
(b) If an Event of Default shall occur and be continuing and the
Collateral Agent shall give notice of its intent to exercise such rights to the
relevant Grantor or Grantors, (i) the Collateral Agent shall have the right to
receive any and all cash dividends, payments or other Proceeds paid in respect
of the Pledged Securities and make application thereof to the Obligations (in
accordance with this Agreement) in such order as the Collateral Agent may
determine, and (ii) any or all of the Pledged Securities shall be registered in
the name of the Collateral Agent or its nominee, and the Collateral Agent or its
nominee may thereafter exercise (x) all voting, corporate and other rights
pertaining to such Pledged Securities at any meeting of shareholders of the
relevant Issuer or Issuers or otherwise and (y) any and all rights of
conversion, exchange and subscription and any other rights, privileges or
options pertaining to such Pledged Securities as if it were the absolute owner
thereof (including, without limitation, the right to exchange at its discretion
any and all of the Pledged Securities upon the merger, consolidation,
reorganization, recapitalization or other fundamental change in the corporate
structure of any Issuer, or upon the exercise by any Grantor or the Collateral
Agent of any right, privilege or option pertaining to such Pledged Securities,
and in connection therewith, the right to deposit and deliver any and all of the
Pledged Securities with any committee, depositary, transfer agent, registrar or
other designated agency upon such terms and conditions as the Collateral Agent
may determine), all without liability except to account for property actually
received by it, but the Collateral Agent shall have no duty to any Grantor to
exercise any such right, privilege or option and shall not be responsible for
any failure to do so or delay in so doing.
(c) Each Grantor hereby authorizes and instructs each Issuer of any
Pledged Securities pledged by such Grantor hereunder to (i) comply with any
instruction received by it from the Collateral Agent in writing that (x) states
that an Event of Default has occurred and is continuing and (y) is otherwise in
accordance with the terms of this Agreement, without any other or further
instructions from such Grantor, and each Grantor agrees that each Issuer shall
be fully protected in so complying, and (ii) unless otherwise expressly
permitted hereby, pay any dividends or other payments with respect to the
Pledged Securities directly to the Collateral Agent.
6.4 Proceeds to be Turned Over To Collateral Agent. In addition to
the rights of the Collateral Agent, the Lenders and the PBGC specified in
Section 6.1 with respect to payments of Receivables, if an Event of Default
shall occur and be continuing, all Proceeds received by any Grantor consisting
of cash, checks and other near-cash items shall be held by such Grantor in trust
for the Collateral Agent, the Lenders and the PBGC, segregated from other funds
of such Grantor, and shall, forthwith upon receipt by such Grantor, be turned
over to the Collateral Agent in the exact form received by such Grantor (duly
indorsed by such Grantor to the Collateral Agent, if required). All Proceeds
received by the Collateral Agent hereunder shall be held by the Collateral Agent
in a Collateral Account maintained under its sole dominion and control. All
Proceeds while held by the Collateral Agent in a Collateral Account (or by such
Grantor in trust for the Collateral Agent and the Lenders) shall continue to be
held as collateral security for the Obligations in accordance with this
Agreement and shall not constitute payment thereof until applied as provided in
Section 6.5.
6.5 Application of Proceeds. At such intervals as may be agreed upon
by the Borrowers and the Collateral Agent, or, if an Event of Default shall have
occurred and be continuing, at any time at the Collateral Agent's election, the
Collateral Agent may apply all or any part of
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Proceeds in accordance with the Intercreditor Agreement, whether or not held in
any Collateral Account, and any proceeds of the guarantee set forth in Section 2
in payment of the Bank Obligations in the following order:
First, to pay incurred and unpaid fees and expenses of the
Collateral Agent under the Loan Documents;
Second, to the Collateral Agent, for application by it towards
payment of amounts then due and owing and remaining unpaid in respect of
the Bank Obligations, pro rata among the Lenders according to the amounts
of the Bank Obligations then due and owing and remaining unpaid to the
Lenders;
Third, to the Collateral Agent, for application by it towards
prepayment of the Bank Obligations, pro rata among the Lenders according
to the amounts of the Bank Obligations then held by the Lenders; and
Fourth, any balance of such Proceeds remaining after the Bank
Obligations shall have been paid in full, no Letters of Credit shall be
outstanding and the Commitments shall have terminated shall be paid over
to the Borrowers or to whomsoever may be lawfully entitled to receive the
same.
6.6 Code and Other Remedies. If an Event of Default shall occur and
be continuing, the Collateral Agent, on behalf of the Lenders and the PBGC (in
accordance with this Agreement), may exercise, in addition to all other rights
and remedies granted to them in this Agreement and in any other instrument or
agreement securing, evidencing or relating to the Obligations, all rights and
remedies of a secured party under the New York UCC or any other applicable law.
Without limiting the generality of the foregoing, the Collateral Agent, without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon any Grantor or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or otherwise dispose of and deliver the Collateral or any part
thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, at any exchange, broker's board or office of
the Collateral Agent or any Lender or elsewhere upon such terms and conditions
as it may deem advisable and at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. The
Collateral Agent or any Lender shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold, free of any right
or equity of redemption in any Grantor, which right or equity is hereby waived
and released. Each Grantor further agrees, at the Collateral Agent's request, to
assemble the Collateral and make it available to the Collateral Agent at places
which the Collateral Agent shall reasonably select, whether at such Grantor's
premises or elsewhere. The Collateral Agent shall apply the net proceeds of any
action taken by it pursuant to this Section 6.6, after deducting all reasonable
costs and expenses of every kind incurred in connection therewith or incidental
to the care or safekeeping of any of the Collateral or in any way relating to
the Collateral or the rights of the Collateral Agent, the Lenders and the PBGC
(in accordance with this Agreement) hereunder, including, without limitation,
reasonable attorneys' fees and disbursements, to the payment in whole or in part
of the Obligations, in such order as the Collateral Agent may elect (in
accordance with this Agreement), and only after such application and after the
payment by the Collateral Agent of any other amount required by any provision of
law,
<PAGE> 24
21
including, without limitation, Section 9-504(1)(c) of the New York UCC, need the
Collateral Agent account for the surplus, if any, to any Grantor. To the extent
permitted by applicable law, each Grantor waives all claims, damages and demands
it may acquire against the Collateral Agent, any Lender or the PBGC arising out
of the exercise by them of any rights hereunder. If any notice of a proposed
sale or other disposition of Collateral shall be required by law, such notice
shall be deemed reasonable and proper if given at least 10 days before such sale
or other disposition.
6.7 Registration Rights. (a) If the Collateral Agent shall determine
to exercise its right to sell any or all of the Pledged Stock pursuant to
Section 6.6, and if in the opinion of the Collateral Agent it is necessary or
advisable to have the Pledged Stock, or that portion thereof to be sold,
registered under the provisions of the Securities Act, the relevant Grantor will
cause the Issuer thereof to (i) execute and deliver, and cause the directors and
officers of such Issuer to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts as may be, in the
opinion of the Collateral Agent, necessary or advisable to register the Pledged
Stock, or that portion thereof to be sold, under the provisions of the
Securities Act, (ii) use its best efforts to cause the registration statement
relating thereto to become effective and to remain effective for a period of one
year from the date of the first public offering of the Pledged Stock, or that
portion thereof to be sold, and (iii) make all amendments thereto and/or to the
related prospectus which, in the opinion of the Collateral Agent, are necessary
or advisable, all in conformity with the requirements of the Securities Act and
the rules and regulations of the Securities and Exchange Commission applicable
thereto. Each Grantor agrees to cause such Issuer to comply with the provisions
of the securities or "Blue Sky" laws of any and all jurisdictions which the
Collateral Agent shall designate and to make available to its security holders,
as soon as practicable, an earnings statement (which need not be audited) which
will satisfy the provisions of Section 11(a) of the Securities Act.
(b) Each Grantor recognizes that the Collateral Agent may be unable
to effect a public sale of any or all the Pledged Stock, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. Each
Grantor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Collateral
Agent shall be under no obligation to delay a sale of any of the Pledged Stock
for the period of time necessary to permit the Issuer thereof to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if such Issuer would agree to do so.
(c) Each Grantor agrees to use its best efforts to do or cause to be
done all such other acts as may be necessary to make such sale or sales of all
or any portion of the Pledged Stock pursuant to this Section 6.7 valid and
binding and in compliance with any and all other applicable Requirements of Law.
Each Grantor further agrees that a breach of any of the covenants contained in
this Section 6.7 will cause irreparable injury to the Collateral Agent, the
Lenders and the PBGC, that the Collateral Agent, the Lenders and the PBGC have
no adequate remedy at law in respect of such breach and, as a consequence, that
each and every covenant contained in this Section 6.7 shall be specifically
enforceable against such Grantor, and such Grantor hereby waives and agrees not
to assert any defenses against an action for specific performance of such
covenants except for a defense that no Event of Default has occurred under the
Credit Agreement.
<PAGE> 25
22
6.8 Waiver; Deficiency. Each Grantor waives and agrees not to assert
any rights or privileges which it may acquire under Section 9-112 of the New
York UCC. Each Grantor shall remain liable for any deficiency if the proceeds of
any sale or other disposition of the Collateral are insufficient to pay its
Obligations and the fees and disbursements of any attorneys employed by the
Collateral Agent or any Lender to collect such deficiency.
SECTION 7. THE COLLATERAL AGENT
7.1 Collateral Agent's Appointment as Attorney-in-Fact, etc. (a)
Each Grantor hereby irrevocably constitutes and appoints the Collateral Agent
and any officer or agent thereof, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of such Grantor and in the name of such Grantor or in its own
name, for the purpose of carrying out the terms of this Agreement, to take any
and all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of this
Agreement, and, without limiting the generality of the foregoing, each Grantor
hereby gives the Collateral Agent the power and right, on behalf of such
Grantor, without notice to or assent by such Grantor, to do any or all of the
following:
(i) in the name of such Grantor or its own name, or otherwise, take
possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
Receivable or with respect to any other Collateral and file any claim or
take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Collateral Agent for the purpose of
collecting any and all such moneys due under any Receivable or with
respect to any other Collateral whenever payable;
(ii) in the case of any Intellectual Property, execute and deliver,
and have recorded, any and all agreements, instruments, documents and
papers as the Collateral Agent may request to evidence the security
interests provided for herein in such Intellectual Property and the
goodwill and general intangibles of such Grantor relating thereto or
represented thereby;
(iii) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, effect any repairs or any insurance
called for by the terms of this Agreement and pay all or any part of the
premiums therefor and the costs thereof;
(iv) execute, in connection with any sale provided for in Section
6.6 or 6.7, any indorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral; and
(v) (1) direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Collateral Agent or as the Collateral Agent
shall direct; (2) ask or demand for, collect, and receive payment of and
receipt for, any and all moneys, claims and other amounts due or to become
due at any time in respect of or arising out of any Collateral; (3) sign
and indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection with any of the
Collateral; (4) commence and prosecute any suits, actions or proceedings
at law or in equity in any court of competent jurisdiction to collect the
Collateral or any portion thereof and to enforce any other right in
respect of any Collateral; (5) defend any suit, action or proceeding
<PAGE> 26
23
brought against such Grantor with respect to any Collateral; (6) settle,
compromise or adjust any such suit, action or proceeding and, in
connection therewith, give such discharges or releases as the Collateral
Agent may deem appropriate; (7) assign any Copyright, Patent or Trademark
(along with the goodwill of the business to which any such Copyright,
Patent or Trademark pertains), throughout the world for such term or
terms, on such conditions, and in such manner, as the Collateral Agent
shall in its sole discretion determine; and (8) generally, sell, transfer,
pledge and make any agreement with respect to or otherwise deal with any
of the Collateral as fully and completely as though the Collateral Agent
were the absolute owner thereof for all purposes, and do, at the
Collateral Agent's option and such Grantor's expense, at any time, or from
time to time, all acts and things which the Collateral Agent deems
necessary to protect, preserve or realize upon the Collateral and the
Collateral Agent's and the Lenders' security interests therein and to
effect the intent of this Agreement, all as fully and effectively as such
Grantor might do.
Anything in this Section 7.1(a) to the contrary notwithstanding, the
Collateral Agent agrees that it will not exercise any rights under the power of
attorney provided for in this Section 7.1(a) unless an Event of Default shall
have occurred and be continuing.
(b) If any Grantor fails to perform or comply with any of its
agreements contained herein, the Collateral Agent, at its option, but without
any obligation so to do, may perform or comply, or otherwise cause performance
or compliance, with such agreement.
(c) The expenses of the Collateral Agent incurred in connection with
actions undertaken as provided in this Section 7.1, together with interest
thereon at a rate per annum equal to the rate per annum at which interest would
then be payable on past due Revolving Credit Loans that are Base Rate Loans
under the Credit Agreement, from the date of payment by the Collateral Agent to
the date reimbursed by the relevant Grantor, shall be payable by such Grantor to
the Collateral Agent on demand.
(d) Each Grantor hereby ratifies all that said attorneys shall
lawfully do or cause to be done by virtue hereof. All powers, authorizations and
agencies contained in this Agreement are coupled with an interest and are
irrevocable until this Agreement is terminated and the security interests
created hereby are released.
7.2 Duty of Collateral Agent. The Collateral Agent's sole duty with
respect to the custody, safekeeping and physical preservation of the Collateral
in its possession, under Section 9-207 of the New York UCC or otherwise, shall
be to deal with it in the same manner as the Collateral Agent deals with similar
property for its own account. Neither the Collateral Agent, any Lender, the PBGC
nor any of their respective officers, directors, employees or agents shall be
liable for failure to demand, collect or realize upon any of the Collateral or
for any delay in doing so or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of any Grantor or any other Person or
to take any other action whatsoever with regard to the Collateral or any part
thereof. The powers conferred on the Collateral Agent and the Lenders hereunder
are solely to protect the interests of the secured parties hereunder in the
Collateral and shall not impose any duty upon the Collateral Agent, any Lender
or the PBGC to exercise any such powers. The Collateral Agent, the Lenders and
the PBGC shall be accountable only for amounts that they actually receive as a
result of the exercise of such powers, and neither they nor any of their
officers, directors, employees or agents shall be responsible to any Grantor for
any act or failure to act hereunder, except for their own gross negligence or
willful misconduct.
<PAGE> 27
24
7.3 Execution of Financing Statements. Pursuant to Section 9-402 of
the New York UCC and any other applicable law, each Grantor authorizes the
Collateral Agent to file or record financing statements and other filing or
recording documents or instruments with respect to the Collateral without the
signature of such Grantor in such form and in such offices as the Collateral
Agent reasonably determines appropriate to perfect the security interests of the
Collateral Agent under this Agreement. A photographic or other reproduction of
this Agreement shall be sufficient as a financing statement or other filing or
recording document or instrument for filing or recording in any jurisdiction.
7.4 Authority of Collateral Agent. Each Grantor acknowledges that
the rights and responsibilities of the Collateral Agent under this Agreement
with respect to any action taken by the Collateral Agent or the exercise or
non-exercise by the Collateral Agent of any option, voting right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Agreement shall, as between the Collateral Agent and the Lenders, be
governed by the Credit Agreement and by such other agreements with respect
thereto as may exist from time to time among them, and, as between the
Collateral Agent and the PBGC, be governed by this Agreement and by such other
agreements with respect thereto as may exist from time to time among them
(provided that the Collateral Agent shall have no greater obligations or duties
to the PBGC, and the PBGC shall have no greater rights or claims against the
Collateral Agent, than as between the Collateral Agent and the Lenders) but, as
between the Collateral Agent and the Grantors, the Collateral Agent shall be
conclusively presumed to be acting as agent for the Lenders and the PBGC with
full and valid authority so to act or refrain from acting, and no Grantor shall
be under any obligation, or entitlement, to make any inquiry respecting such
authority.
7.5 Appointment of the Collateral Agent. (a) The Collateral Agent
has been appointed to act as Collateral Agent hereunder by the Lenders pursuant
to the Credit Agreement and, by their acceptance of the benefits hereof, and the
PBGC.
(b) The Collateral Agent shall at all times be the same Person that
is Administrative Agent under the Credit Agreement, provided that, after the
occurrence of a Second Lien Enforcement Event, the Collateral Agent shall be
selected by the PBGC with the consent of the Grantors if such new Collateral
Agent is not the entity which was the then most recent Administrative Agent.
Written notice of resignation by the Administrative Agent pursuant to subsection
9.9 of the Credit Agreement shall also constitute notice of resignation as
Collateral Agent under this Agreement; and appointment of a successor
Administrative Agent pursuant to subsection 9.9 of the Credit Agreement shall
also constitute appointment of a successor Collateral Agent under this
Agreement. Upon the acceptance of any appointment as Administrative Agent under
subsection 9.9 of the Credit Agreement by a successor Administrative Agent or
replacement of the Collateral Agent as described in the proviso to the first
sentence of this clause (b), that successor Administrative Agent or replacement
Collateral Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring or removed Collateral
Agent under this Agreement, and the retiring or removed Collateral Agent under
this Agreement shall promptly (i) transfer to such successor Collateral Agent
all sums, securities and other items of Collateral (or in the case of a
replacement of the Collateral Agent as described in the proviso to the first
sentence of this clause (b), the Lender Priority Collateral) held hereunder,
together with all records and other documents necessary or appropriate in
connection with the performance of the duties of the successor Collateral Agent
under this Agreement, and (ii) execute and deliver to such successor Collateral
Agent such amendments to financing statements, and take such other actions, as
may be necessary or appropriate in connection with the assignment to such
successor Collateral Agent of the security interests created hereunder,
whereupon such retiring or removed
<PAGE> 28
25
Collateral Agent shall be discharged from its duties and obligations under this
Agreement. After any retiring or removed Administrative Agent's resignation or
removal hereunder as Collateral Agent, the provisions of this Agreement shall
inure to its benefit as to any actions taken or omitted to be taken by it under
this Agreement while it was Collateral Agent hereunder.
SECTION 8. MISCELLANEOUS
8.1 Amendments in Writing. None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except in
accordance with Section 10.1 of the Credit Agreement.
8.2 Notices. Any notice or other communication herein required or
permitted to be given shall be in writing and may be personally served, telexed
or sent by telefacsimile or United States mail or courier service and shall be
deemed to have been given when delivered in person or by courier service, upon
receipt of telefacsimile or telex, or three Business Days after depositing it in
the United States mail with postage prepaid and properly addressed. For the
purposes hereof, the address of each party hereto shall be as provided in
subsection 10.2 of the Credit Agreement or Section 9 of the Intercreditor
Agreement; provided that any such notice, request or demand to or upon any
Guarantor shall be addressed to such Guarantor at its notice address set forth
on Schedule 1.
8.3 No Waiver by Course of Conduct; Cumulative Remedies. None of the
Collateral Agent, any Lender or the PBGC shall by any act (except by a written
instrument pursuant to Section 8.1), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default. No failure to exercise, nor any delay in
exercising, on the part of the Collateral Agent, any Lender or the PBGC, any
right, power or privilege hereunder shall operate as a waiver thereof. No single
or partial exercise of any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. A waiver by the Collateral Agent, any Lender or the PBGC of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which the Collateral Agent, such Lender or the PBGC would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive of
any other rights or remedies provided by law.
8.4 Enforcement Expenses; Indemnification. (a) Each Guarantor agrees
to pay or reimburse each Lender and the Collateral Agent for all its costs and
expenses incurred in collecting against such Guarantor under the guarantee
contained in Section 2 or otherwise enforcing or preserving any rights under
this Agreement and the other Loan Documents to which such Guarantor is a party,
including, without limitation, the fees and disbursements of counsel (including
the allocated fees and expenses of in-house counsel) to each Lender and of
counsel to the Collateral Agent.
(b) Each Guarantor agrees to pay, and to save the Collateral Agent
and the Lenders harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all stamp, excise, sales or other
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Agreement.
(c) Each Guarantor agrees to pay, and to save the Collateral Agent
and the Lenders harmless from, any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever with respect to the execution,
<PAGE> 29
26
delivery, enforcement, performance and administration of this Agreement to the
extent the Borrowers would be required to do so pursuant to Section 10.5 of the
Credit Agreement.
(d) The agreements in this Section 8.4 shall survive repayment of
the Obligations and all other amounts payable under the Credit Agreement and the
other Loan Documents.
8.5 Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of each Grantor and shall inure to the benefit of the
Collateral Agent, the Lenders, the PBGC and their successors and assigns;
provided that no Grantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the
Collateral Agent.
8.6 Set-Off. Each Grantor hereby irrevocably authorizes the
Collateral Agent and each Lender at any time and from time to time while an
Event of Default shall have occurred and be continuing, without notice to such
Grantor or any other Grantor, any such notice being expressly waived by each
Grantor, to set-off and appropriate and apply any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Collateral Agent or such Lender to or for the credit or the account
of such Grantor, or any part thereof in such amounts as the Collateral Agent or
such Lender may elect, against and on account of the obligations and liabilities
of such Grantor to the Collateral Agent or such Lender hereunder and claims of
every nature and description of the Collateral Agent or such Lender against such
Grantor, in any currency, whether arising hereunder, under the Credit Agreement,
any other Loan Document or otherwise, as the Collateral Agent or such Lender may
elect, whether or not the Collateral Agent or any Lender has made any demand for
payment and although such obligations, liabilities and claims may be contingent
or unmatured. The Collateral Agent and each Lender shall notify such Grantor
promptly of any such set-off and the application made by the Collateral Agent or
such Lender of the proceeds thereof, provided that the failure to give such
notice shall not affect the validity of such set-off and application. The rights
of the Collateral Agent and each Lender under this Section 8.6 are in addition
to other rights and remedies (including, without limitation, other rights of
set-off) which the Collateral Agent or such Lender may have.
8.7 Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts (including
by telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
8.8 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
8.9 Section Headings. The Section headings used in this Agreement
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
8.10 Integration. This Agreement and the other Loan Documents
represent the agreement of the Grantors, the Collateral Agent, the Lenders and
the PBGC with respect to the subject matter hereof and thereof, and there are no
promises, undertakings, representations or warranties by the Collateral Agent,
any Lender or the PBGC relative to subject matter hereof and thereof not
<PAGE> 30
27
expressly set forth or referred to herein or in the other Loan Documents (or, in
the case of the PBGC, the Settlement Agreement).
8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
8.12 Submission To Jurisdiction; Waivers. Each Grantor hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts
of the State of New York, the courts of the United States for the Southern
District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to such
Grantor at its address referred to in Section 8.2 or at such other address
of which the Collateral Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred
to in this Section any special, exemplary, punitive or consequential
damages.
8.13 Acknowledgements. Each Grantor hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents to which it is a
party;
(b) neither the Collateral Agent nor any Lender has any fiduciary
relationship with or duty to any Grantor arising out of or in connection
with this Agreement or any of the other Loan Documents, and the
relationship between the Grantors, on the one hand, and the Collateral
Agent and Lenders, on the other hand, in connection herewith or therewith
is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions contemplated
hereby among the Lenders or among the Grantors and the Lenders.
<PAGE> 31
28
8.14 WAIVER OF JURY TRIAL. EACH GRANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
8.15 Additional Grantors. Each Subsidiary of either Borrower that is
required to become a party to this Agreement pursuant to Section 6.10 of the
Credit Agreement shall become a Grantor for all purposes of this Agreement upon
execution and delivery by such Subsidiary of an Assumption Agreement in the form
of Annex 1 hereto.
8.16 Releases. (a) At such time as the Loans, the Reimbursement
Obligations and the other Obligations shall have been paid in full, the
Commitments have been terminated, no Letters of Credit shall be outstanding and
the termination of the PBGC's rights hereunder pursuant to the Settlement
Agreement, the Collateral shall be released from the Liens created hereby, and
this Agreement and all obligations (other than those expressly stated to survive
such termination) of the Collateral Agent and each Grantor hereunder shall
terminate, all without delivery of any instrument or performance of any act by
any party, and all rights to the Collateral shall revert to the Grantors. At the
request and sole expense of any Grantor following any such termination, the
Collateral Agent shall deliver to such Grantor any Collateral held by the
Collateral Agent hereunder, and execute and deliver to such Grantor such
documents as such Grantor shall reasonably request to evidence such termination.
(b) If any of the Collateral shall be sold, transferred or otherwise
disposed of by any Grantor in a transaction permitted by the Credit Agreement,
then the Collateral Agent, at the request and sole expense of such Grantor,
shall execute and deliver to such Grantor all releases or other documents
reasonably necessary or desirable for the release of the Liens created hereby on
such Collateral. At the request and sole expense of either Borrower, a
Subsidiary Guarantor shall be released from its obligations hereunder in the
event that all the Capital Stock of such Subsidiary Guarantor shall be sold,
transferred or otherwise disposed of in a transaction permitted by the Credit
Agreement; provided that such Borrower shall have delivered to the Collateral
Agent, at least ten Business Days prior to the date of the proposed release, a
written request for release identifying the relevant Subsidiary Guarantor and
the terms of the sale or other disposition in reasonable detail, including the
price thereof and any expenses in connection therewith, together with a
certification by such Borrower stating that such transaction is in compliance
with the Credit Agreement and the other Loan Documents.
<PAGE> 32
29
IN WITNESS WHEREOF, each of the undersigned has caused this
Guarantee and Collateral Agreement to be duly executed and delivered as of the
date first above written.
K&F INDUSTRIES, INC.
By: /s/ Kenneth M. Schwartz
----------------------------------
Title: Executive Vice President
AIRCRAFT BRAKING SYSTEMS
CORPORATION
By: /s/ Kenneth M. Schwartz
----------------------------------
Title: Executive Vice President
ENGINEERED FABRICS CORPORATION
By: /s/ Kenneth M. Schwartz
----------------------------------
Title: Executive Vice President
<PAGE> 33
Schedule 1
NOTICE ADDRESSES OF GUARANTORS
For all Guarantors:
c/o K&F Industries, Inc.
600 Third Avenue
New York, New York 10016
Attention: Kenneth M. Schwartz
Executive Vice President
Telecopy: (212) 867-1182
<PAGE> 34
Schedule 2
DESCRIPTION OF PLEDGED SECURITIES
Pledged Stock:
Issuer Class of Stock Stock Certificate No. No. of Shares
- ---------------------- -------------- --------------------- -------------
Aircraft Braking Common 1 100
Systems Corporation
Engineered Fabrics Common 1 100
Corporation
Pledged Notes:
Issuer Payee Principal Amount
- --------------------------- ---------------------- ----------------------
Aircraft Braking K&F Industries, Inc. $304,600,000
Systems Corporation
Engineered Fabrics K&F Industries, Inc. $ 48,400,000
Corporation
<PAGE> 35
Schedule 3
FILINGS AND OTHER ACTIONS
REQUIRED TO PERFECT SECURITY INTERESTS
Uniform Commercial Code Filings
Aircraft Braking Systems Engineered Fabrics Corporation
Corporation
Jurisdiction for UCC-1 Filing Jurisdiction for UCC-1 Filing
- ----------------------------- -----------------------------
California - Secy State Alabama - Secy State
Los Angeles County
California - Secy State
Georgia Los Angeles County
Cobb County
Fulton County Georgia
Polk County Cherokee County
Clarke County
Kansas - Secy State Cobb County
Sedgwick County Gwinnett County
Heard County
Missouri - Secy State Polk County
St. Charles County
Idaho - Secy State
New Hampshire - Secy State
Milford Township Indiana - Secy State
St. Joseph County
North Carolina - Secy State
Guilford County Minnesota - Secy State
Douglas County
Ohio - Secy State
Crawford County Ohio - Secy State
Cayahoga County Crawford County
Lake County Cayahoga County
Medina County Summit County
Montgomery County
Portage County Tennessee - Secy State
Stark County Davidson County
Summit County
Texas - Secy State
Pennsylvania - Secy Commonwealth Tarrant County
Beaver County
Utah - Secy State K & F Industries, Inc.
Wisconsin - Secy State Jurisdiction for UCC-1 Filing
Milwaukee County -----------------------------
Georgia
Polk County
Ohio - Secy State
Summit County
<PAGE> 36
Texas Aircraft Braking Systems ABS Travel Services, Inc.
Corporation
Jurisdiction for UCC-1 Filing Jurisdiction for UCC-1 Filing
- ----------------------------- -----------------------------
Ohio - Secy State Ohio - Secy State
Summit County Summit County
Patent and Trademark Filings
----------------------------
File with U.S. Patent Office
Actions with respect to Pledged Stock
-------------------------------------
Take Possession
Other Actions
-------------
File with Copyright Office
<PAGE> 37
Schedule 4
LOCATION OF JURISDICTION OF ORGANIZATION AND CHIEF EXECUTIVE OFFICE
Grantor Location
------- --------
K&F INDUSTRIES, INC. 600 Third Avenue
New York, New York 10016
AIRCRAFT BRAKING SYSTEMS 1204 Massillon Road
CORPORATION Akron, Ohio 44306
ENGINEERED FABRICS CORPORATION 669 Goodyear Street
Rockmart, Georgia 30153
<PAGE> 38
Schedule 5
LOCATION OF INVENTORY AND EQUIPMENT
Grantor Location
------- --------
<PAGE> 39
Schedule 6
COPYRIGHTS AND COPYRIGHT LICENSES
[See Attached]
PATENTS AND PATENT LICENSES
[See Attached]
TRADEMARKS AND TRADEMARK LICENSES
[See Attached]
<PAGE> 40
ACKNOWLEDGEMENT AND CONSENT
The undersigned hereby acknowledges receipt of a copy of the Guarantee and
Collateral Agreement dated as of October 15, 1997 (the "Agreement"), made by the
Grantors parties thereto for the benefit of The First National Bank of Chicago,
as Collateral Agent. The undersigned agrees for the benefit of the Collateral
Agent and the Lenders as follows:
1. The undersigned will be bound by the terms of the Agreement and will
comply with such terms insofar as such terms are applicable to the undersigned.
2. The undersigned will notify the Collateral Agent promptly in writing of
the occurrence of any of the events described in Section 5.8(a) of the
Agreement.
3. The terms of Sections 6.3(a) and 6.7 of the Agreement shall apply to
it, mutatis mutandis, with respect to all actions that may be required of it
pursuant to Section 6.3(a) or 6.7 of the Agreement.
[NAME OF ISSUER]
By
-----------------------------------
Title
--------------------------------
Address for Notices:
--------------------------------------
--------------------------------------
Fax:
----------------------------------
<PAGE> 41
Annex 1 to
Guarantee and Collateral Agreement
ASSUMPTION AGREEMENT, dated as of ________________, 199_, made by
______________________________, a ______________ corporation (the "Additional
Grantor"), in favor of ______________________________, as administrative agent
(in such capacity, the "Collateral Agent") for the banks and other financial
institutions (the "Lenders") parties to the Credit Agreement referred to below.
All capitalized terms not defined herein shall have the meaning ascribed to them
in such Credit Agreement.
W I T N E S S E T H :
WHEREAS, Aircraft Braking Systems Corporation and Engineered Fabrics
Corporation (the "Borrowers"), the Lenders and the Collateral Agent have entered
into a Credit Agreement, dated as of October 15, 1997 (as amended, supplemented
or otherwise modified from time to time, the "Credit Agreement");
WHEREAS, in connection with the Credit Agreement, the Borrowers and
certain of their Affiliates (other than the Additional Grantor) have entered
into the Guarantee and Collateral Agreement, dated as of October 15, 1997 (as
amended, supplemented or otherwise modified from time to time, the "Guarantee
and Collateral Agreement") in favor of the Collateral Agent for the benefit of
the Lenders;
WHEREAS, the Credit Agreement requires the Additional Grantor to
become a party to the Guarantee and Collateral Agreement; and
WHEREAS, the Additional Grantor has agreed to execute and deliver
this Assumption Agreement in order to become a party to the Guarantee and
Collateral Agreement;
NOW, THEREFORE, IT IS AGREED:
1. Guarantee and Collateral Agreement. By executing and delivering
this Assumption Agreement, the Additional Grantor, as provided in Section 8.15
of the Guarantee and Collateral Agreement, hereby becomes a party to the
Guarantee and Collateral Agreement as a Grantor thereunder with the same force
and effect as if originally named therein as a Grantor and, without limiting the
generality of the foregoing, hereby expressly assumes all obligations and
liabilities of a Grantor thereunder. The information set forth in Annex 1-A
hereto is hereby added to the information set forth in Schedules ____________ to
the Guarantee and Collateral Agreement. The Additional Grantor hereby represents
and warrants that each of the representations and warranties contained in
Section 4 of the Guarantee and Collateral Agreement is true and correct on and
as the date hereof (after giving effect to this Assumption Agreement) as if made
on and as of such date.
<PAGE> 42
2
2. Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered as of the date first above written.
[ADDITIONAL GRANTOR]
By:
----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.29
FORM OF TERM NOTE
THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MAY NOT BE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE CREDIT AGREEMENT REFERRED TO
BELOW. TRANSFERS OF THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MUST BE
RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT TO THE
TERMS OF SUCH CREDIT AGREEMENT.
$_____________ New York, New York
October 15, 1997
FOR VALUE RECEIVED, the undersigned, Aircraft Braking Systems
Corporation ("ABS") and Engineered Fabrics Corporation ("EF"), each a Delaware
corporation (ABS and EF collectively, the "Borrowers"; individually, a
"Borrower"), jointly and severally, hereby unconditionally promise to pay to
____________ (the "Lender") or its registered assigns at the Payment Office
specified in the Credit Agreement (as hereinafter defined) in lawful money of
the United States and in immediately available funds, the principal amount of
(a) __________ DOLLARS ($____), or, if less, (b) the unpaid principal amount of
the Tranche B Term Loan made by the Lender pursuant to Section 2.1 of the Credit
Agreement. The principal amount shall be paid in the amounts and on the dates
specified in Section 2.3 of the Credit Agreement. The Borrowers further jointly
and severally agree to pay interest in like money at such office on the unpaid
principal amount hereof from time to time outstanding at the rates and on the
dates specified in Section 2.13 of the Credit Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof or on a continuation thereof which shall
be attached hereto and made a part hereof the date, Type and amount of the
Tranche B Term Loan and the date and amount of each payment or prepayment of
principal with respect thereto, each conversion of all or a portion thereof to
another Type, each continuation of all or a portion thereof as the same Type
and, in the case of Eurodollar Loans, the length of each Interest Period with
respect thereto. Each such endorsement shall constitute prima facie evidence of
the accuracy of the information endorsed. The failure to make any such
endorsement or any error in any such endorsement shall not affect the
obligations of the Borrowers in respect of the Tranche B Term Loan.
This Note (a) is one of the Term Notes referred to in the Credit
Agreement dated as of October 15, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Ageement"), among the Borrowers, the
Lender, the other banks and financial institutions or entities from time to time
parties thereto, The First National Bank of Chicago, as Administrative Agent,
Lehman Brothers Inc., as Arranger, and Lehman Commercial Paper Inc., as
Syndication Agent, (b) is subject to the provisions of the Credit Agreement and
(c) is subject to optional and mandatory prepayment in whole or in part as
provided in the Credit Agreement. This Note is secured and guaranteed as
provided in the
<PAGE> 2
2
Loan Documents. Reference is hereby made to the Loan Documents for a description
of the properties and assets in which a security interest has been granted, the
nature and extent of the security and the guarantees, the terms and conditions
upon which the security interests and each guarantee were granted and the rights
of the holder of this Note in respect thereof.
Upon the occurrence of any one or more of the Events of Default,
all principal and all accrued interest then remaining unpaid on this Note
shall become, or may be declared to be, immediately due and payable, all as
provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the Credit
Agreement.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR IN THE
CREDIT AGREEMENT, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AND IN
ACCORDANCE WITH THE REGISTRATION AND OTHER PROVISIONS OF SECTION 10.6 OF THE
CREDIT AGREEMENT.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
AIRCRAFT BRAKING SYSTEMS
CORPORATION
By:
-------------------------------
Title:
ENGINEERED FABRICS CORPORATION
By:
-------------------------------
Title:
<PAGE> 1
EXHIBIT 10.30
FORM OF REVOLVING CREDIT NOTE
THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MAY NOT BE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE CREDIT AGREEMENT REFERRED TO
BELOW. TRANSFERS OF THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MUST BE
RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT TO THE
TERMS OF SUCH CREDIT AGREEMENT.
New York, New York
$_____________ October 15, 1997
FOR VALUE RECEIVED, the undersigned, Aircraft Braking Systems
Corporation ("ABS") and Engineered Fabrics Corporation ("EF"), each a Delaware
corporation (ABS and EF collectively, the "Borrowers"; individually, a
"Borrower"), jointly and severally, hereby jointly and severally and
unconditionally promise to pay to (the "Lender") or its registered
assigns at the Payment Office specified in the Credit Agreement (as hereinafter
defined) in lawful money of the United States and in immediately available
funds, on the Revolving Credit Termination Date the principal amount of (a)
DOLLARS ($ ), or, if less, (b) the aggregate unpaid principal amount of
all Revolving Credit Loans made by the Lender to the Borrowers pursuant to
Section 2.4 of the Credit Agreement. The Borrowers further jointly and severally
agree to pay interest in like money at such Payment Office on the unpaid
principal amount hereof from time to time outstanding at the rates and on the
dates specified in Section 2.13 of the Credit Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof or on a continuation thereof which shall
be attached hereto and made a part hereof the date, Type and amount of each
Revolving Credit Loan made pursuant to the Credit Agreement and the date and
amount of each payment or prepayment of principal thereof, each continuation
thereof, each conversion of all or a portion thereof to another Type and, in the
case of Eurodollar Loans, the length of each Interest Period with respect
thereto. Each such endorsement shall constitute prima facie evidence of the
accuracy of the information endorsed. The failure to make any such endorsement
or any error in any such endorsement shall not affect the obligations of the
Borrowers in respect of any Revolving Credit Loan.
This Note (a) is one of the Revolving Credit Notes referred to in
the Credit Agreement dated as of October 15, 1997 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among the
Borrowers, the Lender, the other banks and financial institutions or
entities from time to time parties thereto. The First National Bank of Chicago,
as Administrative Agent, Lehman Brothers Inc., as Arranger, and Lehman
Commercial Paper Inc., as Syndication Agent, (b) is subject to the provisions of
the Credit Agreement and (c) is subject to optional and mandatory prepayment in
whole or in part as provided in the Credit Agreement. This Note is secured and
guaranteed as provided in the
<PAGE> 2
Loan Documents. Reference is hereby made to the Loan Documents for a description
of the properties and assets in which a security interest has been granted, the
nature and extent of the security and the guarantees, the terms and conditions
upon which the security interests and each guarantee were granted and the rights
of the holder of this Note in respect thereof.
Upon the occurrence of any one or more of the Events of Default, all
principal and all accrued interest then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable, all as provided
in the Credit Agreement.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the Credit
Agreement.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR IN THE
CREDIT AGREEMENT, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AND IN
ACCORDANCE WITH THE REGISTRATION AND OTHER PROVISIONS OF SECTION 10.6 OF THE
CREDIT AGREEMENT.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
AIRCRAFT BRAKING SYSTEMS
CORPORATION
By:
----------------------------
Title:
ENGINEERED FABRICS CORPORATION
By:
----------------------------
Title:
<PAGE> 1
Exhibit 10.31
FORM OF
ABS SUBORDINATION AGREEMENT
ABS SUBORDINATION AGREEMENT, dated as of October 15, 1997, among
AIRCRAFT BRAKING SYSTEMS CORPORATION, a Delaware corporation (the "Borrower"), K
& F INDUSTRIES, INC., a Delaware corporation ("K&F") and The First National Bank
of Chicago, as administrative agent (in such capacity, the "Administrative
Agent") for the Senior Lenders (as defined below).
W I T N E S S E T H :
WHEREAS, the Borrower has entered into the Credit Agreement, dated
as of the date hereof (as amended, supplemented or otherwise modified from time
to time, the "Senior Credit Agreement") with Engineered Fabrics Corporation, the
Senior Lenders, the Syndication Agent and the Administrative Agent, pursuant to
which the Senior Lenders will make Senior Loans (as defined below) to the
Borrower and the Issuing Lender will issue Letters of Credit for the account of
the Borrower; and
WHEREAS, pursuant to the terms of the Intercompany Note, dated as of
April 28, 1989, made by the Borrower in favor of K&F (the "Intercompany Note"),
K&F has made a loan in the amount of $304,600,000 (the "Subordinated Loan") to
the Borrower; and
WHEREAS, it is a condition precedent to the making and maintaining
of the Senior Loans by the Senior Lenders to the Borrower under the Senior
Credit Agreement and the issuance of the Letters of Credit by the Issuing Lender
for the account of the Borrower that K&F and the Borrower shall have entered
into this Agreement; and
WHEREAS, the Borrower is a wholly-owned subsidiary of K&F; and
WHEREAS, K&F will benefit from the making of the Senior Loans by the
Senior Lenders to the Borrower and the issuance of the Letters of Credit for the
account of the Borrower by the Issuing Lender under the Senior Credit Agreement;
NOW, THEREFORE, in consideration of the premises and in order to
induce the Senior Lenders to make the Senior Loans under the Senior Credit
Agreement and the Issuing Lender to issue the Letters of Credit for the account
of the Borrower, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Definitions. Each capitalized term used herein and not otherwise
defined shall have the definition assigned to such term in the Senior Credit
Agreement, and the following terms shall have the following meanings:
"Agreement" means this ABS Subordination Agreement, as the same may
from time to time be amended or supplemented.
<PAGE> 2
2
"Junior Debt" means all indebtedness, obligations and liabilities of
the Borrower arising out of or in connection with the Subordinated Loan or
the Intercompany Note, including, without limitation, all principal of,
premium (if any) and interest on the Subordinated Loan and any and all
renewals and extensions thereof.
"Senior Debt" means all Obligations of the Borrower, including,
without limitation, all principal of, premium (if any) and interest on all
extensions of credit made to or for the account of the Borrower under the
Senior Credit Agreement and any and all renewals and extensions thereof
(including any interest accruing subsequent to the commencement of
bankruptcy, insolvency or similar proceedings with respect to the
Borrower).
"Senior Loans" has the meaning assigned to the term "Loan" in
subsection 1.1 of the Senior Credit Agreement.
"Subordinated Lender" means K&F and any successor or assignee of K&F
which at any time shall be the holder of or obligee on any Junior Debt.
SECTION 2. SUBORDINATION
2.1 Subordination to Senior Secured Obligations. The Borrower, for
itself and its successors and assigns, and the Subordinated Lender, on its
behalf and on behalf of each of its successors and assigns that is a holder of
Junior Debt, agree that the Junior Debt shall be subordinate and junior in right
of payment on the terms of this subsection 2.1 to the prior payment in full in
cash of all of the Senior Debt.
2.2 No Payment. No payment on account of principal of, premium (if
any) or interest on Junior Debt shall be made except in accordance with Section
7.6 of the Credit Agreement. In addition, no payment on account of principal of,
premium (if any) or interest on Junior Debt shall be made (a) unless full
payment of all amounts then due in respect of all Senior Debt has been made or
(b) if, at the time of such payment or immediately after giving effect thereto,
there shall exist any Event of Default or Default (as such terms are defined in
the Senior Credit Agreement). In the event that, notwithstanding the foregoing,
the Borrower shall make any payment or distribution to the Subordinated Lender
prohibited by the foregoing sentence, such payment or distribution shall be held
in trust for the benefit of, and shall be paid over to, the Senior Lenders (pro
rata to each Senior Lender on the basis of the respective amounts of Senior Debt
held by such Senior Lender).
2.3 Payment Over of Proceeds Upon Dissolution, etc. In the event of
(a) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding in connection
therewith, relative to the Borrower or its creditors, as such, or to its assets,
or (b) any liquidation, dissolution or other winding up of the Borrower, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy,
or (c) any assignment for the benefit of creditors or any other marshalling of
assets and liabilities of the Borrower, then and in any such event
(1) the Senior Debt (including, without limitation, any such amounts
declared due prior to their stated maturity and any interest accruing
after the occurrence of any
<PAGE> 3
3
default or event of default specified in subsection 8(f) of the Senior
Credit Agreement, whether or not such interest is allowed as a claim in
any bankruptcy or insolvency proceeding) shall be entitled to receive
payment in full in cash of all amounts due or to become due on or in
respect of all Senior Debt, before the Subordinated Lender is entitled to
receive any payment on account of principal of (or premium, if any) or
interest or otherwise on the Junior Debt;
(2) any payment or distribution of assets of the Borrower of any
kind or character, whether in cash, property or securities, by set-off or
otherwise, to which the Subordinated Lender would be entitled but for the
provisions hereof, including, with respect to the Junior Debt, any such
payment or distribution which may be payable or deliverable by reason of
the payment of any other debt of the Borrower being subordinated to the
payment of the Junior Debt, shall be paid by the liquidating trustee or
agent or other person making such payment or distribution, whether a
trustee in bankruptcy, a receiver or liquidating trustee or otherwise,
directly to the Senior Lenders (pro rata to each such Senior Lender on the
basis of the respective amounts of Senior Debt held by such Senior
Lender), to the extent necessary to make payment in full in cash of all
Senior Debt remaining unpaid, after giving effect to any concurrent
payment or distribution to the Senior Lenders; and
(3) in the event that, notwithstanding the foregoing, the
Subordinated Lender shall have received any such payment or distribution
of assets of the Borrower of any kind or character whether in cash,
property or securities, including any such payment or distribution which
may be payable or deliverable by reason of the payment of any other debt
of the Borrower being subordinated to the payment of the Junior Debt,
before all Senior Debt is paid in full in cash, then and in such event
such payment or distribution shall be paid over or delivered forthwith to
the Senior Lenders (pro rata to each Senior Lender on the basis of the
respective amounts of the Senior Debt held by such Senior Lender) to the
extent necessary to make payment in full in cash of all Senior Debt
remaining unpaid, after giving effect to any concurrent payment or
distribution to the Senior Lenders.
2.4 Authorization of Holders of Senior Debt to File Claims, etc. The
Subordinated Lender hereby irrevocably authorizes and empowers (without imposing
any obligation on) each Senior Lender and such Senior Lender's representatives,
under the circumstances set forth in the immediately preceding paragraph, to
demand, sue for, collect and receive every such payment or distribution
described therein and give acquittance therefor, to file claims and proofs of
claims in any statutory or nonstatutory proceeding, to vote such Senior Lender's
ratable share of the full amount of Junior Debt in its sole discretion in
connection with any resolution, arrangement, plan of reorganization, compromise,
settlement or extension and to take all such other action (including, without
limitation, the right to participate in any composition of creditors and the
right to vote such Senior Lender's ratable share of Junior Debt at creditors'
meetings for the election of trustees, acceptances of plans and otherwise), in
the name of the Subordinated Lender or otherwise, as such Senior Lender's
representatives may deem necessary or desirable for the enforcement of the
subordination provisions hereof. The Subordinated Lender shall execute and
deliver to each Senior Lender and such Senior Lender's representatives all such
further instruments confirming the foregoing authorization, and all such powers
of attorney, proofs of claim, assignments of claim and
<PAGE> 4
4
other instruments, and shall take all such other action as may be reasonably
requested by such holder or such holder's representatives in order to enable
such holder to enforce all claims upon or in respect of such Senior Lender's
ratable share of Junior Debt.
2.5 Limitation on Remedies. The Subordinated Lender shall not,
without the prior written consent of the Senior Lenders, have any right to
accelerate the maturity of, or institute any proceedings to enforce, any Junior
Debt so long as any Senior Debt is outstanding or otherwise commence, prosecute
or participate in any administrative, legal or equitable action against the
Borrower. If the Subordinated Lender, in violation of the provisions herein set
forth, shall commence, prosecute or participate in any suit, action, case or
proceeding against the Borrower, the Borrower may interpose as a defense or plea
the provisions hereof, and any Senior Lender may intervene and interpose such
defense or plea in its own name or in the name of the Borrower, and shall, in
any event, be entitled to restrain the enforcement of the payment provisions of
the Junior Debt in its own name or in the name of the Borrower, as the case may
be, in the same suit, action, case or proceeding or in any independent suit,
action, case or proceeding.
2.6 Subrogation. After the payment in full of all amounts due in
respect of Senior Debt, the Subordinated Lender shall be subrogated to the
rights of the Senior Lenders to receive payments or distributions of cash,
property or securities of the Borrower applicable to Senior Debt until the
principal of, premium, if any, interest on and all other amounts due or to
become due with respect to Junior Debt shall be paid in full; and, for the
purposes of such subrogation, no payments or distributions to the Senior Lenders
of any cash, property or securities to which the Subordinated Lender would be
entitled except for these provisions, and no payment over pursuant to these
provisions to the Senior Lenders by the Subordinated Lender shall, as among the
Borrower, its creditors other than the Senior Lenders and the Subordinated
Lender, be deemed to be a payment by the Borrower to or on account of Senior
Debt. No payments or distributions to the Senior Lenders which the Subordinated
Lender shall be entitled to receive pursuant to such subrogation shall, as among
the Borrower, its creditors other than the Senior Lenders and the Subordinated
Lender, be deemed to be a payment by the Borrower to or on account of Junior
Debt.
2.7 Provisions Solely to Define Relative Rights. Nothing contained
in this Agreement is intended to or shall impair as between the Borrower, its
creditors other than the Senior Lenders, and the Subordinated Lender, the
obligation of the Borrower to pay the Junior Debt to the Subordinated Lender, as
and when the same shall become due and payable in accordance with its terms, or
to affect the relative rights of the Subordinated Lender and creditors of the
Borrower other than the Senior Lenders.
2.8 Further Assurances. Each holder of Junior Debt by its acceptance
thereof authorizes and directs the Borrower on its behalf to take such further
action as may be necessary or appropriate from time to time to effectuate the
subordination as provided herein and appoints the Borrower its attorney-in-fact
for any and all such purposes.
2.9 No Waiver of Subordination Provisions. The subordination
effected hereby, and the rights of the Senior Lender, shall not be affected by
(a) any amendment of, or addition or supplement to, the Senior Credit Agreement
or any of the Loan Documents or any instrument or agreement relating thereto or
to any Senior Debt, (b) any exercise or non-exercise of any right, power or
remedy under or in respect of the Senior Credit Agreement or any of the Loan
<PAGE> 5
5
Documents or any instrument or agreement relating thereto or to any Senior Debt,
(c) any waiver, consent, release, indulgence, extension, renewal, modification,
delay, or other action, inaction or omission, in respect of the Senior Credit
Agreement or any of the other Loan Documents or any instrument or agreement
relating thereto or to any Senior Debt, (d) any extension, renewal, modification
or refunding of the Senior Debt, or (e) any sale of the Borrower or any interest
therein or any sale, lease or transfer of any or all assets of the Borrower to
any other person; whether or not the Subordinated Lender shall have had notice
or knowledge of any of the foregoing.
2.10 Reinstatement of Subordination. The obligations of the
Subordinated Lender under this Agreement shall continue to be effective, or be
reinstated, as the case may be, if at any time any payment in respect of any
Senior Debt, or any other payment to any Senior Lender, is rescinded or must
otherwise be restored or returned by such Senior Lender upon the occurrence of
any proceeding referred to in subsection 2.3 hereof, or upon or as a result of
the appointment of a receiver, intervenor or conservator of, or trustee or
similar officer for, the Borrower or any substantial part of its property, or
otherwise, all as though such payment had not been made.
2.11 Legend on Junior Debt. Each instrument evidencing any Junior
Debt including, without limitation, the Intercompany Note, shall contain the
following legend conspicuously noted on the face thereof: "THIS [NAME OF
INSTRUMENT] IS SUBJECT TO THE SUBORDINATION PROVISIONS SET FORTH IN THE ABS
SUBORDINATION AGREEMENT, DATED AS OF OCTOBER 15, 1997, AMONG AIRCRAFT BRAKING
SYSTEMS CORPORATION, K & F INDUSTRIES, INC., LEHMAN COMMERCIAL PAPER INC., AS
SYNDICATION AGENT, AND THE FIRST NATIONAL BANK OF CHICAGO, AS ADMINISTRATIVE
AGENT, AS THE SAME MAY FROM TIME TO TIME BE AMENDED" and shall specifically
state that a copy of this Agreement is on file with the Borrower and is
available for inspection at the Borrower's offices.
SECTION 3. MISCELLANEOUS.
3.1 No Waiver. No failure to exercise and no delay in exercising, on
the part of the Administrative Agent or any Senior Lender, any right, remedy,
power or privilege provided herein or by statute or at law or in equity shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, remedy, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege.
3.2 Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remaining provisions hereof shall not in any way be
affected or impaired thereby.
3.3 Succession. This Agreement shall be binding upon and inure to
the benefit of the Senior Lenders and the parties hereto and their respective
successors and assigns, but no assignment hereof shall in any event relieve the
Subordinated Lender of its obligations hereunder.
3.4 Amendments, etc. This Agreement may be amended or modified only
with the written consent of the Borrower, the Administrative Agent and the
Subordinated Lender.
<PAGE> 6
6
3.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
3.6 Notices. Except as otherwise specified herein, all notices,
requests, demands, consents, instructions or other communications hereunder
shall be duly given or made if sent in writing by registered or certified mail,
or by tested or otherwise authenticated telex or telecopy, in each case
addressed to the party to which such notice is requested or permitted to be
given or made, at the address specified beneath the heading "Address for
Notices" under the name of the applicable party on the signature pages hereof,
or at such other address of which such Person shall have notified in writing the
party giving such notice. All notices shall be deemed given when received by the
party to whom such notice was sent.
3.7 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and the parties hereto may execute this Agreement by signing any
such counterpart.
<PAGE> 7
7
IN WITNESS WHEREOF, the parties hereto, by their officers duly
authorized, have caused this ABS Subordination Agreement to be duly executed and
delivered as of the date first above written.
AIRCRAFT BRAKING SYSTEMS
CORPORATION
By: /s/ Kenneth M. Schwartz
------------------------------
Name: Kenneth M. Schwartz
Title:
Address for Notices:
Aircraft Braking Systems Corporation
c/o K & F Industries, Inc.
600 Third Avenue
New York, New York 10016
Attention: Kenneth M. Schwartz
Telecopy: (212) 867-1182
K & F INDUSTRIES, INC.
By: /s/ Kenneth M. Schwartz
------------------------------
Name: Kenneth M. Schwartz
Title: Executive Vice President
Address for Notices:
K & F Industries, Inc.
600 Third Avenue
New York, New York 10016
Attention: Kenneth M. Schwartz
Telecopy: (212) 867-1182
<PAGE> 8
8
THE FIRST NATIONAL BANK OF CHICAGO, as
Administrative Agent
By: /s/ William J. McCaffrey
------------------------------
Name: William J. McCaffrey
Title: Vice President
Address for Notices:
The First National Bank of Chicago
1 First National Plaza
Chicago, Illinois 60670
Attention: Karen Hannusch
Telecopy: (312) 732-2715
<PAGE> 1
Exhibit 10.32
FORM OF
EF SUBORDINATION AGREEMENT
EF SUBORDINATION AGREEMENT, dated as of October 15, 1997, among
ENGINEERED FABRICS CORPORATION, a Delaware corporation (the "Borrower"), K & F
INDUSTRIES, INC., a Delaware corporation ("K&F") and The First National Bank of
Chicago, as administrative agent (in such capacity, the "Administrative Agent")
for the Senior Lenders (as defined below).
W I T N E S S E T H :
WHEREAS, the Borrower has entered into the Credit Agreement, dated
as of the date hereof (as amended, supplemented or otherwise modified from time
to time, the "Senior Credit Agreement") with Aircraft Banking Systems
Corporation, the Senior Lenders, the Syndication Agent and the Administrative
Agent, pursuant to which the Senior Lenders will make Senior Loans (as defined
below) to the Borrower and the Issuing Lender will issue Letters of Credit for
the account of the Borrower; and
WHEREAS, pursuant to the terms of the Intercompany Note, dated as of
April 28, 1989, made by the Borrower in favor of K&F (the "Intercompany Note"),
K&F has made a loan in the amount of $48,400,000 (the "Subordinated Loan") to
the Borrower; and
WHEREAS, it is a condition precedent to the making and maintaining
of the Senior Loans by the Senior Lenders to the Borrower under the Senior
Credit Agreement and the issuance of the Letters of Credit by the Issuing Lender
for the account of the Borrower that K&F and the Borrower shall have entered
into this Agreement; and
WHEREAS, the Borrower is a wholly-owned subsidiary of K&F; and
WHEREAS, K&F will benefit from the making of the Senior Loans by the
Senior Lenders to the Borrower and the issuance of the Letters of Credit for the
account of the Borrower by the Issuing Lender under the Senior Credit Agreement;
NOW, THEREFORE, in consideration of the premises and in order to
induce the Senior Lenders to make the Senior Loans under the Senior Credit
Agreement and the Issuing Lender to issue the Letters of Credit for the account
of the Borrower, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Definitions. Each capitalized term used herein and not otherwise
defined shall have the definition assigned to such term in the Senior Credit
Agreement, and the following terms shall have the following meanings:
<PAGE> 2
2
"Agreement" means this EF Subordination Agreement, as the same may
from time to time be amended or supplemented.
"Junior Debt" means all indebtedness, obligations and liabilities of
the Borrower arising out of or in connection with the Subordinated Loan or
the Intercompany Note, including, without limitation, all principal of,
premium (if any) and interest on the Subordinated Loan and any and all
renewals and extensions thereof.
"Senior Debt" means all Obligations of the Borrower, including,
without limitation, all principal of, premium (if any) and interest on all
extensions of credit made to or for the account of the Borrower under the
Senior Credit Agreement and any and all renewals and extensions thereof
(including any interest accruing subsequent to the commencement of
bankruptcy, insolvency or similar proceedings with respect to the
Borrower).
"Senior Loans" has the meaning assigned to the term "Loan" in
subsection 1.1 of the Senior Credit Agreement.
"Subordinated Lender" means K&F and any successor or assignee of K&F
which at any time shall be the holder of or obligee on any Junior Debt.
SECTION 2. SUBORDINATION
2.1 Subordination to Senior Secured Obligations. The Borrower, for
itself and its successors and assigns, and the Subordinated Lender, on its
behalf and on behalf of each of its successors and assigns that is a holder of
Junior Debt, agree that the Junior Debt shall be subordinate and junior in right
of payment on the terms of this subsection 2.1 to the prior payment in full in
cash of all of the Senior Debt.
2.2 No Payment. No payment on account of principal of, premium (if
any) or interest on Junior Debt shall be made except in accordance with Section
7.6 of the Credit Agreement. In addition, no payment on account of principal of,
premium (if any) or interest on Junior Debt shall be made (a) unless full
payment of all amounts then due in respect of all Senior Debt has been made or
(b) if, at the time of such payment or immediately after giving effect thereto,
there shall exist any Event of Default or Default (as such terms are defined in
the Senior Credit Agreement). In the event that, notwithstanding the foregoing,
the Borrower shall make any payment or distribution to the Subordinated Lender
prohibited by the foregoing sentence, such payment or distribution shall be held
in trust for the benefit of, and shall be paid over to, the Senior Lenders (pro
rata to each Senior Lender on the basis of the respective amounts of Senior Debt
held by such Senior Lender).
2.3 Payment Over of Proceeds Upon Dissolution, etc. In the event of
(a) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding in connection
therewith, relative to the Borrower or its creditors, as such, or to its assets,
or (b) any liquidation, dissolution or other winding up of the Borrower, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy,
or
<PAGE> 3
3
(c) any assignment for the benefit of creditors or any other marshalling of
assets and liabilities of the Borrower, then and in any such event
(1) the Senior Debt (including, without limitation, any such amounts
declared due prior to their stated maturity and any interest accruing
after the occurrence of any default or event of default specified in
subsection 8(f) of the Senior Credit Agreement, whether or not such
interest is allowed as a claim in any bankruptcy or insolvency proceeding)
shall be entitled to receive payment in full in cash of all amounts due or
to become due on or in respect of all Senior Debt, before the Subordinated
Lender is entitled to receive any payment on account of principal of (or
premium, if any) or interest or otherwise on the Junior Debt;
(2) any payment or distribution of assets of the Borrower of any
kind or character, whether in cash, property or securities, by set-off or
otherwise, to which the Subordinated Lender would be entitled but for the
provisions hereof, including, with respect to the Junior Debt, any such
payment or distribution which may be payable or deliverable by reason of
the payment of any other debt of the Borrower being subordinated to the
payment of the Junior Debt, shall be paid by the liquidating trustee or
agent or other person making such payment or distribution, whether a
trustee in bankruptcy, a receiver or liquidating trustee or otherwise,
directly to the Senior Lenders (pro rata to each such Senior Lender on the
basis of the respective amounts of Senior Debt held by such Senior
Lender), to the extent necessary to make payment in full in cash of all
Senior Debt remaining unpaid, after giving effect to any concurrent
payment or distribution to the Senior Lenders; and
(3) in the event that, notwithstanding the foregoing, the
Subordinated Lender shall have received any such payment or distribution
of assets of the Borrower of any kind or character whether in cash,
property or securities, including any such payment or distribution which
may be payable or deliverable by reason of the payment of any other debt
of the Borrower being subordinated to the payment of the Junior Debt,
before all Senior Debt is paid in full in cash, then and in such event
such payment or distribution shall be paid over or delivered forthwith to
the Senior Lenders (pro rata to each Senior Lender on the basis of the
respective amounts of the Senior Debt held by such Senior Lender) to the
extent necessary to make payment in full in cash of all Senior Debt
remaining unpaid, after giving effect to any concurrent payment or
distribution to the Senior Lenders.
2.4 Authorization of Holders of Senior Debt to File Claims, etc. The
Subordinated Lender hereby irrevocably authorizes and empowers (without imposing
any obligation on) each Senior Lender and such Senior Lender's representatives,
under the circumstances set forth in the immediately preceding paragraph, to
demand, sue for, collect and receive every such payment or distribution
described therein and give acquittance therefor, to file claims and proofs of
claims in any statutory or nonstatutory proceeding, to vote such Senior Lender's
ratable share of the full amount of Junior Debt in its sole discretion in
connection with any resolution, arrangement, plan of reorganization, compromise,
settlement or extension and to take all such other action (including, without
limitation, the right to participate in any composition of creditors and the
right to vote such Senior Lender's ratable share of Junior Debt at creditors'
meetings for the election of trustees,
<PAGE> 4
4
acceptances of plans and otherwise), in the name of the Subordinated Lender or
otherwise, as such Senior Lender's representatives may deem necessary or
desirable for the enforcement of the subordination provisions hereof. The
Subordinated Lender shall execute and deliver to each Senior Lender and such
Senior Lender's representatives all such further instruments confirming the
foregoing authorization, and all such powers of attorney, proofs of claim,
assignments of claim and other instruments, and shall take all such other action
as may be reasonably requested by such holder or such holder's representatives
in order to enable such holder to enforce all claims upon or in respect of such
Senior Lender's ratable share of Junior Debt.
2.5 Limitation on Remedies. The Subordinated Lender shall not,
without the prior written consent of the Senior Lenders, have any right to
accelerate the maturity of, or institute any proceedings to enforce, any Junior
Debt so long as any Senior Debt is outstanding or otherwise commence, prosecute
or participate in any administrative, legal or equitable action against the
Borrower. If the Subordinated Lender, in violation of the provisions herein set
forth, shall commence, prosecute or participate in any suit, action, case or
proceeding against the Borrower, the Borrower may interpose as a defense or plea
the provisions hereof, and any Senior Lender may intervene and interpose such
defense or plea in its own name or in the name of the Borrower, and shall, in
any event, be entitled to restrain the enforcement of the payment provisions of
the Junior Debt in its own name or in the name of the Borrower, as the case may
be, in the same suit, action, case or proceeding or in any independent suit,
action, case or proceeding.
2.6 Subrogation. After the payment in full of all amounts due in
respect of Senior Debt, the Subordinated Lender shall be subrogated to the
rights of the Senior Lenders to receive payments or distributions of cash,
property or securities of the Borrower applicable to Senior Debt until the
principal of, premium, if any, interest on and all other amounts due or to
become due with respect to Junior Debt shall be paid in full; and, for the
purposes of such subrogation, no payments or distributions to the Senior Lenders
of any cash, property or securities to which the Subordinated Lender would be
entitled except for these provisions, and no payment over pursuant to these
provisions to the Senior Lenders by the Subordinated Lender shall, as among the
Borrower, its creditors other than the Senior Lenders and the Subordinated
Lender, be deemed to be a payment by the Borrower to or on account of Senior
Debt. No payments or distributions to the Senior Lenders which the Subordinated
Lender shall be entitled to receive pursuant to such subrogation shall, as among
the Borrower, its creditors other than the Senior Lenders and the Subordinated
Lender, be deemed to be a payment by the Borrower to or on account of Junior
Debt.
2.7 Provisions Solely to Define Relative Rights. Nothing contained
in this Agreement is intended to or shall impair as between the Borrower, its
creditors other than the Senior Lenders, and the Subordinated Lender, the
obligation of the Borrower to pay the Junior Debt to the Subordinated Lender, as
and when the same shall become due and payable in accordance with its terms, or
to affect the relative rights of the Subordinated Lender and creditors of the
Borrower other than the Senior Lenders.
2.8 Further Assurances. Each holder of Junior Debt by its acceptance
thereof authorizes and directs the Borrower on its behalf to take such further
action as may be necessary or appropriate from time to time to effectuate the
subordination as provided herein and appoints the Borrower its attorney-in-fact
for any and all such purposes.
<PAGE> 5
5
2.9 No Waiver of Subordination Provisions. The subordination
effected hereby, and the rights of the Senior Lender, shall not be affected by
(a) any amendment of, or addition or supplement to, the Senior Credit Agreement
or any of the Loan Documents or any instrument or agreement relating thereto or
to any Senior Debt, (b) any exercise or non-exercise of any right, power or
remedy under or in respect of the Senior Credit Agreement or any of the Loan
Documents or any instrument or agreement relating thereto or to any Senior Debt,
(c) any waiver, consent, release, indulgence, extension, renewal, modification,
delay, or other action, inaction or omission, in respect of the Senior Credit
Agreement or any of the other Loan Documents or any instrument or agreement
relating thereto or to any Senior Debt, (d) any extension, renewal, modification
or refunding of the Senior Debt, or (e) any sale of the Borrower or any interest
therein or any sale, lease or transfer of any or all assets of the Borrower to
any other person; whether or not the Subordinated Lender shall have had notice
or knowledge of any of the foregoing.
2.10 Reinstatement of Subordination. The obligations of the
Subordinated Lender under this Agreement shall continue to be effective, or be
reinstated, as the case may be, if at any time any payment in respect of any
Senior Debt, or any other payment to any Senior Lender, is rescinded or must
otherwise be restored or returned by such Senior Lender upon the occurrence of
any proceeding referred to in subsection 2.3 hereof, or upon or as a result of
the appointment of a receiver, intervenor or conservator of, or trustee or
similar officer for, the Borrower or any substantial part of its property, or
otherwise, all as though such payment had not been made.
2.11 Legend on Junior Debt. Each instrument evidencing any Junior
Debt including, without limitation, the Intercompany Note, shall contain the
following legend conspicuously noted on the face thereof: "THIS [NAME OF
INSTRUMENT] IS SUBJECT TO THE SUBORDINATION PROVISIONS SET FORTH IN THE EF
SUBORDINATION AGREEMENT, DATED AS OF OCTOBER 15, 1997, AMONG ENGINEERED FABRICS
CORPORATION, K & F INDUSTRIES, INC., LEHMAN COMMERCIAL PAPER INC., AS
SYNDICATION AGENT, AND THE FIRST NATIONAL BANK OF CHICAGO, AS ADMINISTRATIVE
AGENT, AS THE SAME MAY FROM TIME TO TIME BE AMENDED" and shall specifically
state that a copy of this Agreement is on file with the Borrower and is
available for inspection at the Borrower's offices.
SECTION 3. MISCELLANEOUS.
3.1 No Waiver. No failure to exercise and no delay in exercising, on
the part of the Administrative Agent or any Senior Lender, any right, remedy,
power or privilege provided herein or by statute or at law or in equity shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, remedy, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege.
3.2 Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remaining provisions hereof shall not in any way be
affected or impaired thereby.
<PAGE> 6
6
3.3 Succession. This Agreement shall be binding upon and inure to
the benefit of the Senior Lenders and the parties hereto and their respective
successors and assigns, but no assignment hereof shall in any event relieve the
Subordinated Lender of its obligations hereunder.
3.4 Amendments, etc. This Agreement may be amended or modified only
with the written consent of the Borrower, the Administrative Agent and the
Subordinated Lender.
3.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
3.6 Notices. Except as otherwise specified herein, all notices,
requests, demands, consents, instructions or other communications hereunder
shall be duly given or made if sent in writing by registered or certified mail,
or by tested or otherwise authenticated telex or telecopy, in each case
addressed to the party to which such notice is requested or permitted to be
given or made, at the address specified beneath the heading "Address for
Notices" under the name of the applicable party on the signature pages hereof,
or at such other address of which such Person shall have notified in writing the
party giving such notice. All notices shall be deemed given when received by the
party to whom such notice was sent.
3.7 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and the parties hereto may execute this Agreement by signing any
such counterpart.
<PAGE> 7
7
IN WITNESS WHEREOF, the parties hereto, by their officers duly
authorized, have caused this EF Subordination Agreement to be duly executed and
delivered as of the date first above written.
ENGINEERED FABRICS CORPORATION
By: /s/ Kenneth M. Schwartz
-----------------------------
Name: Kenneth M. Schwartz
Title:
Address for Notices:
Engineered Fabrics Corporation
c/o K & F Industries, Inc.
600 Third Avenue
New York, New York 10016
Attention: Kenneth M. Schwartz
Telecopy: (212) 867-1182
K & F INDUSTRIES, INC.
By: /s/ Kenneth M. Schwartz
-----------------------------
Name: Kenneth M. Schwartz
Title: Executive Vice President
Address for Notices:
K & F Industries, Inc.
600 Third Avenue
New York, New York 10016
Attention: Kenneth M. Schwartz
Telecopy: (212) 867-1182
<PAGE> 8
8
THE FIRST NATIONAL BANK OF CHICAGO, as
Administrative Agent
By: /s/ William J. McCaffrey
-----------------------------
Name: William J. McCaffrey
Title: Vice President
Address for Notices:
The First National Bank of Chicago
1 First National Plaza
Chicago, Illinois 60670
Attention: Karen Hannusch
Telecopy: (312) 732-2715
<PAGE> 1
EXECUTION COPY
Exhibit 10.33
INTERCREDITOR AGREEMENT
INTERCREDITOR AGREEMENT, dated as of October 15, 1997, among
the Pension Benefit Guaranty Corporation (the "PBGC"), The First National Bank
of Chicago, as Administrative Agent under the Credit Agreement (such term and
other capitalized terms used herein being used as defined in Section I below)
for the Lenders thereunder (in such capacity, the "Administrative Agent"), The
First National Bank of Chicago, in its capacity as Collateral Agent under the
Guarantee and Collateral Agreement (in such capacity, the "Collateral Agent"),
and Aircraft Braking Systems Corporation and Engineered Fabrics Corporation
(collectively, the "Borrowers") and K&F Industries, Inc. ("K&F").
WITNESSETH:
WHEREAS, K&F and the Borrowers have executed and delivered
the Guarantee and Collateral Agreement to Collateral Agent, for the benefit of
the Administrative Agent, the Lenders and the PBGC as set forth therein; and
WHEREAS, the parties hereto desire to set forth their
relative rights in respect of the Guarantee and Collateral Agreement and the
security interests granted thereunder,
NOW, THEREFORE, in consideration of the premises, the parties
hereto hereby agree as follows:
I. Definitions. A. Unless otherwise defined herein, terms
defined in the Guarantee and Collateral Agreement and used herein shall have the
meanings given to them in the Guarantee and Collateral Agreement.
B. The following terms shall have the following meanings:
"Agreement": this Intercreditor Agreement, as the same may
be amended, modified or otherwise supplemented from time to time.
"Bank Loan Documents": the collective reference to the
Credit Agreement, the Guarantee and Collateral Agreement, each other
Loan Document and all other documents that from time to time evidence
the Bank Obligations or secure or support payment or performance
thereof or of any guarantee thereof.
"Bank Loan Parties": the Borrowers and each other Loan Party
under the Credit Agreement and other Loan Documents, and each
successor and assign of the foregoing.
<PAGE> 2
2
"Credit Agreement": the Credit Agreement, dated as of
October 15, 1997, among the Administrative Agent, the Lenders, the
other agents parties thereto and the Borrowers, as amended,
supplemented or otherwise modified from time to time; for the purposes
hereof, "Credit Agreement" shall also be deemed to refer to any credit
agreement or similar document entered into by the Borrowers and any
lenders that replaces such Credit Agreement as the Borrowers's primary
senior credit facility.
"Guarantee and Collateral Agreement": the Guarantee and
Collateral Agreement dated October 15, 1997, made by K&F and the
Borrowers in favor of the Collateral Agent for the benefit of the
PBGC, the Administrative Agent and the Lenders, as the same may be
amended, modified or supplemented from time to time.
"Lenders": the lenders parties from time to time to the
Credit Agreement in their capacity as lenders thereunder, and their
respective successors and assigns.
"PBGC Documents": the collective reference to the Settlement
Agreement and the Guarantee and Collateral Agreement, as amended,
modified or supplemented from time to time.
"Pension Plans": as defined in the Settlement Agreement,
C. The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section and paragraph
references are to this Agreement unless otherwise specified.
D. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
II. Acknowledgements. The PBGC (a) acknowledges that the Borrowers
have granted a first priority security interest in the Lender Priority
Collateral under the Guarantee and Collateral Agreement to the Collateral Agent
for the benefit of the Administrative Agent and the Lenders to secure the Bank
Obligations and that such security interest is prior in all respects to the
second priority security interest in the Lender Priority Collateral granted to
the Collateral Agent for the benefit of the PBGC under the Guarantee and
Collateral Agreement, (b) agrees that the PBGC shall not have any claim to or in
respect of the Lender Priority Collateral, or any proceeds of or realization on
such Lender Priority Collateral, on a parity with or prior to the claim of the
Bank Obligations, and (c) agrees that, notwithstanding such second priority
security interest and any rights of the PBGC in respect thereof under the
Guarantee and Collateral Agreement or otherwise, so long as the Bank Obligations
have not been paid in full, the commitments under the Credit Agreement have not
been terminated or Letters of Credit are outstanding, the PBGC shall not have
any right or claim in respect of the exercise of rights and remedies of the
Collateral Agent, the Administrative Agent and the Lenders, whether under the
Guarantee and Collateral Agreement or otherwise, in respect of the Lender
Priority Collateral, nor shall the Collateral Agent, the Administrative Agent or
any Lender have any obligation regarding any such exercise or any other
obligation or duty in
<PAGE> 3
3
respect of the interests of the PBGC except as set forth in paragraph 3(d)
hereof, and that the PBGC shall not assert any such claim or right in any such
bankruptcy proceeding or otherwise.
III. Rights in Lender Priority Collateral. A. Notwithstanding anything
to the contrary, contained in any filing or agreement to which the PBGC, the
Collateral Agent, the Administrative Agent, the Lenders or the Borrowers now or
hereafter may be a party and irrespective of the time, order or method of
attachment or perfection of the security interests created by the Guarantee and
Collateral Agreement and the rules for determining priority under the Uniform
Commercial Code or any other law governing the relative priorities of secured
creditors, any security interest in any Lender Priority Collateral in favor of
or for the benefit of the Administrative Agent or the Lenders pursuant to the
Guarantee and Collateral Agreement has and shall have priority, to the extent of
any unpaid Bank Obligations, over any security interest in such Lender Priority
Collateral in favor of or for the benefit of the PBGC pursuant to the Guarantee
and Collateral Agreement.
B. So long as the Bank Obligations have not been paid in full, the
commitments under the Credit Agreement have not been terminated or Letters of
Credit are outstanding, whether or not any bankruptcy proceeding or similar
event or proceeding has been commenced by or against the Borrowers or any other
Bank Loan Party, (i) the PBGC will not (a) exercise or seek to exercise any
rights or exercise any remedies with respect to any Lender Priority Collateral,
(b) institute any action or proceeding with respect to such rights or remedies,
including without limitation, any action of foreclosure, (c) contest, protest or
object to any foreclosure proceeding or action brought by the Administrative
Agent or any Lender, or by the Collateral Agent on their behalf, or any other
exercise by the Administrative Agent or any Lender, or the Collateral Agent on
their behalf, of any rights and remedies relating to the Lender Priority
Collateral under the Guarantee and Collateral Agreement or otherwise, or any
release of any or all of the Lender Priority Collateral for any purpose, or (d)
object to the forbearance by the Administrative Agent, the Lenders, or the
Collateral Agent on their behalf from bringing or pursuing any foreclosure
proceeding or action or any other exercise of any rights or remedies relating to
the Lender Priority Collateral, and (ii) the Administrative Agent and the
Lenders shall have the exclusive right to enforce rights, exercise remedies and
make determinations regarding release, disposition, or restrictions under the
Guarantee and Collateral Agreement with respect to the Lender Priority
Collateral and to direct the Collateral Agent to do so under the Guarantee and
Collateral Agreement; provided, that in any bankruptcy proceeding or similar
event or proceeding commenced by or against the Borrowers or any other Bank Loan
Party, the PBGC may file a claim or statement of interest with respect to the
PBGC Obligations.
C. In exercising rights and remedies with respect to the Lender
Priority Collateral, the Administrative Agent and the Lenders, and the
Collateral Agent on their behalf, may enforce the provisions of the Guarantee
and Collateral Agreement and exercise remedies thereunder and under any other
Bank Loan Documents, all in such order and in such manner as they may determine
in the exercise of their sole discretion. Such exercise and enforcement shall
include, without limitation, the rights to sell or otherwise dispose of Lender
Priority Collateral, to incur expenses in connection with such sale or
disposition, and to exercise all
<PAGE> 4
4
the rights and remedies of a secured lender under the Uniform Commercial Code of
any applicable jurisdiction and of a secured creditor under bankruptcy or
similar laws of any applicable jurisdiction.
D. Subject to the provisions of paragraph 6 hereof, any money,
property, securities or other direct or indirect distributions of any nature
whatsoever received from the sale, disposition or other realization by the
Collateral Agent, any Lender or the PBGC of all or any part of the Lender
Priority Collateral, regardless of whether such money, property, securities or
other distributions are received directly or indirectly during the pendency of
or in connection with any bankruptcy, insolvency or other like proceeding or
otherwise, shall be delivered to the Collateral Agent in the form received, duly
indorsed to the Collateral Agent, if required, and applied by the Collateral
Agent in the following order:
1. First, to the payment in full of all costs and expenses
(including, without limitation, attorneys' fees and disbursements)
paid or incurred by the Collateral Agent, the Administrative Agent or
the Lenders in connection with such realization on the Lender Priority
Collateral or the protection of their rights and interests therein;
2. Second, to the payment in full of all Bank Obligations in
accordance with the Credit Agreement and, otherwise, in such order as
the Administrative Agent may elect in its sole discretion;
3. Third, to the PBGC for application to the PBGC
Obligations to the full extent thereof at such time; and
4. Fourth, to pay to the Borrowers or their respective
representatives or as a court of competent jurisdiction may direct,
any surplus then remaining.
E. The Administrative Agent's and the Lenders' rights with respect to
the Lender Priority Collateral and the Guarantee and Collateral Agreement shall
include, without limitation, the exclusive right to release at any time and for
any reason any or all of the Lender Priority Collateral from the liens under the
Guarantee and Collateral Agreement without the consent of the PBGC and without
any duty, obligation or liability arising from any such action, and to direct
the Collateral Agent to effectuate any of the foregoing. Upon any sale, release
or other disposition by the Collateral Agent of any Lender Priority Collateral,
the lien and security interest created for the benefit of the PBGC pursuant to
the Guarantee and Collateral Agreement in such Lender Priority Collateral shall
be automatically released, and the PBGC shall execute or cause to be executed
such release documents and instruments and shall take such further actions as
the Administrative Agent or the Lenders shall request.
F. Subject to the provisions of paragraph 6 hereof, in the event that
(i) the Administrative Agent and the Lenders, or the Collateral Agent, on their
behalf, in exercise of their foreclosure or similar remedies under the Guarantee
and Collateral Agreement, have disposed of or otherwise realized upon the Lender
Priority Collateral, or have been repaid pursuant to a bankruptcy or similar
proceeding at the commencement of which the security
<PAGE> 5
5
interest under the Guarantee and Collateral Agreement securing the Bank
Obligations is in effect, (ii) all of the Bank Obligations have been paid in
full, the commitments under the Credit Agreement have been terminated and no
Letters of Credit are outstanding, (iii) after giving effect thereto any Lender
Priority Collateral remains pledged pursuant to the Guarantee and Collateral
Agreement and (iv) at such time there are PBGC Obligations outstanding, then the
PBGC shall have the right to enforce the provisions of the Guarantee and
Collateral Agreement.
IV. Obligations Unconditional. All rights, interests, agreements and
obligations of the Administrative Agent, the Lenders, the Collateral Agent and
the PBGC, respectively, hereunder shall remain in full force and effect
irrespective of:
A. any lack of validity or enforceability of the Guarantee and
Collateral Agreement, any other Bank Loan Documents or any PBGC Documents;
B. any change in the time, manner or place of payment of, or in any
other term of, all or any of the Bank Obligations or PBGC Obligations, or any
amendment or waiver or other modification, including any increase in the amount
thereof, whether by course of conduct or otherwise, of the terms of the Credit
Agreement or any other Bank Loan Document or of the terms of the PBGC Documents;
C. any exchange, release or nonperfection of any security interest in
any Collateral, or any release, amendment, waiver or other modification, whether
in Writing or by course of conduct or otherwise, of all or any of the Bank
Obligations or PBGC Obligations or any guarantee thereof;
D. the commencement of any bankruptcy or similar proceeding in respect
of either of the Borrowers or any other Bank Loan Party; or
E. any other circumstances which otherwise might constitute a defense
available to, or a discharge of, any Loan Party in respect of the Bank
Obligations or of the PBGC in respect of this Agreement.
V. Waiver of Claims. To the maximum extent permitted by law, the PBGC
waives any claim it might have against the Collateral Agent, the Administrative
Agent or the Lenders with respect to, or arising out of, any action or failure
to act or any error of judgment or negligence on the part of the Collateral
Agent, the Administrative Agent, the Lenders or their respective directors,
officers, employees or agents with respect to any exercise of rights or remedies
under the Guarantee and Collateral Agreement or any transaction relating to the
Collateral. Neither the Collateral Agent, Administrative Agent, any Lender nor
any of their respective directors, officers, employees or agents shall be liable
for failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of any Loan Party, the PBGC or any other
Person or to take any other action whatsoever with regard to the Collateral or
any part thereof.
<PAGE> 6
6
VI. Termination. All rights of the PBGC and all obligations of the
Collateral Agent to the PBGC, hereunder shall automatically terminate on the
date upon which the Borrowers' obligations under the Settlement Agreement are
terminated as set forth therein.
VII. Provisions Define Relative Rights. This Agreement is intended
solely for the purpose of defining the relative rights of the Collateral Agent,
the Administrative Agent and the Lenders on the one hand and the PBGC on the
other, and no other Person shall have any right, benefit or other interest under
this Agreement. Notwithstanding anything to the contrary contained herein, this
Agreement shall not modify or amend the rights and obligations of the Borrowers
or any other Bank Loan Party under any Bank Loan Document.
VIII. Powers Coupled With An Interest. All powers, authorizations and
agencies contained in this Agreement are coupled with an interest and are
irrevocable until the Bank Obligations are paid in full, the commitments under
the Credit Agreement are terminated and no Letters of Credit are outstanding.
IX. Notices. All notices, requests and demands to or upon the
Collateral Agent, the Administrative Agent or the PBGC to be effective shall be
in writing (or by telex, fax or similar electronic transfer confirmed in
writing) and shall be deemed to have been duty given or made 1. when delivered
by hand or 2. if given by mail, when deposited in the mails by certified mail,
return receipt requested, or 3. if by telex, fax or similar electronic transfer,
when sent and receipt has been confirmed, addressed as follows:
If to the Administrative Agent: The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
Attention: Karen Hannusch
Fax: (312) 732-2715
If to the Collateral Agent: The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
Attention: Karen Hannusch
Fax: (312) 732-2715
If to the PBGC: Corporate Finance and Negotiations Department
Pension Benefit Guaranty Corporation
1200 K Street, N.W., Suite 270
Washington, D.C. 20005
Attention: Director
Fax: (202) 842-2643
The parties hereto may change their addresses and transmission numbers for
notices by notice in the manner provided in this Section.
<PAGE> 7
7
X. Counterparts. This Agreement may be executed by one or more of the
parties on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. A
set of the counterparts of this Agreement signed by all the parties shall be
lodged with the Administrative Agent.
XI. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
XII. Integration. This Agreement, together with the Guarantee and
Collateral Agreement, represents the entire agreement of the Administrative
Agent, the Lenders, the PBGC and the Collateral Agent with respect to the
subject matter hereof and there are no promises or representations by any of
them relative to the subject matter hereof not reflected herein.
XIII. Amendments in Writing. None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except by a
written instrument executed by the Administrative Agent, the Collateral Agent,
the Borrowers and the PBGC.
XIV. Successors and Assigns. A. This Agreement shall be binding upon
the successors and assigns of the Collateral Agent, the Administrative Agent,
the Lenders and the PBGC and shall inure to the benefit of the Collateral Agent,
the Administrative Agent, the Lenders, the PBGC and their successors and
assigns, it being agreed that the rights of the PBGC hereunder and under the
Guarantee and Collateral Agreement may not, without the consent of the
Borrowers, be assigned by it other than to a successor Federal government agency
or similar Federal governmental entity succeeding to the functions and rights of
the PBGC related hereto.
B. Upon a successor Administrative Agent becoming the Administrative
Agent under the Credit Agreement, such successor Administrative Agent
automatically shall become the Administrative Agent hereunder with all the
rights and powers of the Administrative Agent hereunder, and bound by the
provisions hereof, without the need for any further action on the part of any
party hereto. Upon a successor Collateral Agent becoming the Collateral Agent
under the Guarantee and Collateral Agreement, such successor Collateral Agent
automatically shall become the Collateral Agent hereunder with all the rights
and powers of the Collateral Agent hereunder, and bound by the provisions
hereof, without the need for any further action on the part of any party hereto.
<PAGE> 8
8
XV. Governing Law; Jurisdiction. This Agreement shall be governed by,
and construed and interpreted in accordance with, the law of the State of New
York, excluding (to the greatest extent permissible by law) any rule of law that
would cause the application of the laws of any jurisdiction other than the State
of New York. Each party hereto agrees that all judicial proceedings brought
against it arising out of or relating to this Agreement or its obligations
hereunder may be brought in any federal court of competent jurisdiction in the
State, County and City of New York, and accepts generally and unconditionally
the nonexclusive jurisdiction and venue of such courts.
<PAGE> 9
9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written
THE FIRST NATIONAL BANK Of CHICAGO,
as Administrative Agent and as Collateral Agent
By: /s/ William J. McCaffrey
-------------------------------------------
Name: William J. McCaffrey
Title: Vice President
PENSION BENEFIT GUARANTY
CORPORATION
By: /s/ Andrea E. Schneider
-------------------------------------------
Title: Director, Corporate Finance and
Negotiations Department
K&F INDUSTRIES, INC.
By: /s/ Kenneth M. Schwartz
-------------------------------------------
Title: Executive Vice President
AIRCRAFT BRAKING SYSTEMS
CORPORATION
By: /s/ Kenneth M. Schwartz
-------------------------------------------
Title:
ENGINEERED FABRICS CORPORATION
By: /s/ Kenneth M. Schwartz
-------------------------------------------
Title:
<PAGE> 1
EXHIBIT 10.34
K&F AGREEMENT
K&F AGREEMENT, dated as of October 15, 1997 (this "K&F
Agreement"), by K&F Industries, Inc. ("K&F"), in favor of The First National
Bank of Chicago, a Delaware banking corporation, as administrative agent (in
such capacity, the "Administrative Agent") for the lenders (the "Lenders") that
are parties to the Credit Agreement described below.
WITNESSETH:
WHEREAS, Aircraft Braking Systems Corporation ("ABS") and
Engineered Fabrics Corporation ("EF"; together with ABS, the "Borrowers"), each
Delaware corporations, are parties to Credit Agreement, dated as of October 15,
1997, with the Administrative Agent, the Lenders, Lehman Brothers Inc., as
Arranger, and Lehman Commercial Paper Inc., as Syndication Agent (as the same
may from time to time be amended, supplemented or otherwise modified, the
"Credit Agreement");
WHEREAS, pursuant to the terms of the Credit Agreement and the
other Loan Documents, the Lenders have agreed to make and maintain certain
extensions of credit to or for the benefit of the Borrowers;
WHEREAS, K&F owns directly or indirectly all of the issued and
outstanding stock of each of the Borrowers;
WHEREAS, K&F will derive substantial direct and indirect
benefit from the making and maintaining of the extensions of credit; and
WHEREAS, the obligation of the Lenders to make and maintain
the extensions of credit is conditioned upon, among other things, the execution
and delivery by K&F of this K&F Agreement;
NOW, THEREFORE, in consideration of the premises and to induce
the Lenders to enter into the Credit Agreement and to make and maintain the
extensions of credit, K&F hereby agrees with and for the benefit of the
Administrative Agent and the Lenders as follows:
1. Defined Terms. As used in this K&F Agreement, terms defined
in the Credit Agreement are used herein as therein defined.
2. Covenants. K&F hereby covenants and agrees with the
Administrative Agent and each Lender, from and after the date of this K&F
Agreement until the Obligations are paid in full, the Revolving Credit
Commitments are terminated, and the expiration, termination or return to the
Issuing Lender of the Letters of Credit, that:
<PAGE> 2
(a) K&F will furnish the Borrowers with all financial
statements and other information and documents concerning K&F and its
consolidated Subsidiaries required to enable the Borrowers timely to
comply with subsections 6.1 and 6.2 of the Credit Agreement;
(b) K&F will not create, incur, assume or suffer to exist any
Indebtedness, except (i) Indebtedness owed by K&F to either Borrower
and (ii) Indebtedness in respect of the Senior Subordinated Notes;
(c) K&F will not make any payment or expenditure of any kind
or nature, including, without limitation, any payments to any
stockholder of K&F, except for (i) payments of interest in respect of
Indebtedness permitted by clause (b) above, (ii) an amount in respect
of operating expenses during each fiscal year of K&F consistent with
the past practices of K&F, (iii) payments in respect of United States
federal and New York state taxes and (iv) to the extent permitted by
Sections 7.6(d), 7.8(d) and (j), and 7.10, in each case in accordance
with the terms thereof and any other applicable provisions of the
Credit Agreement, including, without limitation, Section 6.10 of the
Credit Agreement;
(d) K&F will not (i) make any optional payment or optional
prepayment on or optional redemption of any Indebtedness (including,
without limitation, the Senior Subordinated Notes) or other obligation,
or (ii) amend, modify or change, or consent or agree to any amendment,
modification or change to any of the terms relating to the payment or
prepayment of principal of or interest on any Indebtedness (other than
any such amendment, modification or change which would extend the
maturity or reduce the amount of any payment of principal thereof or
which would reduce the rate or extend the date for payment of interest
thereon), including but not limited to the subordination provisions of
the Senior Subordinated Notes;
(e) K&F will not change its fiscal year from the year ended
December 31;
(f) Unless required by changes in GAAP, K&F will not (except
with the consent of the Required Lenders) change any of its accounting
or financial practices or policies in a manner that affects the way in
which it currently accounts for (and expenses currently) its product
development costs and its discounts on sales;
(g) K&F will not fail to comply with Section 7.1 of the Credit
Agreement, which Section is hereby incorporated by reference herein as
if such provisions were set forth in full herein, and
(h) K&F will not have more cash or cash equivalents on hand at
any time than is consistent with its past practices.
3. Severability. Any provision of this K&F Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such
<PAGE> 3
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
4. No Waiver; Cumulative Remedies. Neither the Administrative
Agent nor any Lender shall by any act (except by a written instrument pursuant
to paragraph 5 hereof), delay, indulgence, omission or otherwise be deemed to
have waived any right or remedy hereunder or to have acquiesced in any Default
or Event of Default or in any breach of any of the terms and conditions hereof.
No failure to exercise, nor any delay in exercising any right, power or
privilege hereunder, on the part of the Administrative Agent or any Lender,
shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by the
Administrative Agent or any Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the
Administrative Agent or such Lender would otherwise have on any future occasion.
The rights and remedies herein provided are cumulative, may be exercised singly
or concurrently and are not exclusive of any rights or remedies provided by law.
5. Integration; Waivers and Amendments; Successors and
Assigns; Governing Law. This K&F Agreement represents the agreement of K&F with
respect to the subject matter hereof and there are no promises or
representations by the Administrative Agent or any Lender relative to the
subject matter hereof not reflected herein. None of the terms or provisions of
this K&F Agreement may be waived, amended or supplemented or otherwise modified
except by a written instrument executed by K&F and the Administrative Agent,
provided that any provision of this K&F Agreement may be waived by the
Administrative Agent and the Lenders in a letter or agreement executed by the
Administrative Agent or by telex or facsimile transmission from the
Administrative Agent. This K&F Agreement shall be binding upon the successors
and assigns of K&F and shall inure to the benefit of the Administrative Agent
and the Lenders and their respective successors and assigns. THIS K&F AGREEMENT
SHALL BE GOVERNED BY AND BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAW
OF THE STATE OF NEW YORK.
6. Notices. All notices, requests and demands to or upon K&F
or the Administrative Agent or any Lender to be effective shall be in writing or
by telegraph or telex and, unless otherwise expressly provided herein, shall be
deemed to have been duly given or made when delivered by hand, or, in the case
of mail, three days after deposit in the postal system, first class postage
prepaid, or, in the case of telegraphic notice, when sent, answerback received,
addressed to the Administrative Agent at the address set forth in subsection
10.2 of the Credit Agreement and to K&F as follows:
K&F Industries, Inc.
600 Third Avenue
New York, New York 10016
Attention: Kenneth M. Schwartz
Telecopy: (212) 867-1182
<PAGE> 4
7. Paragraph Headings. The paragraph headings used in this K&F
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
<PAGE> 5
IN WITNESS WHEREOF, the undersigned has caused this K&F
Agreement to be duly executed and delivered by its duly authorized officer as of
the day and year first above written.
K&F INDUSTRIES, INC.
By /s/ Kenneth M. Schwartz
--------------------------------
Name: Kenneth M. Schwartz
Title: Executive Vice President
<PAGE> 1
Exhibit 10.35
SETTLEMENT AGREEMENT
This Agreement ("Agreement"), by and between K & F Industries, Inc.
("K & F" or the "Company") and the Pension Benefit Guaranty Corporation ("PBGC")
is effective as of the Closing Date (as hereinafter defined).
RECITALS
K & F is a Contributing Sponsor (as hereinafter defined) of the
Pension Plans (as hereinafter defined).
K & F intends to refinance certain of its debt obligations and issue
new subordinated debt to the public in the context of a recapitalization (the
"Recapitalization").
The PBGC, a wholly-owned United States government corporation
established under Title IV of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), has indicated that, without certain agreements by K
& F, the Recapitalization might cause PBGC to seek to terminate one or more of
the Pension Plans under section 4042 of ERISA.
K & F believes that the Recapitalization should not pose an
unreasonably increased risk to PBGC and wishes to proceed with the
Recapitalization without the threat that PBGC would
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<PAGE> 2
attempt to terminate any of the Pension Plans.
In consideration of K & F's agreement to undertake the
obligations set forth below, PBGC has agreed to forbear from taking any action
to terminate the Pension Plans as a result of the Recapitalization Transactions.
Now, therefore, for good and valuable consideration, each of the
parties to this Agreement hereby agrees as follows.
AGREEMENT
Definitions
1.1 "Administrative Agent" shall mean the First National Bank of
Chicago (or any replacement thereof) in its capacity as administrative agent for
the Lenders under the Credit Agreement.
1.2 "K & F Controlled Group" shall mean K & F Industries, Inc. and all
members of its Controlled Group.
1.3 "Bank Obligations" shall have the meaning set forth in the
Intercreditor Agreement.
1.4 "Buyer" shall mean a person (as defined in section 4001(a)(20) of
ERISA) who (a) acquires assets or stock of a member of the K & F Controlled
Group and (b) prior to such acquisition, is not a member of the K & F Controlled
Group.
1.5 "Change of Controlled Group Event" shall mean an
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<PAGE> 3
event, subsequent to the Recapitalization Transaction, in which (i) a Buyer or a
member of its Controlled Group assumes the Pension Plans or (ii) one or more of
the Pension Plans' Contributing Sponsors becomes a member of the Buyer's
Controlled Group and does not cease to be the Contributing Sponsor of such
Pension Plan.
1.6 "Closing Date" shall mean the closing date of the
Recapitalization.
1.7 "Collateral" shall have the meaning set forth in the Guarantee and
Collateral Agreement.
1.8 "Contributing Sponsor" shall mean contributing sponsor as defined
in section 4001(a)(13) of ERISA.
1.9 "Controlled Group" shall mean controlled group as defined in
section 4001(a)(14) of ERISA.
1.10 "Credit Agreement" shall mean the Credit Agreement, dated as of
the Closing Date, among the Administrative Agent, the Lenders, the Syndication
Agent and the Arranger thereto, Aircraft Braking Systems Corp. and Engineered
Fabrics Corporation, as amended, supplemented or otherwise modified from time to
time, and shall also be deemed to refer to any credit agreement or similar
document entered into by the Company and any lender(s) that replaces in whole or
in part such Credit Agreement as the Company's senior credit facility.
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<PAGE> 4
1.11 "Distress Termination" shall mean a pension plan termination
pursuant to section 4041(c) of ERISA.
1.12 "Documents" shall mean, collectively, this Agreement, the
Intercreditor Agreement, the Guarantee And Collateral Agreement and the Letters
of Credit.
1.13 "Guarantee and Collateral Agreement" shall mean the agreement
attached hereto as Exhibit C.
1.14 "Hypothetical Unsecured Debt" shall mean hypothetical unsecured
debt, for which a rating is requested from Standard & Poor's and Moody's, in an
amount not less than $50 million (as of the date of the rating request).
1.15 "Insolvency Event" shall mean (a) with respect to any of the
Pension Plans, the issuance of a notice of determination for an involuntary
termination under section 4042 of ERISA or initiation of a Distress Termination
under section 4041(c); (b) the occurrence with respect to the Company or any
member of the K & F Controlled Group that is a Material Subsidiary (as defined
in the Credit Agreement) of (i) application for or consent to the appointment
of, or the taking of possession by, a receiver, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) a general assignment for the
benefit of its creditors, (iii) filing a petition seeking to take advantage of
any other law relating to
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<PAGE> 5
bankruptcy, insolvency, reorganization, winding-up, or composition or
readjustment of debts, (iv) failure to contest in a timely and appropriate
manner, or acquiesce in writing to, any petition filed against it in an
involuntary case under the Bankruptcy Code or (v) any corporate action for the
purpose of effecting any of the foregoing; (c) commencement of a proceeding or
case, without the application or consent of the Company or any member of the
K & F Controlled Group that is a Material Subsidiary, in any court of competent
jurisdiction, seeking (i) its liquidation, reorganization, dissolution or
winding-up, or the composition or readjustment of the debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of it or
of all or any substantial part of its assets or (iii) similar relief in respect
of it under any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or readjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and in
effect, for a period of 60 or more Days: or (d) entry of an order for relief
against the Company or any member of the K & F Controlled Group that is a
Material Subsidiary in an involuntary case under the Bankruptcy Code.
1.16 "Intercreditor Agreement" shall mean the
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<PAGE> 6
agreement attached hereto as Exhibit B.
1.17 "IRC" shall mean the Internal Revenue Code of 1986, as amended.
1.18 "Lenders" shall mean the parties from time to time to the Credit
Agreement in their capacity as lenders thereunder, and their respective
successors and assigns.
1.19 "Letters of Credit" shall mean irrevocable standby letters of
credit (and any renewals thereof) in favor of the PBGC issued by a bank rated
"A" or better, which letter of credit shall provide that it may be drawn upon
the presentation by the PBGC in the amount of the draw, not to exceed $4.5
million, accompanied by a certificate signed by the PBGC that a breach of this
Agreement, within the meaning of section 7, has occurred and is continuing,
specifying the amount of obligations owed by the Company which have not been
paid when due. Except at expiration of this Agreement, or expiration of the
requirement under this Agreement that Letters of Credit be held in favor of the
PBGC, such Letters of Credit may also be drawn upon 30 days before their
expiration date, if they have not been renewed as of that date or automatically
extended in accordance with their terms or replaced by the Company.
1.20 "Material Adverse Effect" shall have the meaning set forth in the
Credit Agreement.
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<PAGE> 7
1.21 "Pension Plans" or "Plans" shall mean the K & F Industries
Retirement Plan for Salaried Employees and the Aircraft Braking
Systems/Engineered Fabrics Retirement Plan for Bargaining Unit Employees (or any
defined benefit pension plan which is a successor to any of the foregoing plans
(whether by merger, consolidation, transfer of assets or liabilities or
otherwise)), in each case, so long as the Contributing Sponsor of each such
pension plan is a member of the K & F Controlled Group.
1.22 "Plan Year" shall mean, as to any Pension Plan, the "plan year"
as defined in section 3(39) of ERISA; provided, however, that for purposes
hereof, any Plan Year must equal twelve (12) months.
1.23 "Recapitalization Transaction" shall mean the series of events
and transactions expressly contemplated by the offering Memorandum, dated
October 9, 1997 of K & F, including the incurrence of debt by K & F, the
incurrence of debt by certain subsidiaries of K & F and certain purchases and
sales of equity interests in K & F, as therein described.
1.24 "Senior Subordinated Notes" shall mean the 9 1/4% senior
subordinated notes due 2007 issued by K & F in connection with the
Recapitalization Transaction.
1.25 "Unfunded Benefit Liabilities" shall mean, as to any Pension
Plan, the amount of unfunded benefit liabilities as
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<PAGE> 8
defined in section 4001(a)(18) of ERISA.
SECTION 2. PBGC'S UNDERTAKINGS
2.1 PBGC will take no action under Title IV of ERISA in connection
with the Recapitalization Transaction, including, but not limited to, initiating
or threatening to initiate proceedings under section 4042 of ERISA to terminate
any of the Pension Plans sponsored by K & F or any member of K & F's Controlled
Group.
2.2 PBGC agrees to execute and deliver the Intercreditor Agreement in
the form attached hereto.
SECTION 3. K & F'S UNDERTAKINGS
3.1 K & F agrees to execute and deliver to PBGC, in the form attached
hereto, the Guarantee And Collateral Agreement (under which the Company and its
subsidiaries are granting to PBGC a second security interest in substantially
all their assets), and the Intercreditor Agreement (under which the relative
interests of PBGC and the Lenders in the assets of K & F and its subsidiaries
are established). As soon as practicable after execution of this Agreement, the
Collateral Agent shall prepare and file, at the Company's expense, and the
Company shall execute and deliver, such documents, including Uniform Commercial
Code financing statements, as are required to establish and perfect a
subordinate security interest in the assets of the
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<PAGE> 9
Company and its subsidiaries pursuant to the Guarantee And Collateral Agreement.
It is agreed and understood that the security interest provided in such assets
is and shall at all times be subordinate to the security interest granted under
the Credit Agreement and subject to the terms of the Intercreditor Agreement.
3.2 For each Plan Year beginning on and after the Closing Date, K & F
will deliver to PBGC for each Pension Plan (a) a copy of Form 5500 (with all
related schedules and attachments) within ten (10) days after it is filed and
(b) a copy of the annual actuarial valuation report, within thirty (30) days
after a final copy of such actuarial valuation report signed by the Pension
Plan's enrolled actuary is received by the Pension Plan's Contributing Sponsor,
no later than December 31 of each plan year.
3.3 Beginning on and after the Closing Date, K & F will deliver to the
PBGC (a) written notice within 30 days after the occurrence of any event of
default as specified in the Creditor Agreement which has not been cured within
the period permitted for cure under the Credit Agreement; (b) written notice
within two (2) days after the due date of any failure to make any required
minimum funding installment; (c) promptly after such documents are filed, copies
of quarterly 10-Q, annual 10-K and
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<PAGE> 10
8-K reports, if any, filed with the Securities Exchange Commission; (d) written
notice at least thirty (30) days prior to any refinancing of debt; (e) written
notice at least thirty (30) days prior to any transaction that would have the
effect of transferring the assets and liabilities of any Pension Plan or
transferring such Pension Plan's sponsorship, in either event, to a Contributing
Sponsor who is not a member of the K & F Controlled Group after such
transaction; (f) written notice at least thirty (30) days prior to any sale,
transfer or other disposition of assets of any member of the K & F Controlled
Group where such assets represent 10 percent or more of the book value of the
assets of the K & F Controlled Group on a consolidated basis, or generated 10
percent or more of the consolidated revenues or operating income of the K & F
Controlled Group on a consolidated basis in the preceding fiscal year; (g) to
the extent not otherwise provided in the filings pursuant to paragraph (e)
above, annual audited financial statements and quarterly financial statements at
the time such documents are provided to the Lenders; (h) simultaneous with the
filing of any reportable event notice pursuant to section 4043 of ERISA, a
separate copy of such filing to the Director of PBGC's Corporate Finance and
Negotiations Department; (i) written notice within thirty (30) days after the
payment of any unscheduled
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<PAGE> 11
amortization of any secured credit facility (other than the Company's revolving
credit facility), the amount of such payments; (j) written notice at least
thirty (30) days prior to any borrowing under any facility other than the
Company's revolving credit facility; (k) written notice within ten (10) days
after a contribution is made to either Pension Plan; (l) for each Plan, by
January 1 of each Plan Year, beginning in 1998, a certified actuarial statement
showing the estimated Minimum Contribution for that Plan Year and the underlying
calculations, including calculation of the Required Credit Balance; (m) for each
Plan, by September 30 of each Plan Year beginning in 1998, a certified actuarial
statement showing the final calculation of Minimum Contributions for that Plan
Year and the underlying calculations including calculation of the Required
Credit Balance; and (n) by the earlier of September 30 of each Plan Year or a
date ten (10) days prior to the due date of any contribution required under this
Agreement that will not be made on account of tax deductibility, beginning in
1998, written notice if tax deductibility is a limiting factor in the payment of
Minimum Contribution amounts and the calculations underlying that determination;
and (o) within 10 days after the Company renews, or receives notice that the
issuer of the Letter of Credit will not renew, any Letter of Credit.
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<PAGE> 12
3.4 At least thirty (30) days before implementing any change (other
than a change required by law) in any of the Pension Plans' actuarial
assumptions or methods from those used for purposes of the 1996 actuarial
valuation for purposes of the minimum funding standard of section 412 of the
IRC, K & F shall provide PBGC with written notice of such change, and such
change shall be subject to PBGC's prior written consent (which consent shall not
to be unreasonably withheld or delayed). K & F shall provide PBGC a copy of any
plan amendment within ten (10) days of the adoption of such plan amendment.
3.5 With respect to contributions to the Plans:
(a) K & F shall ensure that the following amounts are contributed to
the Plans specified below by the due dates specified below.
<TABLE>
<S> <C>
PLAN FOR SALARIED EMPLOYEES
Within 10 days after the Closing Date $1.5 million
December 31, 1997 2.0 million
PLAN FOR BARGAINING UNIT EMPLOYEES
Within 10 days after the Closing Date $ 500,000
December 31, 1997 500,000
</TABLE>
(b) The Plan for Salaried Employees and the Plan for
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<PAGE> 13
Bargaining Unit Employees will have letters of credit of $2.5 million and $2.0
million respectively to secure liability to the PBGC in the event of an
involuntary plan termination under section 4042 of ERISA or a distress
termination within section 4041(c) of ERISA and to secure contributions required
under this Agreement. The $4.5 million Letter of Credit will be renewed annually
until either (i) $4.5 million is contributed to the Plans in excess of the
Minimum Contributions ($2.5 million to the Salaried Plan and $2.0 million to the
Bargaining Unit Plan) (such Letters of Credit may be reduced dollar for dollar
for contributions made in excess of the Minimum Contribution); or (ii) each Plan
has a funded ratio of 85% or greater as of the last day of the plan year in each
of two consecutive years. Notwithstanding any other section of this Agreement,
in the event of a default under this Agreement, the PBGC shall be entitled to
reallocate the amounts payable under such Letters of Credit to either of the
Plans. For purposes of computing the funded ratio, unfunded benefit liabilities
will be determined under section 4001(a)(18) of ERISA. Assets will be the fair
market value of assets as of the last day of the plan year in the year measured.
(c) For Plan Years beginning January 1, 1998, and thereafter, K & F
will pay Minimum Contributions for each of the plans determined as follows. The
Minimum Contribution for a Plan
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<PAGE> 14
Year is the minimum amount of cash required under the statutory funding
requirements to be contributed for the Plan Year, payable in substantially equal
quarterly installments by April 15, July 15, and October 15 of the Plan Year and
on January 15 of the following year, except that (i) the Required Credit Balance
shall not be offset in calculating the minimum contributions for the Plan; and
(ii) the Required Credit Balance shall be subtracted from the assets used in
calculating the unfunded current liability under section 302(d)(8)(A) of ERISA
and section 412(l)(8)(A) of the IRC and the full funding limit under section
412(l)(7) and the unfunded current liability percentage under section 412(l)(9).
(d) Required Credit Balance for each Plan means as of the end of any
Plan Year, the funding standard account credit balance as of December 31, 1997,
plus the excess each year of the Minimum Contributions for the Plan over the
statutory funding requirements, all adjusted with interest to the end of the
Plan Year, plus $200,000 (or the ratably reduced amount as the Letter of Credit
is reduced) to each plan for each year that the Letter of Credit remains
outstanding, plus the Letter of Credit amount to the extent it is paid the
Plan(s).
(e) Notwithstanding any other provision of this Agreement, K & F shall
not be required to make that portion of
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<PAGE> 15
any contribution that would not be deductible under section 404 of the IRC. For
purposes of this Agreement, deductibility under section 404 of the IRC shall be
determined subject to the requirement that current liability shall be computed
using the lowest interest rate in the permissible range prescribed under section
412(b)(5)(B)(ii) of the IRC. If any portion of a Minimum Contribution is not tax
deductible if made to either Plan, then that portion shall be carried over and
paid in the next year in which it is deductible. Any such carryover payment will
be in addition to any minimum contributions required for such year.
(f) For purposes of IRC sections 404 and 412, (i) all contributions
required by this Agreement and made to the Plans during 1997 will be allocated
to 1997; (ii) contributions made on April 15, July 15 and October 15 are made
for the current Plan Year; and (iii) contributions made on January 15 are made
for the previous Plan Year.
SECTION 4. PBGC LIENS
4.1 Upon termination of the Plans after the Closing Date (other than
in a standard termination pursuant to section 4041(b) of ERISA), K & F will pay
PBGC an amount equal to the total amount of the Plan(s), unfunded benefit
liabilities, as calculated in accordance with section 4001(a)(18) of ERISA, as
of
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<PAGE> 16
the termination date determined in accordance with section 4048 of ERISA. The
obligation to pay the amount described in this subsection shall be secured with
a second security interest in the Collateral equal to the lesser of $24 million
or the unfunded benefit liabilities, as described in the Guarantee and
Collateral Agreement and the Intercreditor Agreement and the obligation to make
the contributions described in this Agreement shall be secured with a second
security interest in the Collateral equal to the lesser of the aggregate Minimum
Contributions due under this Agreement prior to December 31, 2002 or $16
million, as described in the Guarantee and Collateral Agreement and the
Intercreditor Agreement ("PBGC Lien"). The PBGC Lien and the rights and
interests of the PBGC thereunder, shall be subordinate to the Senior Lien and
subject to the terms of the Intercreditor Agreement. K & F shall not reborrow or
refinance amounts under its existing credit agreement or any successor agreement
(other than the Company's revolving credit facility) to the extent that such
reborrowing or refinancing would exceed $272 million reduced by $15 million
annually.
SECTION 5. TERMINATION OF AGREEMENT
5.1 This Agreement shall terminate in its entirety upon the first to
occur of the following conditions: (a)
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<PAGE> 17
termination of this Agreement with respect to all of the Pension Plans under
Section 5.2 below; or (b) on or after October 31, 2002, (i) the date on which K
& F (or any successor) has a rating of BBB by Standard & Poor's and Baa2 by
Moody's, or better, for the Senior Subordinated Notes (or if the Senior
Subordinated Notes are no longer outstanding, any other subsequent issuance of
public debt by K & F or its successors) and such debt is unsecured or (ii) in
the event the ratings for the debt described in (b)(i) above are not available,
K & F (or any successor) or K & F's parent, if any, obtains ratings of BBB by
Standard & Poor's and Baa2 by Moody's, or better, for Hypothetical Unsecured
Debt issued by the entire K & F Controlled Group; or (c) on or after October 31,
2002, K & F demonstrates that for two consecutive Plan Years, as of the last day
of such Plan Years, the amount of Unfunded Benefit Liabilities of each of the
Pension Plans is zero.
5.2 This Agreement shall also terminate with respect to the Pension
Plans to the extent (a) there is a Change of Controlled Group Event, and the
unsecured debt of the Buyer or the parent of the Buyer's Controlled Group has
been rated BBB by Standard & Poor's and Baa2 by Moody's, or better, for the two
consecutive years prior to a rating date (which rating date is subsequent to the
date of the Change of Controlled Group Event),
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<PAGE> 18
and such ratings are reaffirmed taking into account the Change of Controlled
Group Event or (b) following a Change of Controlled Group Event, the Buyer and
the parent of the Buyer's Controlled Group have no unsecured debt that is rated
by Standard & Poor's and Moody's, and have had no unsecured debt rated below
BBB/Baa2 by any rating agency within the two years prior to the rating date
(which rating date is subsequent to the date of the Change of Controlled Group
Event), and the Buyer obtains a private rating of BBB by Standard & Poor's and
Baa2 by Moody's, or better, for Hypothetical Unsecured Debt of the Buyer or the
parent of the Buyer's Controlled Group and such ratings are reaffirmed taking
into account the Change of Controlled Group Event.
5.3 Upon the termination of this Agreement, all rights of PBGC and all
obligations of K & F under the Documents shall terminate in their entirety.
5.4 K & F shall provide PBGC with written notice of any determination
that it has satisfied a test for termination of the obligations under this
Agreement, and shall provide to PBGC the information and documentation that
supports such determination. At the request of K & F, PBGC shall thereafter
respond promptly in writing as to whether it concurs with the determination,
such concurrence not to be unreasonably withheld
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<PAGE> 19
or delayed.
SECTION 6. REPRESENTATIONS AND WARRANTIES
6.1 K & F hereby represents and warrants to PBGC that:
(a) K & F is a corporation, duly incorporated and validly existing
under the laws of the State of Delaware and has all requisite corporate or other
powers and all material governmental licenses, authorizations, consents and
approvals, necessary to own its assets and carry on its business as now being or
as proposed to be conducted, except where the failure to have any of the
foregoing would not result in a Material Adverse Effect on its business. K & F
is duly qualified to do business in all jurisdictions in which the nature of the
business conducted by it makes such qualification necessary except where failure
to so qualify could not reasonably be expected to have a Material Adverse
Effect.
(b) The execution and delivery of the Documents shall not conflict
with nor result in a breach of, or require any consent under, the charter or
by-laws (or other equivalent organizational documents) of the Company or any of
its subsidiaries, or any applicable law or regulation, or any order, writ,
injunction or decree of any governmental authority, or any
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<PAGE> 20
material agreement or instrument to which the Company or a subsidiary is a party
or by which it is bound or to which it is subject, or constitute a default under
any such agreement or instrument, or result in the creation or imposition of any
lien upon any of the revenues or assets of the Company or a subsidiary pursuant
to the terms of any such agreement or instrument, except in each case where such
conflict, breach, failure to obtain such consent, default or imposition of a
lien could not reasonably be expected to result in a material Adverse Effect.
(c) The Company has all necessary corporate power and authority to
execute, deliver and perform its obligations under the Documents; the execution,
delivery and performance by the Company of the Documents has been duly
authorized by all necessary corporate action on its part; and the Documents have
been duly executed and delivered by the Company and each constitutes a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
similar laws of general applicability affecting the enforcement of creditors'
rights or (ii) the application of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
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<PAGE> 21
6.2 PBGC represents and warrants to K & F that:
(a) PBGC is a wholly-owned United States government corporation
established under Title IV of ERISA, and has all requisite corporate and other
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on its activities as now conducted.
(b) The execution, delivery and performance by PBGC of this Agreement
and the consummation of the transactions contemplated by this Agreement are
within the powers of PBGC and have been duly authorized by all necessary action
on the part of PBGC. This Agreement constitutes a legal, valid and binding
agreement of PBGC enforceable against PBGC in accordance with its terms, except
as such enforceability may be limited by the application of general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or law).
(c) The execution, delivery and performance by PBGC of this Agreement
require no action by or in respect of, or consent or approval of or filing with
any other governmental authority or agency.
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<PAGE> 22
SECTION 7. COMPANY BREACHES AND REMEDIES.
7.1 Each of the following constitutes a breach of this Agreement:
(a) Failure to provide PBGC with any information which the Company is
required to provide under this Agreement within fifteen (15) days after written
notice from PBGC that the information was not provided by its due date.,
(b) Failure to meet any of the material obligations under the
Intercreditor Agreement.
(c) Occurrence of an Insolvency Event described in section 1.15(a).
(d) Failure to make a contribution required by this Agreement.
7.2 PBGC shall be entitled to the following remedies, at its option,
in addition to other remedies that may be available at law or in equity.
(a) All rights, remedies, and powers granted to PBGC herein, by ERISA,
or by other applicable law shall be cumulative and may be exercised singly or
concurrently. Failure to exercise any remedy shall not be considered a waiver of
such remedy or of any breach giving rise to such remedy.
(b) Upon the occurrence of a breach described in Section 7.1(a), PBGC
shall be entitled to receive from the
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<PAGE> 23
Company as liquidated damages, $100 for each day between the specified or other
agreed date and the date on which such information is actually provided.
(c) Upon the occurrence of an Insolvency Event, PBGC shall be entitled
(subject to the limitations referred to in the Intercreditor Agreement) to
exercise any and all rights and remedies of a secured party under the
Uniform Commercial Code or any other applicable law relating to any security it
has received.
(d) In the event of a breach of any other provision of this Agreement,
either PBGC or K & F may apply for an order requiring performance, whether for
the specific performance of any term or provision hereof or for an injunction
against the violation of any of the terms or provisions hereof or for an
appropriate show cause order, it being agreed that a remedy of money damages
will be inadequate because the failure of the Company to comply strictly with
the terms hereof would cause irreparable injury to PBGC. However, either PBGC or
K & F may proceed to enforce its rights by any other action, suit, remedy, or
proceeding authorized or permitted by this Agreement or by law or by equity.
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<PAGE> 24
SECTION 8. GENERAL PROVISIONS
8.1 This Agreement may be amended, modified or supplemented only by
written instrument executed by each of the parties hereto. Except as provided in
the preceding sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of either party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any representations, warranties, covenants or agreements contained herein. The
waiver by either party hereto of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any subsequent breach.
8.2 This Agreement and Exhibits A, B, and C hereto contain the
complete and exclusive statement of the agreement and understanding by and
between the parties hereto and supersede all prior agreements (other than the
confidentiality agreement between PBGC and the Company dated as of September 12,
1997), understandings, commitments, representations, communications, and
proposals, oral or written, between the parties relating to the subject matter
of this Agreement and such Exhibits. Notwithstanding the foregoing, nothing
contained herein, or in the Exhibits hereto, shall be construed as an admission
to the actual amount of any liability of the K & F Controlled Group to PBGC
under Title IV of ERISA.
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<PAGE> 25
8.3 This Agreement may be executed in one or more counterparts and by
different parties on separate counterparts, each of which will be deemed an
original, but all of which together will constitute one and the same instrument.
8.4 No provision of this Agreement shall create any third party
beneficiary rights in any person including, without limitation, any participant,
or beneficiary of a participant, in any employee benefit plan sponsored by K & F
or any member of the K & F Controlled Group.
8.5 Any reference in this Agreement to any provision of ERISA or the
IRC will be deemed also to refer to all rules and regulations promulgated under
such provision. References to any provision of ERISA or the IRC and regulations
promulgated thereunder refer to the provision of ERISA, the IRC, or the
regulations as of the Closing Date, and to any modified and successor provision
thereof after the effective date of any amendment, renumbering or other
modification thereto occurring after the Closing Date, provided that such
modified and successor provision has substantially the same effect as the
provision that it is amending, renumbering or otherwise modifying.
8.6 All notices, requests, demands to or upon either party hereto to
be effective shall be in writing (or by telex, facsimile or similar electronic
transfer confirmed in writing) and shall be deemed to have been duly given or
made (i) when
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<PAGE> 26
delivered by hand or (ii) if given by mail, when deposited in the mails by
relied mail, return receipt requested or (iii) If by telex, facsimile or similar
electronic transfer, when sent and receipt has been confirmed, addressed as
follows:
If to K & F: K & F Industries, Inc.
600 Third Avenue
New York, New York 10016
ATTN: Mr. Kenneth Schwartz
Facsimile No. (212) 867-1182
If to PBGC: Director
Corporate Finance and Negotiations Department
Pension Benefit Guaranty Corporation
1200 K Street, N.W., Suite 270
Washington, D.C. 20005
Facsimile No. (202) 842-2643
General Counsel
Pension Benefit Guaranty Corporation
1200 K Street, N.W., Suite 301
Washington, D.C. 20005
Facsimile No. (202) 326-4112
The parties hereto may change their addresses and transmission numbers for
notices by notice in the manner provided in this Section 8.6.
8.7 Each party to this Agreement has made its own independent inquiry
as to any and all matters, facts and circumstances material to the Agreement.
Neither party to this Agreement has relied and neither party will rely upon the
other party hereto, or any of its legal counsel or financial or actuarial
advisors, for any information or advice of any kind.
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<PAGE> 27
8.8 No failure of either party to this Agreement to enforce at any
time any provision of this Agreement and no course of dealing between the
parties to this Agreement will be a waiver of any such provision, or will in any
way affect the validity of this Agreement or the right of either party to
enforce any provision, to the extent permitted in this Agreement.
8.9 Except as expressly provided herein, nothing in this Agreement
constitutes or reflects a waiver or modification by the Company or PBGC of any
claim, right or defense that it has under law.
8.10 This Agreement shall be governed by and construed in accordance
with the laws of the State of New York and by ERISA, the IRC and other laws of
the United States to the extent they preempt New York law.
8.11 The language used in this Agreement is deemed to be the language
chosen by the parties to express their mutual intent. No rule of strict
construction will be applied against either party hereto and no deference will
be provided to either party with respect to the interpretation of this
Agreement. The section and subsection headings contained in this Agreement are
inserted for convenience only and will not affect in any way the meaning or
interpretation of this Agreement.
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<PAGE> 28
8.12 This Agreement may not be assigned without the written consent of
the signatories hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the dates indicated below.
K & F INDUSTRIES, INC.
Date: October 15, 1997 By: /s/ Kenneth M. Schwartz
----------------------- ----------------------------
PENSION BENEFIT GUARANTY
CORPORATION
Date: October 14, 1997 By: /s/ Andrea E. Schneider
----------------------- ----------------------------
Andrea Schneider
Director
Corporate Finance and
Negotiations Department
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<PAGE> 1
EXHIBIT 10.36
REGISTRATION RIGHTS AGREEMENT
Dated as of October 15, 1997
by and among
K & F INDUSTRIES, INC.
and
LEHMAN BROTHERS INC.
AND
UNTERBERG HARRIS
<PAGE> 2
This Registration Rights Agreement (this "Agreement") is made and
entered into as of October 15, 1997, by and among K & F Industries, Inc., a
Delaware corporation (the "Company"), and Lehman Brothers Inc. and Unterberg
Harris (each an "Initial Purchaser" and together the "Initial Purchasers"), who
have agreed to purchase the Company's 9 1/4% Senior Subordinated Notes due 2007
(the "Notes") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated as of
October 9, 1997 (the "Purchase Agreement"), by and among the Company and the
Initial Purchasers. In order to induce the Initial Purchasers to purchase the
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 7(j) of the
Purchase Agreement.
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.
Business Day: Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the corporate trust office of the Trustee,
on which banks are authorized to close.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Broker-Dealer Transfer Restricted Securities: Exchange Notes that are
acquired by a Broker-Dealer in the Exchange Offer in exchange for Notes that
such Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Notes acquired directly from
the Company or any of its affiliates).
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 the Exchange Offer Registration Statement
relating to the Exchange Notes to be issued in the Exchange Offer, (b) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange
1
<PAGE> 3
Offer open for a period not less than the minimum period required pursuant to
Section 3(b) hereof and (c) the delivery by the Company to the Registrar under
the Indenture of Exchange Notes in the same aggregate principal amount as the
aggregate principal amount of Notes tendered by Holders thereof pursuant to the
Exchange Offer.
Damages Payment Date: Each Interest Payment Date.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by the Company under the Act of the
Exchange Notes pursuant to the Exchange Offer Registration Statement pursuant to
which the Company shall offer the Holders of all outstanding Transfer Restricted
Securities the opportunity to exchange all such outstanding Transfer Restricted
Securities for Exchange Notes in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities tendered in
such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exchange Notes: The Company's 9 1/4% Senior Subordinated Notes due 2007
to be issued pursuant to the Indenture (i) in the Exchange Offer or (ii) upon
the request of any Holder of Notes covered by a Shelf Registration Statement, in
exchange for such Notes.
Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Notes to certain "qualified institutional buyers," as such
term is defined in Rule 144A under the Act, and to certain "accredited
investors," as such term is defined in Rule 501(a)(1), (2), (3), (5) or (6) of
Regulation D under the Act and pursuant to Regulation S under the Act.
Holders: As defined in Section 2 hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated the Closing Date, between the Company
and State Street Bank and Trust Company, as trustee (the "Trustee"), pursuant to
which the Notes are to be issued, as such Indenture is amended or supplemented
from time to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the Notes.
NASD: National Association of Securities Dealers, Inc.
Person: An individual, partnership, corporation, trust, unincorporated
organization, or a governmental agency or political subdivision thereof.
2
<PAGE> 4
Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Record Holder: With respect to any Damages Payment Date, each Person
who is a Holder of Notes or Exchange Notes, as the case may be, on the record
date with respect to the Interest Payment Date on which such Damages Payment
Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company
relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, in each case, (i) which 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.
Regulation S: Regulation S promulgated under the Act.
Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer
Transfer Restricted Securities.
Shelf Registration Statement: As defined in Section 4 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 Note, until (i) the date on which
such Note has been exchanged by a person other than a broker-dealer for an
Exchange Note in the Exchange Offer, (ii) following the exchange by a
broker-dealer in the Exchange Offer of a Note for an Exchange Note, the date on
which such a Note is sold to a purchaser who receives from such broker-dealer on
or prior to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such Note has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iv) the date on which such
Note is distributed to the public pursuant to Rule 144 under the Act.
Underwritten Registration or Underwritten Offering: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
SECTION 2. HOLDERS
3
<PAGE> 5
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 shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company shall (i) cause to be filed with the Commission as
soon as practicable after the Closing Date, but in no event later than 45 days
after the Closing Date, the Exchange Offer Registration Statement, (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 120 days
after the Closing Date, (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 such Exchange Offer Registration Statement 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 Exchange 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 Exchange Notes to be offered in
exchange for the Notes that are Transfer Restricted Securities and to permit
sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers as contemplated by Section 3(c) below.
(b) The Company shall use its best efforts to cause the Exchange Offer
Registration Statement to be effective continuously, and shall keep the Exchange
Offer referred to in the second paragraph of Section 3(c) 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 shall cause
the Exchange Offer to comply with all applicable federal and state securities
laws. No securities other than the Exchange Notes shall be included in the
Exchange Offer Registration Statement. The Company shall use its 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.
(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 Restricted Broker-Dealer who holds Notes that are Transfer
Restricted Securities and that were acquired for the account of such
Broker-
4
<PAGE> 6
Dealer as a result of market-making activities or other trading activities, may
exchange such Notes (other than Transfer Restricted Securities acquired directly
from the Company or any Affiliate of the Company) 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 meeting the
requirements of the Act in connection with its initial sale of each Exchange
Note received by such Broker-Dealer in the Exchange Offer, which prospectus
delivery requirement may be satisfied by the delivery by such Broker-Dealer of
the Prospectus contained in the Exchange Offer Registration Statement. Such
"Plan of Distribution" section shall also contain all other information with
respect to such sales of Broker-Dealer Transfer Restricted Securities by
Restricted 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 Notes held by any such
Broker-Dealer, except to the extent required by the Commission.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers, and to ensure that such Registration
Statement 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 one year from the date on which the Exchange Offer is
Consummated (or such longer period if extended pursuant to Section 6(d) hereof).
The Company shall promptly provide sufficient copies of the latest
version of such Prospectus to such Restricted Broker-Dealers promptly upon
request, and in no event later than one day after such request, at any time
during such one-year period in order to facilitate such sales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not required to file an
Exchange Offer Registration Statement with respect to the Exchange Notes or
permitted to Consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy (after the procedures set forth
in Section 6(a)(i) below have been complied with) or (ii) any Holder shall
notify the Company within 20 Business Days 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
Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and 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
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Broker-Dealer and holds Notes acquired directly from the Company or one of its
affiliates, then the Company shall (x) cause to be filed, on or prior to 60 days
after the date on which the Company determines that it is not required to file
the Exchange Offer Registration Statement pursuant to clause (i) above or 60
days after the date on which the Company receives the notice specified in clause
(ii) above (and in any event within 120 days after the Closing Date), a shelf
registration statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration Statement (in either event, the
"Shelf Registration Statement")), relating to all Transfer Restricted Securities
the Holders of which shall have provided the information required pursuant to
Section 4(b) hereof, and shall (y) use its best efforts to cause such Shelf
Registration Statement to be declared effective by the Commission as promptly as
possible, but not later than 60 days after the date on which the Company becomes
obligated to file such Shelf Registration Statement. If, after the Company has
filed an Exchange Offer Registration Statement which 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 shall not be
permitted under applicable federal law, then the filing of the Exchange Offer
Registration Statement shall be deemed to satisfy the requirements of clause (x)
above. Such an event shall have no effect on the requirements of clause (y)
above. The Company shall use its best efforts to keep the Shelf Registration
Statement discussed in 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 date on which such Shelf Registration
Statement first becomes effective under the Act, or such shorter period ending
when all Transfer Restricted Securities covered by the Shelf Registration
Statement cease to be Transfer Restricted Securities.
(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, such information specified
in item 507 or 508 of Regulation S-K under the Act, as applicable, for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder shall be entitled to liquidated damages
pursuant to Section 5 hereof unless and until such Holder shall have used its
best efforts to provide all such information. Each Holder as to which any Shelf
Registration Statement is being effected agrees to furnish promptly to the
Company all information required to be
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<PAGE> 8
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 date specified for such filing in
this Agreement, (ii) any such Registration Statement has not been declared
effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Exchange Offer has not been
Consummated within 30 Business Days after the Exchange Offer Registration
Statement is first declared effective by the Commission or (iv) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
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 hereby agrees to pay liquidated
damages to each Holder with respect to the first 90-day period immediately
following the occurrence of such Registration Default, in an amount equal to
$.05 per week per $1,000 principal amount of Transfer Restricted Securities held
by such Holder for each week or portion thereof that the Registration Default
continues. 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 principal amount of Transfer Restricted Securities. 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 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 by the Company in cash on
each Damage Payment Date. All accrued liquidated damages shall be paid by wire
transfer of immediately available funds or by federal funds check and to Holders
of Certificated Securities by wire transfer to the accounts specified by them or
by mailing checks to their registered addresses (if no such accounts
7
<PAGE> 9
have been specified) on each Damages Payment Date. All obligations of the
Company 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.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall comply with all applicable provisions of
Section 6(c) below, shall use its best efforts to effect such exchange and to
permit the sale of Broker-Dealer Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
shall comply with all of the following provisions:
(i) If, following the date hereof there has been published a
change in Commission policy with respect to exchange offers such as the
Exchange Offer, such that in the reasonable opinion of counsel to the
Company there is a substantial question as to whether the Exchange
Offer is permitted by applicable federal law, the Company hereby agrees
to seek a no-action letter or other favorable decision from the
Commission allowing the Company to Consummate an Exchange Offer for
such Notes. The Company hereby agrees to pursue the issuance of such a
decision to the Commission staff level. In connection with the
foregoing, the Company hereby agrees to take all such other actions as
are 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 of such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder shall furnish,
upon the request of the Company, prior to the Consummation of the
Exchange Offer, a written representation to the Company (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 Exchange Notes to be issued in
the Exchange Offer and (C) it is acquiring the Exchange Notes in its
ordinary course of business. Each Holder hereby acknowledges and agrees
that any Broker-Dealer and any such Holder using the Exchange Offer to
participate in a distribution of the securities to be acquired in the
Exchange
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<PAGE> 10
Offer (1) could not under Commission policy as in effect on 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 if the resales are of Exchange Notes obtained by such Holder in
exchange for Series A Notes acquired by such Holder directly from the
Company or an affiliate thereof.
(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 the Company has not entered into
any arrangement or understanding with any Person to distribute the
Exchange Notes to be received in the Exchange Offer and that, to the
best of the Company's information and belief, each Holder participating
in the Exchange Offer is acquiring the Exchange Notes in its ordinary
course of business and has no arrangement or understanding with any
Person to participate in the distribution of the Exchange 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.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) below and shall use its 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 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.
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(c) General Provisions. In connection with any Registration Statement
and any related Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Exchange Offer Registration Statement and the related Prospectus, to the extent
that the same are required to be available to permit sales of Broker-Dealer
Transfer Restricted Securities by Restricted Broker-Dealers), the Company shall:
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements
for the period 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, (1) in the case
of clause (A), correcting any such misstatement or omission, and (2) in
the case of clauses (A) and (B), use its best efforts to cause such
amendment to be declared effective and such Registration Statement and
the related Prospectus to become usable for its intended purpose(s) as
soon as practicable thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, or such shorter
period as will terminate when all Transfer Restricted Securities
covered by such Registration Statement have been sold; 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 underwriter(s), if any, and 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
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
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<PAGE> 12
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 shall use its best
efforts to obtain the withdrawal or lifting of such order at the
earliest possible time;
(iv) furnish to the Initial Purchasers, each selling Holder
named in any Registration Statement or Prospectus and each of the
underwriter(s) in connection with such 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 Holders and underwriter(s) 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 the
selling Holders of the Transfer Restricted Securities covered by such
Registration Statement or the underwriter(s) in connection with such
sale, if any, shall reasonably object within five Business Days after
the receipt thereof, or 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;
(v) 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, upon request, to the selling Holders
and to the underwriter(s) in connection with such sale, if any, make
the Company's 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 or
underwriter(s), if any, reasonably may request;
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(vi) make available at reasonable times for inspection by the
selling Holders, any managing underwriter participating in any
disposition pursuant to such Registration Statement and any attorney or
accountant retained by such selling Holders or any of such
underwriter(s), all financial and other records, pertinent corporate
documents and properties of the Company and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such Holder, underwriter, 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;
(vii) if requested by any selling Holders or the
underwriter(s) in connection with such sale, if any, promptly include
in any Registration Statement or Prospectus, pursuant to a supplement
or post-effective amendment if necessary, such information as such
selling Holders and underwriter(s), if any, may reasonably request to
have included therein, including, without limitation, information
relating to the "Plan of Distribution" of the Transfer Restricted
Securities, information with respect to the principal amount of
Transfer Restricted Securities being sold to such underwriter(s), the
purchase price being paid therefor and any other terms of the offering
of the Transfer Restricted Securities to be sold in such offering; 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;
(viii) furnish to each selling Holder and each of the
underwriter(s) in connection with such sale, if any, 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);
(ix) deliver to each selling Holder and each of the
underwriter(s), if any, 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
hereby consents to the use (in accordance with law) of the Prospectus
and any amendment or supplement thereto by each of the selling Holders
and each of the underwriter(s), if any, in connection with the offering
and the sale of the Transfer Restricted Securities covered by the
Prospectus or any amendment or supplement thereto;
(x) enter into such agreements (including an underwriting
agreement) and make such representations and warranties that are
reasonably acceptable to the Company and take all such other reasonable
actions in connection therewith in order to expedite or facilitate the
disposition of the Transfer Restricted Securities pursuant to any
Registration Statement contemplated
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by this Agreement as may be reasonably requested by any Holder or underwriter in
connection with any sale or resale pursuant to any Registration Statement
contemplated by this Agreement, and in such connection, whether or not an
underwriting agreement is entered into and whether or not the registration is an
Underwritten Registration, the Company shall:
(A) furnish (or in the case of paragraphs (2) and (3), use
its best efforts to furnish) to each selling Holder and each
underwriter, if any, upon the effectiveness of the Shelf Registration
Statement and to each Restricted Broker-Dealer upon Consummation of
the Exchange Offer:
(1) a certificate, dated 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 by (x) the President or any Vice President
and (y) a principal financial or accounting officer of the
Company, confirming, as of the date thereof, the type of
matters set forth in paragraphs (b)-(e) of Section 7 of the
Purchase Agreement with respect to the relevant Registration
Statement and the securities registered hereunder, and such
other similar matters as the Holders, underwriter(s) and/or
Restricted Broker Dealers may reasonably request;
(2) an opinion, dated 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 covering matters similar to those set forth in
paragraphs (h) and (i) of Section 7 of the Purchase
Agreement and such other matters as the Holders,
underwriters and/or Restricted Broker Dealers 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,
representatives of the independent public accountants for
the Company 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 a large extent upon
facts provided to such counsel by officers and other
representatives of the Company 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
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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 effectiveness of the Shelf Registration Statement or the
date of Consummation of the Exchange Offer, 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
primary underwritten offerings, and affirming the matters set
forth in the comfort letters delivered pursuant to Section 7
of the Purchase Agreement, without exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, in connection with any sale or resale
pursuant to any Shelf Registration Statement the indemnification
provisions and procedures of Section 8 hereof with respect to all
parties to be indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by the selling Holders, the underwriter(s), if
any, and Restricted Broker Dealers, if any, to evidence compliance with
clause (A) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company
pursuant to this clause (x).
The above shall be done at each closing under such underwriting or
similar agreement, as and to the extent required thereunder, and if at any time
the representations and warranties of the Company contemplated in (A)(1) above
cease to be true and correct, the Company shall so advise the underwriter(s), if
any, the selling Holders and each Restricted Broker-Dealer promptly and if
requested by such Persons, shall confirm such advice in writing;
(xi) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the
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<PAGE> 16
underwriter(s), if any, and their respective 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 or underwriter(s), if any, 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 the Company shall not 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;
(xii) issue, upon the request of any Holder of Notes covered
by any Shelf Registration Statement contemplated by this Agreement,
Exchange Notes having an aggregate principal amount equal to the
aggregate principal amount of Notes surrendered to the Company by such
Holder in exchange therefor or being sold by such Holder; such Exchange
Notes to be registered in the name of such Holder or in the name of the
purchaser(s) of such Notes, as the case may be; in return, the Notes
held by such Holder shall be surrendered to the Company for
cancellation;
(xiii) 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 and the
underwriter(s), if any, to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted Securities to
be sold and not bearing any restrictive legends; and to register such
Transfer Restricted Securities in such denominations and such names as
the Holders or the underwriter(s), if any, may request at least two
Business Days prior to such sale of Transfer Restricted Securities;
(xiv) use its 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
or the underwriter(s), if any, to consummate the disposition of such
Transfer Restricted Securities, subject to the proviso contained in
clause (xi) above;
(xv) 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
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<PAGE> 17
light of the circumstances under which they were made, not misleading;
(xvi) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration
Statement covering such Transfer Restricted Securities and provide the
Trustee under the Indenture with printed certificates for the Transfer
Restricted Securities which are in a form eligible for deposit with the
Depository Trust Company;
(xvii) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation
by any underwriter (including any "qualified independent underwriter")
that is required to be retained in accordance with the rules and
regulations of the NASD, and use its best efforts to cause such
Registration Statement to become effective and approved by such
governmental agencies or authorities as may be necessary to enable the
Holders selling Transfer Restricted Securities to consummate the
disposition of such Transfer Restricted Securities;
(xviii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (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);
(xix) 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 of Notes 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; and
(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.
(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)(i) or any notice from the Company of the existence of any fact of
the kind described in Section 6(c)(iii)(C) or (D) hereof, such Holder will
forthwith discontinue disposition of Transfer Restricted Securities pursuant to
the applicable Registration Statement until such Holder's
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<PAGE> 18
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 6(c)(xv) hereof, or until it 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 (the "Advice"). If so directed by the Company, each Holder will
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 either such notice. In the event the Company shall give any such
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 the number of days during the period from and including the date of the
giving of such notice pursuant to Section 6(c)(i) or Section 6(c)(iii)(D) hereof
to and including the date when each selling Holder covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(xv) hereof or shall have received the
Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's 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 (including filings made by the Initial
Purchasers or any Holder with the NASD (and, if applicable, the fees and
expenses of any "qualified independent underwriter") and its counsel that may be
required by the rules and regulations of the NASD); (ii) all fees and expenses
of compliance with federal securities and state Blue Sky or securities laws;
(iii) all expenses of printing (including printing certificates for the Exchange
Notes to be issued in the Exchange Offer and printing of Prospectuses),
messenger and delivery services and telephone; (iv) all reasonable fees and
disbursements of counsel for the Company and the Holders (subject to the
provisions of Section 7(b) below); (v) all application and filing fees in
connection with listing the Notes on a national securities exchange or automated
quotation system pursuant to the requirements hereof; and (vi) all fees and
disbursements of independent certified public accountants of the Company
(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 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.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement),
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the Company will reimburse the Initial Purchasers and the Holders being tendered
in the Exchange Offer and/or resold pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or registered pursuant to
the Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who 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.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless (i) each Holder
and (ii) each person, if any, who controls (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act) any Holder (any of the persons
referred to in this clause (ii) being hereinafter referred to as a "controlling
person") and (iii) the respective officers, directors, partners, employees,
representatives and agents of any Holder or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an
"Indemnified Holder"), to the fullest extent lawful, from and against any and
all losses, claims, damages, liabilities, judgments, actions and expenses
(including without limitation and as incurred, reimbursement of all reasonable
costs of investigating, preparing, pursuing or defending any claim or action, or
any investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and expenses of counsel to any
Indemnified Holder) directly or indirectly caused by, related to, based upon,
arising out of or in connection with 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),
or any omission or alleged omission to state therein 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 expenses are
caused by an untrue statement or omission or alleged untrue statement or
omission that is made in reliance upon and in conformity with information
relating to any of the Holders furnished in writing to the Company by any of the
Holders expressly for use therein; provided, however, that the Company shall not
be required to indemnify any such Person if such untrue statement or omission or
alleged untrue statement or omission was contained or made in any preliminary
prospectus and corrected in the Prospectus or any amendment or supplement
thereto and the Prospectus does not contain any other untrue statement or
omission or alleged untrue statement or omission of a material fact that was the
subject matter of the related proceeding and any such loss, liability, claim,
damage or expense suffered or incurred by the Indemnified Holder resulted from
any action, claim or suit by any Person who purchased Transfer Restricted
Securities or Exchange Notes which are the subject thereof from such Indemnified
Holder and it is established in the related proceeding that such Indemnified
Holder failed to deliver
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or provide a copy of the Prospectus (as amended or supplemented) to such Person
with or prior to the confirmation of the sale of such Transfer Restricted
Securities or Exchange Notes sold to such Person if required by applicable law,
unless such failure to deliver or provide a copy of the Prospectus (as amended
or supplemented) was a result of noncompliance by the Company with Section 6 of
this Agreement.
In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
of the Indemnified Holders with respect to which indemnity may be sought against
the Company, such Indemnified Holder (or the Indemnified Holder controlled by
such controlling person) shall promptly notify the Company in writing (provided,
that the failure to give such notice shall not relieve the Company of its
obligations pursuant to this Agreement, unless and only to the extent that such
failure directly results in the loss or compromise of any material rights or
defenses by the Company and the Company was not otherwise aware of such action
or claim). In such event, the Company shall retain counsel reasonably
satisfactory to the Indemnified Holders to represent the Indemnified Holders and
any others the Company may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding. The Company shall not, in connection with any one such action
or proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) at any time
for such Indemnified Holders, which firm shall be designated by the Holders. The
Company shall be liable for any settlement of any such action or proceeding
effected with the Company's prior written consent, which consent shall not be
withheld unreasonably, and the Company agrees to indemnify and hold harmless
each Indemnified Holder from and against any loss, claim, damage, liability or
expense by reason of any settlement of any action effected with the written
consent of the Company. The Company shall not, without the prior written consent
of each Indemnified Holder, which shall not be unreasonably withheld, settle or
compromise or consent to the entry of judgment in or otherwise seek to terminate
any pending or threatened action, claim, litigation or proceeding in respect of
which indemnification or contribution may be sought hereunder (whether or not
any Indemnified Holder is a party thereto), unless such settlement, compromise,
consent or termination includes an unconditional release of each Indemnified
Holder from all liability arising out of such action, claim, litigation or
proceeding.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, and its directors, officers, and any person
controlling (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) the Company, and the respective officers, directors, partners,
employees, representatives and agents of each such person, to the same extent as
the
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foregoing indemnity from the Company to each of the Indemnified Holders, but
only with respect to claims and actions based on information relating to such
Holder furnished in writing by such Holder expressly for use in any Registration
Statement, preliminary prospectus or Prospectus (or any amendment or supplement
thereto). In case any action or proceeding shall be brought against the Company
or its directors or officers or any such controlling person in respect of which
indemnity may be sought against a Holder, such Holder shall have the rights and
duties given the Company, and the Company, such directors or officers or such
controlling person shall have the rights and duties given to each Holder by the
preceding paragraph. The liability of any Holder under this paragraph shall in
no event exceed the proceeds received by such Holder from sales of Transfer
Restricted Securities or Exchange Notes giving rise to such obligations.
(c) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under Section 8(a) or Section 8(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each applicable 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 expenses in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Holders, on the other hand, from their sale of
Transfer Restricted Securities or if such allocation is not permitted by
applicable law, the relative fault of the Company, 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
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Indemnified Holders on
the other shall be deemed to be in the same proportion as the total proceeds
from the offering (net of discounts and commissions but before deducting
expenses) of the Notes received by the Company bears to the total proceeds
received by such Indemnified Holder from the sale of Transfer Restricted
Securities or Exchange Notes, as the case may be. The relative fault of the
Company, 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 or by
the Indemnified Holder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission and
any other equitable consideration appropriate in the circumstances. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in the second paragraph of Section 8(a), any legal
or other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
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<PAGE> 22
The Company and each Holder agree that it would not be just and
equitable if contribution pursuant to this Section 8(c) 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 the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or expenses referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Holder or its related
Indemnified Holders 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 its Transfer Restricted Securities pursuant to a
Registration Statement exceeds 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 this
Section 8(c) are several in proportion to the respective principal amount of
Notes held by each of the Holders hereunder and not joint.
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company is not subject to Section 13 or 15(d) of the Securities Exchange Act, to
make available, upon request of any Holder, to any Holder or beneficial owner of
Transfer Restricted Securities in connection with any sale thereof and any
prospective purchaser 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 resales of such Transfer Restricted Securities
pursuant to Rule 144A.
SECTION 10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
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SECTION 11. SELECTION OF UNDERWRITERS
For any Underwritten Offering, the investment banker or investment
bankers and manager or managers for any Underwritten Offering that will
administer such offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering and reasonably acceptable to the Company. Such investment bankers
and managers are referred to herein as the "underwriters."
SECTION 12. MARKET-MAKING PROSPECTUSES
(a) Following the consummation of any Exchange Offer or the
effectiveness of a Shelf Registration Statement and for so long as the Notes are
outstanding if, in the reasonable judgment of the Initial Purchasers, the
Initial Purchasers or any of their affiliates (as such term is defined in the
rules and regulations under the Act) are required to deliver a prospectus in
connection with sales of, or market-making activities with respect to, such
securities, the Company agrees (A) to periodically amend the applicable
Registration Statement so that the information contained therein complies with
the requirements of Section 10(a) of the Act, (B) to amend the applicable
Registration Statement or supplement the related prospectus or the documents
incorporated therein when necessary to reflect any material changes in the
information provided therein so that the Registration Statement, and the
prospectus will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances existing as of the date the prospectus is so
delivered, not misleading and (C) to provide the Initial Purchasers with copies
of each such amendment or supplement as the Initial Purchasers may reasonably
request.
SECTION 13. MISCELLANEOUS
(a) Remedies. Each Holder, in addition to being entitled to exercise
all rights provided herein, in the Indenture, the Purchase Agreement or granted
by law, including recovery of liquidated or other damages, will be entitled to
specific performance of its rights under this Agreement. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by them of the provisions of this Agreement and hereby agree
to waive the defense in any action for specific performance that a remedy at law
would be adequate.
(b) No Inconsistent Agreements. The Company will not, 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. The Company hereby represents
and warrants that the rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights
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<PAGE> 24
granted to the holders of the Company's securities under any agreement in effect
on the date hereof.
(c) Adjustments Affecting the Notes. The Company will not take any
action, or voluntarily permit any change to occur, with respect to the Notes or
Exchange Notes that would materially and adversely affect the ability of the
Holders to Consummate any Exchange Offer.
(d) 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) the consent of the Company is
obtained, which shall not be unreasonably withheld, (ii) in the case of Section
5 hereof and this Section 13(d)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (iii) 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. 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.
(e) Notices. All notices 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:
K & F Industries, Inc.
600 Third Avenue
New York, New York 10016
Telecopier No.: (212) 867-1182
Attention: Chief Financial Officer
With a copy to:
O'Sullivan, Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Telecopier No.: (212) 408-2420
Attention: Robert Seber, Esq.
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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.
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,
including without limitation and without the need for an express assignment,
subsequent Holders; provided, however, that this Agreement shall not inure to
the benefit of or be binding upon a successor or assign of a Holder unless and
to the extent such successor or assign acquired Transfer Restricted Securities
directly from such Holder.
(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 and the other agreements
referenced herein are 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.
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<PAGE> 26
(l) Underwriting Agreement. Notwithstanding the provisions of Section 6
hereof, in the event of a Shelf Registration pursuant to Section 4 hereof, to
the extent that the Holders shall enter into an underwriting or similar
agreement, which agreement contains provisions covering one or more issues
addressed in such Section 4 with substantially similar effect, the provisions
contained in such Sections addressing such issue or issues shall be of no force
or effect with respect to the registration of securities being effected in
connection with such underwriting or similar agreement.
(m) Termination. This Agreement shall terminate and be of no further
force or effect when there shall not be any Transfer Restricted Securities,
except that the provisions of Section 5, 7, 8, 12, and 13 shall survive any such
termination.
[Signature Page Follows]
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<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
K & F INDUSTRIES, INC.
By: /s/ Kenneth M. Schwartz
______________________________
Name: Kenneth M. Schwartz
Title: Executive Vice President
LEHMAN BROTHERS INC.
By: /s/ Edward B. McGeough
________________________
Name: Edward B. McGeough
Title: Managing Director
UNTERBERG HARRIS
By: /s/ Robert C. Harris, Jr.
__________________________
Name: Robert C. Harris, Jr.
Title: Managing Director
<PAGE> 1
Exhibit 10.37
EXECUTION COPY
DEALER MANAGER AGREEMENT
September 15, 1997
Lehman Brothers Inc.
Three World Financial Center
New York, NY 10285
Dear Ladies and Gentlemen:
1. Offer to Purchase. K&F Industries, Inc. (the "Company") proposes
to make a tender offer (hereinafter called, together with any extensions
thereof, the "Tender Offer") to purchase for cash all of its outstanding 10 3/8%
Senior Subordinated Notes due 2004 (the "Notes"), on the terms and subject to
the conditions set forth in the Offer to Purchase and Consent Solicitation
Statement (the "Offer to Purchase") and Consent and Letter of Transmittal in the
forms attached hereto as Exhibit A. Concurrently with the Tender Offer, the
Company is soliciting (the "Solicitation") consents (the "Consents") from
holders (the "Holders") of the Notes to the proposed amendments (the "Proposed
Amendments") to the Indenture between the Company and Fleet National Bank, as
Trustee, dated as of August 15, 1996, pursuant to which the Notes were issued
(the "Indenture").
2. Appointment as Dealer Manager. The Company hereby appoints Lehman
Brothers Inc. ("Lehman Brothers") as exclusive financial advisor and Dealer
Manager with respect to the Tender Offer and Solicitation Agent with respect to
the Solicitation (the "Dealer Manager") and authorizes Lehman Brothers to act as
such in accordance with the Tender Offer and the Solicitation. As Dealer
Manager, you agree, in accordance with your customary practice, to use your
reasonable best efforts to perform those services in connection with the Tender
Offer and the Solicitation as are customarily performed by an investment banking
concern acting as dealer/manager in connection with tender offers and consent
solicitations of like nature and to communicate with brokers, dealers, banks,
trust companies and other persons with respect to the Tender Offer and the
Solicitation. The Company acknowledges and agrees that, in your role as Dealer
Manager, you will not recommend to any Holder how such Holder should act or vote
with respect to the Tender Offer. In soliciting or obtaining tenders, you, as
Dealer Manager, are acting as an independent contractor and shall not be deemed
to be acting
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<PAGE> 2
as the agent of the Company, and no broker, dealer, bank or trust company shall
be deemed to be acting as your agent.
3. No Liability for Acts of Dealers, Etc. You shall have no
liability (in tort, contract or otherwise) to the Company or any of its
affiliates for any losses, claims, damages, liabilities or expenses arising from
any act or omission on the part of any broker, dealer (other than yourself),
commercial bank or trust company, nominee, or any other person, and you shall
have no liability (in tort, contract or otherwise) to the Company or any other
person for any losses, claims, damages, liabilities or expenses arising from
your own acts or omissions in performing your obligations hereunder or otherwise
in connection with the Company's proposed acquisition of the Notes, except for
any such losses, claims, damages, liabilities or expenses which are determined,
in a final judgment by a court of competent jurisdiction to have resulted
directly from acts or omissions taken or omitted to be taken by you through your
gross negligence or willful misconduct. In soliciting or obtaining tenders, you,
as Dealer Manager, are acting as independent contractor and shall not be deemed
to be acting as the agent of the Company or as the agent of any broker, dealer,
bank or trust company, and no broker, dealer, bank or trust company shall be
deemed to be acting as your agent or as the agent of the Company.
4. Tender Offer Material; Early Termination. (a) The Company agrees
to furnish you with as many copies as you may reasonably request of the Offer to
Purchase, any amendments and supplements thereto, the Consent and Letter of
Transmittal, Notice of Guaranteed Delivery and any other materials relating to,
or contemplated by, the Tender Offer and the Solicitation including, but not
limited to, any advertisements, press releases or summaries relating to the
Tender Offer and the Solicitation (including any publication of the Tender Offer
and the Solicitation in the MCM Corporate Watch) and any forms of letters to
brokers, dealers, commercial banks, trust companies and other nominees relating
to the Tender Offer and the Solicitation (collectively, as amended or
supplemented from time to time, the "Tender Offer Material") to be used by the
Company in connection with the Tender Offer and the Solicitation. You are
authorized to use copies of the Tender Offer Material in accordance with the
terms and conditions of this Agreement. The Company shall on or as soon as
practicable after the date hereof (the "Mailing Date"), cause a copy of the
relevant Tender Offer Material, together with a return envelope, to be mailed to
each Holder whose name appears on the most recent list of Holders, which
includes all beneficial owners of Notes known by the Company. Thereafter, to the
extent practicable until the expiration or termination of the Tender Offer and
the Solicitation and subject to the terms and conditions of the Tender Offer as
provided by the Tender Offer Material, the Company shall use its reasonable best
efforts to cause copies of such material and a return envelope to be mailed to
each person who becomes a Holder.
(b) The Company agrees that, in a reasonable time prior to using, or
filing with any federal or other governmental agency or instrumentality, any
Tender Offer Material, it will submit copies of such material to you and will
not use any such Tender Offer Material without your prior approval, which shall
not be unreasonably withheld. If (i) any restraining order or other injunctive
order shall have been issued or any action, suit or proceeding shall have been
commenced with respect to the Tender Offer or the Solicitation or with respect
to any of the transactions in connection with, or contemplated by, the Tender
Offer or the Solicitation or this Agreement, before
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<PAGE> 3
any court or governmental agency or other regulatory body or administrative
authority that, in the opinion of your counsel, makes it legally inadvisable for
you to continue to act hereunder; (ii) the Company uses or permits the use of,
or files with the Securities and Exchange Commission (the "Commission") or with
any other federal or governmental agency, authority or instrumentality, any
Tender Offer Material without your prior approval, which approval shall not be
unreasonably withheld; or (iii) the Company shall have breached, in any material
respect, any of its representations, warranties, agreements or covenants herein,
then you shall be entitled to withdraw as the Dealer Manager in connection with
the Tender Offer and the Solicitation without any liability or penalty to you or
any other Indemnified Person (as defined in Section 10 hereof) as a result of
such withdrawal and without loss of any right to indemnification or contribution
provided in Section 10 hereof or to the payment of all fees and expenses payable
hereunder which have accrued to the date of such withdrawal (it being agreed
that in the event of any such withdrawal, for the purpose of determining the
fees payable to you pursuant to Section 5 hereof, (A) the number of Notes
tendered pursuant to the Tender Offer as of the close of business on the date of
such withdrawal which are thereafter acquired by the Company or any of its
subsidiaries or affiliates pursuant to the Tender Offer or otherwise shall be
deemed to have been acquired as of the date of such withdrawal and (B) any other
Notes which the Company or any of its subsidiaries or affiliates, as of such
close of business, has acquired since the date hereof or has a right to acquire
and which are subsequently acquired by the Company or any of its subsidiaries or
affiliates for a period of one year following the withdraw of the Tender Offer
shall be deemed to have been acquired as of the date of such withdrawal). If you
withdraw as the Dealer Manager, the fees accrued and reimbursement for your
reasonable expenses through the date of such withdrawal shall be paid to you
promptly after such date.
(c) The Company shall arrange for MacKenzie Partners, Inc., as the
information agent (the "Information Agent"), or State Street Bank and Trust
Company, as the depositary named in the Tender Offer Material (the "Depositary"
and, together with the Information Agent, the "Agents"), to inform you and your
counsel during each business day during the Tender Offer and the Solicitation of
the principal amounts of Notes (and the names of the Holders thereof) (i) that
have been tendered pursuant to the Tender Offer and have not been withdrawn and
(ii) with respect to which a Consent to the Proposed Amendments has been
delivered and not revoked, in each case during the interval since its previous
daily report to you under this provision and as to such other matters as you may
reasonably request.
(d) The Company shall use its reasonable best efforts to cause the
Agents to cooperate with you in all respects reasonably required.
5. Compensation. The Company agrees to pay to Lehman Brothers as
compensation for its services as financial advisor and Dealer Manager hereunder
a fee of $2.50 per each $1,000 face amount of the Notes actually tendered and
accepted pursuant to the terms of the Tender Offer on the Expiration Date.
6. Expenses. In connection with the Tender Offer and the
Solicitation and the transactions contemplated thereby, the Company agrees to
pay (or, to the extent that the Dealer
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Manager shall have paid for any of the following items, to reimburse the Dealer
Manager for such payments of) (a) all fees and expenses relating to the
preparation, printing, filing, mailing and publishing of the Tender Offer
Material, (b) all advertising charges pertaining to the Tender Offer and the
Solicitation, (c) all costs of the execution and delivery of the supplemental
indenture giving effect to the Proposed Amendments in the form attached hereto
on Schedule 1 (the "Supplemental Indenture"), (d) all fees payable to you and
any broker including, without limitation, prompt reimbursement of the reasonable
expenses incurred in forwarding the Tender Offer Material to Holders, (e) all
fees and expenses of the Agents or other persons rendering services in
connection with the Tender Offer or the Solicitation, and (f) all other fees and
expenses in connection with the Tender Offer or the Solicitation. The Company
will also reimburse you for all fees and expenses reasonably incurred by you in
connection with your services as financial advisor and Dealer Manager,
including, without limitation, reasonable fees and expenses of counsel. All
payments to be made by the Company pursuant to this Section 6 and Section 5
shall be made promptly after the expiration or termination of the Tender Offer.
The Company shall perform its obligations set forth in this Section 6 and
Section 10 whether or not the Tender Offer is commenced or the Company, or any
of its subsidiaries or affiliates purchases any Notes pursuant to the Tender
Offer or otherwise acquires any Notes.
7. Securityholder Lists. The Company shall provide you or cause the
trustee under the Indenture governing the Notes and The Depository Trust Company
Inc. ("DTC") to provide you with cards or lists in reasonable quantities or
copies thereof showing the names and addresses of, and principal amounts of
Notes held by, the holders of Notes as of a recent date, and will use their
reasonable efforts to advise you or cause such trustee or DTC to advise you from
day to day during the period of the Tender Offer as to any transfers of record
of Notes. You agree to use such information only in connection with the Tender
Offer and the Solicitation and not to furnish such information to any other
person except in connection with the Tender Offer or the Solicitation.
The Company has appointed State Street Bank and Trust Company to
serve as depositary in connection with the Tender Offer and the Solicitation and
has instructed such depository to advise you daily as to such matters in
connection with the Tender Offer and the Solicitation as you may reasonably
request.
8. Representations and Warranties of the Company. The Company
represents and warrants to you, and agrees with you, that:
(a) The Company and each of its Subsidiaries (as defined below) has
been duly organized and is validly existing and in good standing under the
laws of its respective jurisdiction of incorporation, is duly qualified to
do business as a foreign corporation, and are corporations in good
standing in each jurisdiction in which its ownership or leasing of
property or the conduct of its business requires such qualification
(except where the failure to be so qualified and in good standing would
not have a Material Adverse Effect), and has all necessary corporate power
and authority necessary to own or hold its properties and to conduct the
business in which it is engaged. As used herein, "Material Adverse Effect"
means a material adverse effect on the condition (financial or otherwise),
results of
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<PAGE> 5
operations, business or prospects of the Company and its Subsidiaries
taken as a whole. The term "Subsidiaries" as used herein shall refer only
to Aircraft Braking Systems Corporation and Engineered Fabrics
Corporation. The Subsidiaries are the only "significant" subsidiaries" of
the Company within the meaning of Rule 1-02(v) of Regulation S-K. The
Company has all requisite corporate power and authority to execute,
deliver and perform its obligations under this Agreement and to conduct
the Tender Offer and Solicitation (including, any related borrowings by
the Company or any of its subsidiaries), and the purchase of Notes
pursuant to the Tender Offer and the payment for Consents pursuant to the
Solicitation in accordance with its terms;
(b) All necessary corporate action has been duly taken by the
Company to authorize the Tender Offer and the Solicitation, the purchase
of the Notes pursuant to the Tender Offer, the amendment of the Indenture
pursuant to the Solicitation, and the execution, delivery and performance
of this Agreement and the Supplemental Indenture by the Company;
(c) This Agreement has been duly executed and delivered by the
Company and is a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that
(i) enforcement thereof may be subject to (A) bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
now or hereafter in effect relating to or affecting creditors' rights
generally and (B) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law) and (ii)
the enforceability of any indemnification or contribution provisions
thereof may be limited under applicable securities laws or the public
policies underlying such laws;
(d) The Tender Offer and the Solicitation, the purchase of the Notes
pursuant to the Tender Offer, the amendment of the Indenture pursuant to
the Solicitation, the other transactions contemplated thereby and the
execution, delivery and performance of this Agreement and the Supplemental
Indenture (the "Proposed Transactions"), assuming the satisfaction or
waiver of the conditions set forth in the Tender Offer Material, do not
and will not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan or credit agreement or other agreement or
instrument to which either the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound or to
which any of the properties or assets of the Company or any of its
Subsidiaries are subject, nor will such actions result in any violation of
the provisions of the charter or by-laws of the Company or any of its
Subsidiaries or any statute to which it may be subject or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its Subsidiaries or any of their
properties or assets (except to the extent any such conflict, breach,
violation or default does not or will not, as the case may be, have a
Material Adverse Effect);
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<PAGE> 6
(e) The Proposed Transactions will comply in all material respects
with all applicable requirements of United States law, including, without
limitation, applicable regulations of the Commission and other
governmental authorities, and no consent or approval of or filing with any
governmental authority is required in connection with the commencement or
consummation by the Company of the Proposed Transactions;
(f) No action, suit or proceeding is pending or, to the best of the
knowledge of the Company after due inquiry, threatened, before any court
or governmental agency or other regulatory or administrative authority
seeking to enjoin the making or consummation of the Proposed Transactions;
(g) (i) The Offer to Purchase as furnished to the Dealer Manager
upon commencement of the Tender Offer and as amended from time to time and
all other Tender Offer Material comply and will comply during the term of
the Tender Offer in all material respects with all applicable requirements
of the federal securities laws; and (ii) such Tender Offer Material (as
amended or supplemented from time to time) does not and during the term of
the Tender Offer will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in the light of the
circumstances under which they are made, not misleading;
(h) The Company will pay promptly, in accordance with and subject to
the terms of the Tender Offer and the Solicitation, the full Tender Offer
Consideration and Consent Payment as set forth in the Offer to Purchase
and all related fees and reasonable expenses (including, but not limited
to, fees and reasonable expenses payable hereunder);
(i) In connection with the Tender Offer and the Solicitation, the
Company has complied in all material respects and will continue to comply
in all material respects with the requirements of the Securities Act of
1933, as amended, and the rules and regulations of the Commission
thereunder (collectively, the "Securities Act"), the Securities Exchange
Act of 1934, as amended, and the rules and regulations of the Commission
thereunder (collectively, the "Exchange Act") and the Trust Indenture Act
of 1939, as amended, and the rules and regulations of the Commission
thereunder (collectively, the "Trust Indenture Act");
(j) If at any time during the Tender Offer any event shall occur or
condition shall exist as a result of which it is necessary, in the
reasonable opinion of counsel for the Dealer Manager, to amend or
supplement the Tender Offer Material in order that such Material will not
include any statement which, at the time and in the light of the
circumstances under which it was made, was false or misleading with
respect to any material fact, or which omitted to state any material fact
necessary in order to make the statements therein not false or misleading
or necessary to correct any statement in the Tender Offer Material which
has become false or misleading or if, in the reasonable opinion of such
counsel, it shall be necessary to amend or supplement the Tender Offer
Material to comply with the requirements of the Securities Act or the
Exchange Act, the Company will promptly prepare such amendment or
supplement as may be necessary to correct such false or misleading
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<PAGE> 7
statement or omission or to make the Tender Offer Material comply with
such requirements and distribute such amendments or supplement to holders
of Notes, if in the opinion of such counsel it shall be necessary to so
distribute such amendment or supplement to comply with the requirements of
the Securities Act or Exchange Act;
(k) Upon execution and delivery of the Supplemental Indenture
following consummation of the Solicitation, the Supplemental Indenture, as
well as the Indenture (as so amended by the Supplemental Indenture) and
the Notes issued thereunder, will be the legal, valid and binding
obligations of the Company enforceable in accordance with their respective
terms, except that (i) enforcement thereof may be subject to (A)
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (B) general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law) and (ii) the enforceability of any indemnification or
contribution provisions thereof may be limited under applicable securities
laws or the public policies underlying such laws;
(l) The Supplemental Indenture may be entered into upon the consent
of the Holders of a majority of the aggregate outstanding principal amount
of the Notes pursuant to the provisions of the Indenture and, together
with the Consents and the Solicitation, complies in all material respects
with the requirements of such Indenture;
(m) The financial information and statistical data set forth in the
Tender Offer Material, including the accompanying notes thereto, are
prepared on a basis consistent with the consolidated financial statements
of the Company;
(n) The pro forma financial statements set forth in the Tender Offer
Material have been prepared to give effect to assumptions made on
reasonable bases, historical transactions and proposed transactions such
as are fully and accurately described in the Tender Offer Material, and
the pro forma adjustments have been properly applied on the bases
described therein; and
(o) Neither the Company nor any of its subsidiaries is party to any
agreement, arrangement or understanding relating to the acquisition by any
such person of any business which is both (i) "probable" within the
meaning of Regulation S-X and (ii) of such a size that the Company would
be required by Regulation S-X and other applicable notes of the Commission
to include either historical or pro forma financial information with
respect to such business in the Tender Offer Material.
9. Additional Covenants. Prior to and during the period of the
Tender Offer and the Solicitation, the Company shall advise you promptly of (i)
the occurrence of any event or the discovery of any fact which might reasonably
be expected to cause the Company to fail to commence, withdraw, rescind or
terminate the Tender Offer and the Solicitation or would reasonably be expected
to permit the Company to exercise any right not to purchase Notes tendered
thereunder,
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<PAGE> 8
(ii) any proposal or requirements to modify, amend or supplement any of the
Tender Offer Material, (iii) the issuance of any order or the taking of any
other action by the Commission or any another federal or other governmental
agency or instrumentality concerning the Tender Offer and the Solicitation (and,
if in writing, will furnish you a copy thereof), (iv) the commencement or threat
of any lawsuit or government proceeding in connection with the Tender Offer and
the Solicitation, (v) any event that causes a representation, warranty or other
statement to cease to be true and correct and (vi) any other information
relating to the Tender Offer and the Solicitation which you may from time to
time reasonably request.
10. Indemnification. (a) The Company agrees to hold harmless and
indemnify the Dealer Manager and its affiliates and any officer, director,
employee or agent of either thereof and any person controlling (within the
meaning of Section 20(a) of the Exchange Act) the Dealer Manager or any of such
affiliates (collectively, the "Indemnified Persons") from and against any and
all losses, claims, damages, liabilities and expenses whatsoever (as incurred or
suffered, and including, but not limited to, any and all reasonable legal or
other expenses incurred in connection with investigating, preparing to defend or
defending any lawsuit, claim or other proceeding, commenced or threatened,
whether or not resulting in any liability, which legal or other expenses shall
be reimbursed by the Company promptly after receipt of any invoices therefor),
(i) arising out of or based upon (A) any untrue statement or alleged untrue
statement of a material fact contained in any of the Tender Offer Material or
any amendment or supplement to such Tender Offer Material or in any other
solicitation material used by the Company or authorized by it for use in
connection with the Tender Offer and the Solicitation, or arising out of or
based upon the omission or alleged omission to state in any such document a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading (other than statements or omissions made solely in reliance upon
and in conformity with information relating to the Dealer Manager furnished by
the Dealer Manager in writing to the Company expressly for use therein), (B) any
third party claims resulting from any withdrawal or termination by the Company
of, or failure by the Company to make or consummate, the Tender Offer or the
Solicitation, (C) any actions taken or omitted to be taken by an Indemnified
Person with the consent of the Company or in conformity with actions taken or
omitted to be taken by the Company or (D) any breach by the Company of any
representation or warranty, or any failure by the Company to comply with any
agreement or covenant, contained in this Agreement or (ii) arising out of,
relating to or in connection with or alleged to arise out of, relate to or be in
connection with the Tender Offer or the Solicitation or the performance of your
services as financial advisor or Dealer Manager with respect to the Tender Offer
and the Solicitation. However, the Company will not be obligated to indemnify an
Indemnified Person under clause (ii) of this Section 10(a) for any loss, claim,
damage, liability or expense which has been determined in a final judgment by a
court of competent jurisdiction to have resulted directly from gross negligence
or willful misconduct on the part of such Indemnified Person.
(b) If any lawsuit, claim or proceeding is brought against any
Indemnified Person in respect of which indemnification may be sought against the
Company pursuant to Section 10(a), such Indemnified Person shall promptly notify
in writing the Company of the commencement of such lawsuit, claim or proceeding;
provided, however, that the failure so to notify the Company shall
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<PAGE> 9
not relieve the Company from any obligation or liability which it may have under
Section 10(a) except to the extent that it has been prejudiced in any material
respect by such failure and in any event shall not relieve the Company from any
obligation or liability which it may have to such Indemnified Person otherwise
than under Section 10(a). In case any such lawsuit, claim or proceeding shall be
brought against any Indemnified Person and such Indemnified Person shall notify
in writing the Company of the commencement of such lawsuit, claim or proceeding,
the Company shall be entitled to participate in such lawsuit, claim or
proceeding, and, to the extent the Company may elect upon written notice to such
Indemnified Person, to assume the defense of such lawsuit, claim or proceeding
with counsel of its choice at its expense; provided, however, that such counsel
shall be satisfactory to the Indemnified Person in the exercise of its
reasonable judgment. Notwithstanding the election of the Company to assume the
defense of such lawsuit, claim or proceeding, the Indemnified Person shall have
the right to employ separate counsel to assert such legal defenses and to
otherwise participate in the defense of such action on behalf of such
Indemnified Person but the fees and expenses of such counsel shall be at the
expense of such Indemnified Person unless (i) the employment thereof has been
specifically authorized by the Company in writing, (ii) such Indemnified Person
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the Company and in the reasonable judgment of such counsel it is
advisable for such Indemnified Person to employ separate counsel or (iii) the
Company has failed to assume the defense of such action and employ counsel
reasonably satisfactory to the Indemnified Person, in which case, if such
Indemnified Person notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action on behalf of such Indemnified Person,
it being understood, however, that the Company shall not, in connection with any
one such 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 reasonable fees and expenses of more than one separate firm of
attorneys at any time for all such Indemnified Persons, which firm shall be
designated in writing by Lehman Brothers. The foregoing indemnification
commitments shall apply whether or not the Indemnified Person is a formal party
to any such lawsuit, claim or proceeding. The Company shall not be liable for
any settlement of any lawsuit, claim or proceeding effected without its consent
(which consent will not be unreasonably withheld), but if settled with such
consent, the Company agrees, subject to the provisions of this Section 10(b), to
indemnify the Indemnified Person from and against any loss, damage or liability
by reason of such settlement. The Company agrees to notify you promptly, or
cause you to be notified promptly, of the assertion of any lawsuit, claim or
proceeding against the Company, any of its respective officers or directors or
any person who controls any of the foregoing within the meaning of Section 20(a)
of the Exchange Act, arising out of or relating to the Tender Offer or the
Solicitation. The Company shall not agree to any settlement of any lawsuit,
claim or proceeding without the prior written consent of the Indemnified Person,
which consent shall not be unreasonably withheld. Notwithstanding the foregoing,
the Company shall not be required to obtain the consent of the Indemnified
Person if such settlement includes an explicit and unconditional release from
the parties bringing such lawsuit, claim or proceeding of all Indemnified
Persons, which release shall be reasonably satisfactory to you.
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<PAGE> 10
(c) The Company and you agree that if any indemnification sought by
any Indemnified Person pursuant to Section 10(a) is held by a court to be
unavailable for any reason, other than that specified in the second sentence of
Section 10(a), then (whether or not you are the Indemnified Person) the Company,
on the one hand, and you, on the other hand, shall contribute to the losses,
claims, damages, liabilities and expenses for which such indemnification is held
unavailable (i) in such proportion as is appropriate to reflect the relative
benefits to the Company, on one hand, and you, on the other hand, in connection
with the matter giving rise to such losses, claims, damages, liabilities and
expenses, and other equitable considerations, or (ii) if the allocation provided
by the foregoing clause (i) is not permitted by applicable law, in such
proportions as is appropriate to reflect not only the relative benefits referred
to in the foregoing clause (i) but also the relative faults of the Company, on
the one hand, and you, on the other, in connection with the matter giving rise
to such losses, claims, damages, liabilities and expenses, and other equitable
considerations, subject to the limitation that in any event your aggregate
contribution to all losses, claims, damages, liabilities and expenses with
respect to which contribution is available hereunder shall not exceed the amount
of fees actually received by you pursuant to this Agreement. It is hereby agreed
that the relative benefits to the Company, on the one hand, and you, on the
other hand, with respect to the Tender Offer and the Solicitation shall be
deemed to be in the same proportion as (i) the aggregate value of the
consideration paid or proposed to be paid to the Holders of the Notes pursuant
to the Tender Offer and the Solicitation (whether or not the Tender Offer and
the Solicitation are consummated) bears to (ii) the fees payable to you with
respect to the Tender Offer and the Solicitation pursuant to Section 5. It is
further agreed that the relative faults of the Company on the one hand and you
on the other hand, (i) in the case of an untrue or alleged untrue statement of a
material fact or an omission or alleged omission to state a material fact, shall
be determined by reference to, among other things, whether such statement or
omission relates to information supplied by the Company or by you and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission and (ii) in the case of any other
action or omission, shall be determined by reference to, among other things,
whether such action or omission was taken or omitted to be taken by the Company
or you and the parties' relative intent, knowledge, access to information and
opportunity to prevent such action or omission.
(d) The amount paid or payable by an Indemnified Person as a result
of the losses, claims, damages, liabilities or expenses referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Person in connection with investigating, preparing to defend or
defending any such action or claim. The Company also agrees that no Indemnified
Person shall have any liability to the Company or any person asserting claims on
behalf of or in right of the Company in connection with this Agreement or your
acting as financial advisor and Dealer Manager hereunder, except for liabilities
determined in a final judgment by a court of competent jurisdiction to have
resulted from any acts or omissions undertaken or omitted to be taken by you
through your gross negligence or willful misconduct. The foregoing rights to
indemnification and contribution shall be in addition to any other rights which
you and the other Indemnified Persons may have against the Company under common
law or otherwise.
-10-
<PAGE> 11
11. Indemnification, Representations and Warranties to Remain
Operative. The indemnity and contribution agreements contained in Section 10 and
the representations and warranties of the Company set forth in this Agreement
shall remain operative and in full force and effect regardless of (a) any
failure to commence, or the withdrawal, rescission, termination or consummation
of, the Tender Offer or the termination or assignment of this Agreement, (b) any
investigation made by or on behalf of any party entitled to indemnification
pursuant to the terms of Section 10 and (c) any withdrawal by you pursuant to
Section 4(b).
12. Conditions to Obligations of Dealer Manager. Your obligations
hereunder shall at all times be subject, in your reasonable discretion, to the
satisfaction of the following conditions:
(a) all representations, warranties and other statements of the
Company contained herein are, on the date hereof, and at all times during
the period beginning on the date hereof and ending upon the consummation
or termination of the Tender Offer will be true and correct and you shall
have received a certificate to that effect, dated the date of consummation
of the Tender Offer, signed by the Chief Executive Officer or Chief
Financial Officer of the Company;
(b) the Company, at all times during the pendency of the Tender
Offer, shall have performed all of its obligations hereunder to be
performed and you shall have received a certificate to that effect, dated
the date of consummation of the Tender Offer, signed by the Executive Vice
President or Chief Financial Officer of the Company;
(c) no stop order, restraining order or denial of an application for
approval shall have been issued and no litigation shall have been
commenced or threatened before any regulatory authority or other public
body or court of any jurisdiction with respect to the Tender Offer or the
Solicitation, which you, in good faith, believe makes it inadvisable for
you to continue to act hereunder;
(d) the Company shall have delivered to you opinions, each dated as
of the commencement date of the Tender Offer and at the expiration of the
Tender Offer, of O'Sullivan Graev & Karabell, LLP, special counsel to the
Company, and Ronald Kisner, general counsel to the Company, each addressed
to you and substantially in the forms attached hereto as Exhibits B and C,
respectively;
(e) on the expiration date of the Solicitation, you shall have
received copies of the opinions of counsel together with applicable
reliance letters and other documents that are delivered to the Trustee in
connection with the Supplemental Indenture; and
(f) at all times during the pendency of the Tender Offer and the
Solicitation, the Company shall have furnished to you or your counsel, as
the case may be, such information, certificates and documents as you or
your counsel shall have reasonably requested.
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<PAGE> 12
All opinions, certificates, letters and other documents required by
this Section 12 to be delivered to you by the Company will be in compliance with
the provisions hereof only if they are reasonably satisfactory in form and
substance to you and to Latham & Watkins, your counsel. The Company will furnish
you with such conformed copies of such opinions, certificates, letters and other
documents as you shall reasonably request.
You shall have a reasonable period of time after discovering or
being informed of a breach in any of the foregoing conditions to elect whether
to continue to act as Dealer Manager. Your resignation as Dealer Manager as a
result of a breach of the foregoing conditions shall be without prejudice to
your entitlement to any fees under Section 5 of this Agreement and shall be
governed in all other respects by Section 4(b) of this Agreement.
13. Notices. All notices and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given if delivered personally to the parties hereto as
follows:
(a) If to you:
Lehman Brothers Inc.
Three World Financial Center
200 Vesey Street
New York, NY 10285
Attention: Liability Management Group
with a copy to:
Latham & Watkins
885 Third Avenue, Suite 1000
New York, NY 10022
Attention: Raymond Y. Lin, Esq.
(b) If to the Company:
K&F Industries, Inc.
600 Third Avenue
New York, NY 10016
Attention: Chief Financial Officer
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<PAGE> 13
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, NY 10112
Attention: Robert Seber, Esq.
14. Successors and Assigns; Assignment. This Agreement, including
any right to indemnity or contribution hereunder, shall inure to the benefit of
and be binding upon the Company and you and such other parties entitled to
indemnification pursuant to the terms of Section 10, and the respective
successors and permitted assigns of such parties. Nothing in this Agreement is
intended, or shall be construed, to give to any other person or entity any right
hereunder or by virtue hereof. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned without the prior written consent of the
other party.
15. No Rights in Shareholders or Others. The Company recognizes that
you have been retained only by the Company, and that your engagement is not
deemed to be on behalf of and is not intended to confer rights upon any
shareholder, owner or partner of the Company or any other person not a party
hereto as against you or any of your affiliates or the respective directors,
officers, agents, employees or representatives of you or your affiliates. Unless
otherwise expressly agreed, no one other than the Company is authorized to rely
upon your engagement hereunder or any statements, advice, opinions or conduct by
you.
16. Acceptance/Rejection of the Notes. The Company will have sole
responsibility for the acceptance or rejection of the Notes tendered pursuant to
the Tender Offer and Consents delivered pursuant to the Solicitation.
17. Third Party Beneficiaries. This Agreement is made solely for the
benefit of you, the Company and the persons indemnified by the Company and you
pursuant to Section 10 hereof, and their respective successors, permitted
assigns and legal representatives, and no other person shall acquire or have any
right under or by virtue of this Agreement. You shall not have any liability or
obligation to the Company for any act or omission of any broker, and you shall
not undertake any obligation to the Company other than for the performance of
your express representations, warranties and agreements hereunder. The Company
agrees and acknowledges that the only information furnished or to be furnished
by you or on your behalf for inclusion in any Tender Offer Material is the
description of yourself and your relationships with the Company to be included
in such Tender Offer Material.
18. 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
principles thereof relating to conflict of laws.
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<PAGE> 14
19. Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto and supersedes all prior agreements,
understandings and arrangements, oral or written, among the parties hereto with
respect to the subject matter hereof and thereof.
20. Severability; Counterparts. In the event that any provision
hereof shall be determined to be invalid or unenforceable in any respect, such
determination shall not affect such provision in any other respect or any other
provision hereof, which shall remain in full force and effect. This Agreement
may be executed in one or more separate counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
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<PAGE> 15
Please indicate your willingness to act as financial advisor and
Dealer Manager on the terms set forth herein and your acceptance of the
foregoing provisions by signing in the space provided below for that purpose and
returning to us a copy of this letter so signed, whereupon this letter and your
acceptance shall constitute a binding agreement among us.
Very truly yours,
K&F INDUSTRIES, INC.
By: /s/ Kenneth M. Schwartz
----------------------------
Title: Executive Vice President
Accepted as of the date first set forth above:
LEHMAN BROTHERS INC.
By: /s/ Edward B. McGeough
-----------------------------------
Title: Managing Director
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<PAGE> 1
EXHIBIT 10.38
AMENDED AND RESTATED DIRECTOR
ADVISORY AGREEMENT dated as of October 15,
1997 between K & F INDUSTRIES, INC., a
Delaware corporation (the "Company"), and
BERNARD L. SCHWARTZ ("BLS"),
individually and on behalf of the
individuals listed on Exhibit A hereto
(and/or their respective successors) (herein
collectively the "Directorate").
WHEREAS, on April 27, 1989 the Company acquired substantially
all of the assets of the Aircraft Braking Systems Division and the Engineered
Fabrics Division (collectively the "Subsidiaries") of Loral Corporation, a New
York corporation;
WHEREAS, at such time, the Company desired to avail itself of
certain advisory services of BLS and other members of the Directorate in their
capacity as members of the Board of Directors of the Company and/or the
Subsidiaries, and consequently requested BLS to constitute the Directorate to
provide it with advisory services on an ongoing basis with respect to the
business and affairs of the Company and/or the Subsidiaries;
WHEREAS, at that time, the Company and BLS agreed that it was
in their respective best interests to enter into the Director Advisory Agreement
dated as of April 27, 1989 (the "Director Advisory Agreement") whereby BLS and
other members of the Directorate would serve as directors of the Company and/or
its Subsidiaries and provide advisory services as aforesaid to the Company
and/or its Subsidiaries; and
WHEREAS, the parties desire to update the Director Advisory
Agreement to reflect the changed name of the Company as well as to reduce the
stock ownership trigger for termination of the Director Advisory Agreement in
view of the decrease in the number of issued and outstanding shares of capital
stock of the
<PAGE> 2
Company after giving effect on the date hereof to the recapitalization of the
Company;
ACCORDINGLY, in consideration of the mutual covenants
hereinafter set forth, the Company and BLS (individually and on behalf of the
Directorate) hereby agree as follows:
1. COMPOSITION/COMPENSATION OF THE DIRECTORATE; SUCCESSORS.
The initial members of the Directorate shall be BLS and the persons designated
by BLS on Exhibit A hereto. The aggregate compensation hereinafter provided for
the Directorate pursuant to Paragraph 4 hereof shall be conclusively allocated
by BLS to and among the members of the Directorate (to include BLS). In the
event of the death, disability or termination (voluntary or involuntary) of any
initial member of the Directorate, his successor, if any, shall be conclusively
designated by BLS. Nothing contained herein shall entitle any person (other than
BLS) to continue (absent the approval of BLS) as a member of the Directorate.
2. ADVISORY SERVICES OF THE DIRECTORATE. During the term of
this Agreement, members of the Directorate shall serve as directors of the
Company and/or its Subsidiaries (as conclusively determined by BLS) and shall
advise the Company and/or its subsidiaries with respect to such matters
regarding the business and affairs of the Company and its Subsidiaries as are
normally within the purview of a director and/or as the Company may reasonably
request.
3. TERM. This Agreement shall commence on the date hereof and
shall continue until the date BLS dies or is disabled or ceases to own at least
100,000 shares of common stock of the Company.
4. COMPENSATION. The Company shall, as compensation for the
services provided by the Directorate hereunder, pay to
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the members of the Directorate (as constituted at such time and in such
proportion as BLS shall, in his sole discretion, determine), on the first day of
each month during the term of this Agreement, an aggregate of $200,000.00, in
cash.
5. NOTICES. All notices, requests and other communications
required or permitted hereunder will be in writing and will be deemed given
either when delivered personally or five days after being mailed by certified or
registered U.S. mail, return receipt requested, postage prepaid, or on the next
business day after the sending thereof by prepaid air courier guaranteeing next
day delivery, or when answered back if sent by telex, or when receipt is
acknowledged if sent by telecopier, addressed as follows:
If to the Directorate:
Bernard L. Schwartz
944 Fifth Avenue
New York, New York 10021
If to the Company:
K & F Industries, Inc.
600 Third Avenue
New York, New York 10016
In either case, with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza, 41st Floor
New York, New York 10112
Attention: George P. O'Sullivan, Esq.
provided, that a party by giving notice to the other party may change the
address for notice set forth above.
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6. ASSIGNMENT. This Agreement may not be assigned by any
party signatory hereto without the consent of the other party signatory hereto.
7. GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York.
8. HEADINGS. Section headings are used for convenience only
and shall in no way affect the construction of this Agreement.
9. ENTIRE AGREEMENT. This Agreement contains the entire
agreement among the parties signatory hereto with respect to the subject matter
hereof and supersedes all prior arrangements or understandings with respect
thereto.
10. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts shall constitute but one
agreement.
11. AMENDMENTS. Neither this Agreement nor any part of it may
in any way be altered, amended, extended, waived, discharged or terminated
except by a written agreement signed by BLS and the Company.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Amended and Restated Director Advisory Agreement as of the date first above
written.
K & F INDUSTRIES, INC.
By /s/ Kenneth M. Schwartz
------------------------------------------
Name: Kenneth M. Schwartz
Title: Executive Vice President
/s/ Bernard L. Schwartz
--------------------------------------------
Bernard L. Schwartz
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<PAGE> 1
EXHIBIT 10.39
STOCKHOLDERS' AGREEMENT
DATED AS OF OCTOBER 15, 1997
between
K & F INDUSTRIES, INC.
and the
STOCKHOLDERS IDENTIFIED HEREIN
<PAGE> 2
STOCKHOLDERS' AGREEMENT dated as of October 15, 1997, between
K & F INDUSTRIES, INC. (formerly known as Opus Acquisition
Corporation), a Delaware corporation (the "Company"), BERNARD L.
SCHWARTZ ("BLS") and LEHMAN BROTHERS MERCHANT BANKING PORTFOLIO
PARTNERSHIP L.P. ("LBMB"), LEHMAN BROTHERS OFFSHORE INVESTMENT
PARTNERSHIP L.P. ("LBOI"), LEHMAN BROTHERS OFFSHORE INVESTMENT
PARTNERSHIP - JAPAN L.P. ("LBOIJ"), and LEHMAN BROTHERS CAPITAL
PARTNERS II, L.P. ("LBCP," and collectively with LBMB, LBOI, LBOIJ,
"LBP").
Each of the parties to this Agreement (other than the Company) and
any other Person who shall become a party to or agree to be bound by the terms
of this Agreement after the date hereof is sometimes hereinafter referred to as
a "Stockholder." This Agreement replaces the Amended and Restated Stockholders
Agreement dated as of September 2, 1994 by and among the Company and the
stockholders referred to therein and shall become effective (the "Effective
Date") on the date hereof.
The parties hereto desire to restrict the sale, assignment,
transfer, encumbrance or other disposition of the shares of stock (the "Stock")
of the Company, including both issued and outstanding shares of Stock as well as
shares of Stock which may be issued hereafter, and to provide for certain rights
and obligations in respect thereto as hereinafter provided.
Accordingly, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings ascribed to them below:
"Affiliate" shall mean, with respect to any Person, any other
Person that, directly or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such Person.
"Alternative Investment Bank" shall have the meaning set forth in
Section 6.1(b).
<PAGE> 3
"Appraisal Request" shall have the meaning set forth in Section 6.1(a).
"Appraised Value" shall have the meaning set forth in Section 6.1(a).
"BLS" shall have the meaning set forth in the preamble of this
Agreement.
"BLS Group" shall have the meaning set forth in Section 3.1.
"Board of Directors" shall mean the Board of Directors of the Company.
"Buyer's Notice" shall have the meaning set forth in Section 4.1(a).
"By-laws" shall mean the by-laws of the Company, in the form of Exhibit
A hereto, as amended from time to time.
"Charitable Institution" shall mean an organization described in
section 501(c)(3) of the Code.
"Charter" shall mean the Restated Certificate of Incorporation of the
Company, in the form of Exhibit B hereto, as amended from time to time.
"Charter Documents" shall have the meaning set forth in Section 9.3(a).
"Closing Date" shall have the meaning set forth in Section 7.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Equivalents" shall mean outstanding shares of Common Stock and
shares of Common Stock issuable upon the exercise of outstanding options or
rights to acquire Common Stock or upon conversion of outstanding convertible
securities whether or not vested, exercisable, or convertible at the time of
determination.
"Common Stock" shall have the meaning set forth in the preamble of this
Agreement.
"Company" shall have the meaning set forth in the preamble of this
Agreement.
"Effective Date" shall have the meaning set forth in the preamble of
this Agreement.
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"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"First Investment Bank" shall have the meaning set forth in Section
6.1(b).
"First Offerees" shall have the meaning set forth in Section 4.1(b).
"Initial Public Offering" shall mean the Company's initial sale of
Stock pursuant to an effective registration statement under the Securities Act
(other than a registration statement on Form S-4 or Form S-8 or otherwise
relating to shares of Stock issuable under any employee benefit plan of the
Company or issued in connection with the sale of any debt securities of the
Company).
"LBP" shall have the meaning set forth in the preamble of this
Agreement.
"Lehman Group" shall have the meaning set forth in Section 3.1.
"Offer Price" shall have the meaning set forth in Section 4.1(a).
"Offered Shares" shall have the meaning set forth in Section 4.1(a).
"Offeree Group" shall have the meaning set forth in Section 4.1(b).
"Offerees" shall have the meaning set forth in Section 4.1(b).
"Other Party" shall have the meaning set forth in Section 6.2(a).
"Person" shall mean an individual, corporation, partnership, joint
venture, trust, association, joint stock company, unincorporated organization or
a government or any agency or political subdivision thereof.
"Put-Sale Group" shall have the meaning set forth in Section 6.2(a).
"Put-Sale Notice" shall have the meaning set forth in Section 6.2(a).
"Rule 144 Open Market Transaction" shall mean any sale of shares of
Stock in an open market transaction under Rule 144 of the Securities Act (or any
successor rule) if such sale is in compliance with the requirements of such
Rule.
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<PAGE> 5
"SEC" shall mean the Securities and Exchange Commission.
"Second Offerees" shall have the meaning set forth in Section 4.1(b).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall have the meaning set forth in Section 4.1(a).
"Seller's Notice" shall have the meaning set forth in Section 4.1(a).
"Stock" shall have the meaning set forth in the preamble to this
Agreement.
"Stockholder" shall have the meaning set forth in the preamble of this
Agreement.
"Third Offerees" shall have the meaning set forth in Section 4.1(b).
"Transfer" shall have the meaning set forth in Section 2.1.
"Transferee" shall have the meaning set forth in Section 2.1.
2. CERTAIN RESTRICTIONS ON TRANSFERS
2.1. Transfers in Accordance with this Agreement.
No Stockholder shall, directly or indirectly, (i) transfer, sell,
assign, pledge, hypothecate, encumber, or otherwise dispose of any Stock to any
Person or (ii) enter into any swap, participation or other arrangement that
transfers to another Person, in whole or in part, any of the economic
consequences of ownership of shares of Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of shares of
Stock, in cash or otherwise (any such act being referred to as a "Transfer" and
any Person acquiring Stock from a Stockholder and any subsequent transferee of
any such Person is referred to as a "Transferee" of such Stockholder), unless
such Transfer is permitted under Section 3.1. The Company shall not register
upon its books any Transfer of Stock by a Stockholder to any Person except a
Transfer in accordance with this Agreement.
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<PAGE> 6
2.2. Certain Stockholders.
Each Stockholder that is an entity that was formed for the purpose of
acquiring Stock or that has no substantial assets other than such Stock or
interests therein agrees that (a) its shares of common stock or instruments
reflecting equity interests therein (and the shares of common stock or
instruments of any similar entities that control it) will note the restrictions
on Transfer contained in this Agreement as if they were Stock and (b) no shares
of stock or other equity interests in any such entities may be transferred to
any Person other than in accordance with the terms of this Agreement as if such
stock or other equity interests were Stock.
2.3. Agreement to be Bound.
No Transfer of Stock (other than Transfers pursuant to the registration
rights included in Exhibit C, Rule 144 Open Market Transactions or any other
bona fide registered public offering) shall be effective (and the Company shall
not transfer on its books any such Common Stock) unless (i) the certificates
representing such Stock issued to the Transferee shall bear the legends provided
in Article 8, if required by such Section, and (ii) the Transferee (if not
already a party hereto) shall have executed and delivered to the Company, as a
condition precedent to such Transfer, an instrument or instruments in form and
substance reasonably satisfactory to the Company confirming that the Transferee
agrees to be bound by the terms of this Agreement.
3. CERTAIN PERMITTED TRANSFERS
3.1. Certain Permitted Transfers. None of the restrictions contained in
this Agreement with respect to Transfers of Stock (other than those set forth in
Sections 2.3 and this Section 3.1) shall apply:
(a) to any Transfer (including by gift) by BLS:
(i) to any spouse or descendants (collectively, "relatives") of BLS;
(ii) to a trust of which there are no beneficiaries other than (A)
BLS, (B) relatives of BLS or (C) a charitable institution or
organization;
(iii) to any partnership, corporation or limited liability company
of which there are no partners, stockholders or members, as applicable,
other than BLS or relatives of BLS;
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(iv) to a legal representative or guardian of BLS or a relative of
BLS if BLS or such relative becomes mentally incompetent; or
(v) to any person by will or by the laws of descent.
provided that any such Transferee listed in clauses (i) through (v) above agrees
that, notwithstanding the terms of this Section 3.1, such Transferee shall not
thereafter Transfer such Stock to any Person to whom BLS would not be permitted
to Transfer such Stock pursuant to the terms of this Agreement;
(b) to any Transfer of Stock by BLS or any member of the BLS Group to
BLS, any member of the BLS Group or any individual who is then employed by, a
consultant to or a director of the Company or any of its subsidiaries, or any
individual who is then a consultant or advisor to BLS with respect to the
investment by BLS in the Company (such individuals, together with the persons or
entities listed in clauses (i) through (v) of subsection (a) above, the "BLS
Group");
(c) to any Transfer of Stock by LBP or any member of the Lehman Group
(i) to any employee, consultant and advisor of any member of the
Lehman Group or its Transferees;
(ii) to any trust, partnership or similar entity established by LBP
for the purpose of holding Stock on behalf of the partners of LBMB,
LBOI, LBOIJ or LBCP, provided that the trustees or general partners (or
persons serving similar functions) of any such trust or other entity
are employees or directors of LBP or any of its Affiliates (who shall
be reasonably acceptable to BLS);
(iii) to (A) any general partner of LBMB, LBOI, LBOIJ or LBCP, (B)
any wholly-owned subsidiary of any such general partner or (C) any
partnership for which such general partner or its wholly-owned
subsidiary is the sole general partner; provided, that any such
partner, subsidiary or partnership shall be reasonably acceptable to
BLS; or
(iv) to any third party after March 3, 2001, subject to compliance
with Sections 2, 4, 5, 6 and 9.1(g) hereof (such third party, together
with LBP and the entities listed above in clauses (i), (ii) and (iii)
of this subsection (c), the "Lehman Group");
provided, that any such Transferee agrees that, notwithstanding the terms of
this Section 3.1, it shall not thereafter Transfer such Stock to any Person to
whom such transferor Stockholder
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<PAGE> 8
would not be permitted to Transfer such Stock pursuant to the terms of this
Agreement;
(d) after an Initial Public Offering approved by the Board of Directors
of the Company, to any Transfer of Stock for cash pursuant to the registration
rights included in Exhibit C or any other bona fide registered public offering;
provided that notwithstanding the terms of this Section 3.1(d), any Transfer of
Stock not made in a broad distribution to the general public, whether pursuant
to a registered public offering or otherwise, shall be subject to the rights of
first offer contained in Section 4.1 and the tag-along rights contained in
Section 5.2;
(e) after an Initial Public Offering approved by the Board of Directors
of the Company, to any Transfer of Stock for cash pursuant to Rule 144 Open
Market Transactions occurring after an Initial Public Offering; provided that
notwithstanding the terms of this Section 3.1(e), any Transfer of Stock not made
in a broad distribution to the general public, whether pursuant to a Rule 144
Open Market Transaction or otherwise, shall be subject to the rights of first
offer contained in Section 4.1 and the tag-along rights contained in Section
5.2;
(f) to any Transfer of Common Stock consisting of the pledge of Stock
by any Stockholder to a commercial bank, savings and loan institution or any
other lending institution as security for a bona fide loan or loans provided
that upon any foreclosure such pledgee shall assume and be bound by all the
terms of this Agreement;
(g) to any Transfer of Stock pursuant to the put-sale rights set forth
in Section 6.2; or
(h) to any Transfer of Stock acquired on the open market.
4. RIGHTS OF FIRST OFFER
4.1. Transfers to Third Parties; Rights of First Offer.
(a) Subject in all respects to the restrictions on transfer set forth
in Section 2.1 and compliance with Section 2.3 and 3.1, if at any time any
Stockholder desires to Transfer any Stock then owned by such Stockholder to any
third party pursuant to Sections 3.1(c)(iv), the proviso to Section 3.1(d), the
proviso to Section 3.1(e) and (in the case of a foreclosure or similar action
following a pledge) (f), such Stockholder shall first comply with the rights of
first offer contained in this Section 4.1. Such Stockholder shall give written
notice to the Company stating that such Stockholder desires to make such
Transfer, the number of shares of Stock proposed to be Transferred and the cash
price per share that such Stockholder proposes to be paid for such shares of
Stock.
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<PAGE> 9
For purposes of this Agreement, any notice stating a Stockholder's
desire to Transfer Common Stock pursuant to this Section 4.1 is referred to as a
"Seller's Notice"; the Common Stock covered by any Seller's Notice is referred
to as the "Offered Shares"; the Stockholder giving the Seller's Notice is
sometimes referred to as the "Seller"; the price per share which the Stockholder
proposes to be paid therefor (or, in the case of a registered public offering,
the midpoint of the range of prices proposed therefor) is referred to as the
"Offer Price"; and any notice given by the Company or any Stockholder pursuant
to which the Company or such Stockholder (as the case may be) elects to purchase
Offered Shares and that states (i) the maximum number of such Offered Shares
that the Company or such Stockholder (as the case may be) elects to purchase,
(ii) that the election made in such notice is irrevocable and (iii) that the
Company or such Stockholder (as the case may be) shall purchase any number of
Offered Shares up to such maximum number at the Offer Price in cash is referred
to as a "Buyer's Notice." Each Seller's Notice shall constitute an irrevocable
offer by the Seller to the Company and/or the other Stockholders, as the case
may be, of the Offered Shares at the Offer Price. The Company shall mail a copy
of any Seller's Notice (together with a description of the offering procedures
hereunder) to each Stockholder of the Company within 5 days of the receipt
thereof.
(b) Offered Shares offered by any Seller pursuant to this Section
4.1 shall be offered to the Company (it being understood that the exercise by
the Company of its rights under this Section 4.1 shall be subject to the terms
of the Company's By-Laws) and other Stockholders in the following order:
(i) in the case of any offer by BLS, first to the Company and second
to all other Stockholders who are not BLS Transferees;
(ii) in the case of any offer by any other member of the BLS Group
or any other Transferee of BLS, first to BLS, second to the Company and
third to the other Stockholders; and
(iii) in the case of any offer by any member of the Lehman Group or
any Transferee of any member of the Lehman Group, first to the other
members of the Lehman Group, second to the Company and third to the
other Stockholders.
The first Person or group to whom Offered Shares are so offered is
called the "First Offerees"; the second such Person or group is called the
"Second Offerees"; and the third such Person or group, if any, is called the
"Third Offerees." Each such Person or group is called an "Offeree Group" and all
such Persons and groups are called the "Offerees."
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<PAGE> 10
(c) Within 10 days after the date of mailing by the Company of the
Seller's Notice, the First Offerees may elect to purchase Offered Shares at the
Offer Price in a Buyer's Notice to the Seller, with a copy to the Company.
(d) If the First Offerees elect to purchase none of, or less than all
of, the Offered Shares, then the Company shall give written notice to the Second
Offerees not later than three days after the expiration of the 10-day period set
forth in Section 4.1(c), which notice shall specify the Offer Price and the
number of remaining Offered Shares available for purchase by the Second
Offerees. The Second Offerees may elect to purchase Offered Shares at the Offer
Price in a Buyer's Notice to the Seller, with a copy to the Company, within 10
days following mailing of the notice from the Company.
(e) If the First Offerees and the Second Offerees elect to purchase
none of, or less than all of, the Offered Shares, then the Company shall give
written notice to the Third Offerees (if applicable) not later than three days
after the expiration of the 10-day period set forth in Section 4.1(d), which
notice shall specify the Offer Price and the number of remaining Offered Shares
available for purchase by the Third Offerees. The Third Offerees may elect to
purchase Offered Shares at the Offer Price in a Buyer's Notice to the Seller,
with a copy to the Company, within 10 days following mailing of the notice from
the Company.
(f) If the Offerees fail to elect to purchase all the Offered Shares
within the time periods specified in this Section 4.1, then the Seller (i) shall
be under no obligation to sell any of the Offered Shares to the Company or any
Stockholder, unless the Seller so elects, and (ii) may, within a period of three
months from the date of the Seller's Notice, sell all or any Offered Shares to
one or more third parties for cash at a price per share not less than the Offer
Price and on other terms which are no more favorable to the purchaser than those
set forth in the Seller's Notice.
(g) In the event of an oversubscription to purchase Offered Shares in
connection with notice given under Sections 4.1(c), the proviso to Section
3.1(d) or the proviso to Section 3.1(e) hereof, each Offeree which delivered a
Buyer's Notice thereunder shall be permitted to purchase its pro rata share of
the Offered Shares. Such pro rata share shall equal the product of (i) the
fraction, the numerator of which shall be the number of Offered Shares such
Offeree offered to purchase pursuant to its Buyer's Notice delivered under
Sections 4.1(c), the proviso to Section 3.1(d) or the proviso to Section 3.1(e),
as applicable, and the denominator of which shall be the aggregate number of
Offered Shares all Offerees offered to purchase under Sections 4.1(c), the
proviso to Section 3.1(d) or the proviso to Section 3.1(e), as applicable, times
(ii) the aggregate number of Offered Shares available to be purchased under
Sections 4.1(c),
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the proviso to Section 3.1(d) or the proviso to Section 3.1(e), as applicable.
4.2. Subsequent Transfers.
If the Company and the Stockholders do not elect to purchase all the
Offered Shares at the Offer Price in cash and the Seller shall not have
Transferred the Offered Shares to any Transferee prior to the expiration of the
three month period specified in Section 4.1(f), then the rights of first offer
under this Article 4 shall again apply in connection with any subsequent
Transfer or offer to Transfer by such Seller.
5. PUBLIC OFFERING; TAG-ALONG RIGHTS
5.1. Registration Rights.
Following the occurrence of an Initial Public Offering approved by the
Board of Directors, the Company hereby grants to each Stockholder the
registration and other rights set forth in, and each Stockholder agrees to
comply with the terms and conditions contained in, Exhibit C hereto.
5.2. Tag-Along Right.
(a) Subject in all respects to the restrictions on transfer set forth
in Section 2.1 and compliance with Sections 2.3 and 3.1, if, at any time, any
Stockholder (or group of Stockholders acting in concert) (individually, the
"Original Selling Stockholder") proposes to Transfer shares of Common Stock (or
options or rights to acquire Common Stock or securities convertible into Common
Stock) to any Person or group of Persons (the "Proposed Purchaser") in any
transaction or series of related transactions pursuant to Sections 3.1(c)(iv),
the proviso to Section 3.1(d) and the proviso to Section 3.1(e), the Original
Selling Stockholder shall afford each other Stockholder (each, a "Tag-Along
Stockholder") the opportunity to participate proportionately in such Transfer in
accordance with this Section 5.2. Each Stockholder (including the Original
Selling Stockholder) electing to participate in such sale shall have the right
to Transfer the same percentage of the total number of Common Equivalents
proposed to be transferred as such Stockholder holds of the total outstanding
Common Equivalents. The Original Selling Stockholder shall give notice to the
other Stockholders of their right to sell Common Equivalents hereunder (the
"Tag-Along Notice") which notice shall state the number of shares of Common
Equivalents proposed to be Transferred, the proposed offering price and any
other material terms and conditions of the Transfer.
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(b) Within 10 days after the date of delivery of a Tag-Along Notice,
any Stockholder may elect to participate in such Transfer pursuant to the terms
and conditions of such Notice in a notice given to the Original Selling
Stockholder; provided, however, that the only representations and warranties
which such Tag-Along Stockholder shall be required to give shall be
representations and warranties comparable to those which the Original Selling
Stockholder is required to give.
(c) If the Proposed Purchaser is acquiring Common Equivalents in a
single transaction from more than one Stockholder or in a series of related
transactions from one or more Stockholders, (i) the price per share or Common
Equivalent shall be the highest of the prices, and the other terms and
conditions of the Transfer shall be the most favorable of the terms and
conditions, offered by the Proposed Purchaser to any Stockholder at or prior to
the consummation of such Transfer and (ii) the form of consideration shall be
the same for all Common Equivalents Transferred in such Transfer.
(d) Any Tag-Along Stockholder exercising Tag-Along rights hereunder
with respect to any Common Equivalent other than shares of Common Stock shall
convert or exercise such Common Equivalent into or for Common Stock prior to the
consummation of any Transfer hereunder.
(e) Any Original Selling Stockholder that proposes to Transfer shares
of Common Stock under this Section 5 shall comply with the Rights of First Offer
provisions set forth in Section 4 hereto. Any sale or purchase by an Original
Selling Stockholder and a Tag-Along Stockholder shall occur simultaneously.
(f) Any Transfer by the Original Selling Stockholder subject to this
Section 5.2 shall be made within three months of the date of the Tag-Along
Notice and shall be made substantially in accordance with the terms and
conditions described in such Tag-Along Notice. If the Original Selling
Stockholder shall not have effected the Transfer prior to the expiration of such
three-month period, the tag-along rights under this Section 5.2 shall again
apply in connection with any subsequent Transfer or offer to Transfer by such
Original Selling Stockholder.
6. PUT-SALE OPTION
6.1. Appraisal.
(a) From and after the earlier to occur of (i) five (5) years after the
Effective Date, (ii) six (6) months after the death of BLS or (iii) upon the
resignation or retirement of BLS as Chairman or Chief Executive Officer of the
Company, the BLS Group (acting with the approval of the holders of a majority of
the Common Stock held by all members of the Group) and the Lehman
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Group (acting with the approval of the holders of a majority of the Common Stock
held by all members of the Group) may, by notice (an "Appraisal Request") to the
other party, request an appraisal of the value of the common equity of the
Company (the "Appraised Value"); provided, that upon any transfer made pursuant
to Section 3.1(c)(iv) hereof, the Lehman Group's Rights pursuant to this Section
6.1 and Section 6.2 shall terminate and shall no longer be available to the
Lehman Group, any member of the Lehman Group or any transferee thereof. The BLS
Group, the Lehman Group and the Company shall cause such appraisal to be
completed within 30 days of delivery of the Appraisal Request according to the
procedures set forth in Section 6.1(b) and (c).
(b) The Appraised Value shall be determined jointly by LBP and a
nationally recognized investment bank selected by the BLS Group (the "First
Investment Bank") or, if the Lehman Group and the First Investment Bank fail to
agree on an Appraised Value within 15 days of delivery of the Appraisal Request,
by another nationally recognized investment bank selected jointly by the Lehman
Group and the BLS Group (the "Alternative Investment Bank"). Any Appraised Value
as determined by any Alternative Investment Bank shall be between the values
determined by the Lehman Group and the First Investment Bank.
(c) The Appraised Value shall be the value of the Company's common
equity (assuming conversion of all Common Equivalents to Common Stock) that
would be realized in a private sale of the Company as an entirety with a
reasonable amount of time available to negotiate and consummate such sale;
provided that the Appraised Value shall not be less than the value offered in
any bona fide proposal to acquire the Company or its assets that may have been
received prior to the date upon which the Appraised Value shall be determined.
(d) The Company shall give the Lehman Group, the First Investment Bank
and any Alternative Investment Bank access to the books, records and personnel
of the Company and shall pay all fees and expenses of the appraisers incurred in
connection with the Appraisal.
6.2. Put-Sale Right.
(a) Within 15 days after the Appraised Value has been established,
either the BLS Group or the Lehman Group (the "Put Party") may, at its sole
option, deliver written notice (the "Put-Sale Notice") to the other party (the
"Other Party") and the Company of its desire to sell all of the Common Stock
owned by the Put Party and any Transferees thereof designated by the Put Party
(the "Put-Sale Group") from among the Put Party and their Transferees. The
purchase price for the shares of Stock shall be an amount equal to the pro rata
share (based on Common Equivalents) of the Appraised Value of the Common Stock
subject to such put.
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(b) The Other Party shall have 135 days following receipt of the
Put-Sale Notice to make binding arrangements (including full financing
commitments) for the purchase for cash of the Stock of the Put-Sale Group by the
Other Party or a third party designated by the Other Party. The closing of such
purchase shall be no later than 30 days following the execution of such binding
arrangements, subject to extension with the written consent of the Put Party,
which consent will not be unreasonably withheld. During such 135-day period, the
Other Party shall either (i) use its best efforts to arrange for the prompt
purchase of the Stock or (ii) notify the Put Party as soon as the Other Party
determines that it will not or can not purchase, nor arrange for a third party
to purchase, the Stock held by the Put-Sale Group.
(c) In the event that the Other Party is unable or chooses not to
arrange for and consummate the purchase of the Put-Sale Group's Stock within the
time periods set forth in Section 6.1(b), then the BLS Group and the Lehman
Group shall cause the Company to be sold as an entirety if such sale can be
arranged yielding proceeds at least equal to the Appraised Value. The BLS Group,
the Lehman Group and the Company shall proceed in good faith and use their best
efforts to sell the Company as an entirety as promptly as practicable and in any
event within six months of the expiration of the time periods set forth in
Section 6.1(b), subject to extension with the written consent of the BLS Group
and the Lehman Group, which consent will not be unreasonably withheld. If it
becomes apparent, in the Put Party's reasonable judgment, that the Company can
not be sold at the Appraised Value, then the Put Party, at its sole option, may
reduce the price for which the Company is being offered by up to 10% of the
Appraised Value. Any sale of the Company as an entirety hereunder shall include
all Stockholders and the proceeds thereof shall be allocated among the
Stockholders in accordance with their Stock ownership in the Company based on
Common Equivalents.
7. CLOSING
7.1. Closing.
Any selling Stockholder and any Stockholders who are purchasing or
selling any shares of Stock pursuant to Articles 4, 5 or 6 shall mutually
determine a closing date (the "Closing Date") which, subject to any applicable
regulatory waiting periods, shall not be more than 30 days after the last notice
is given with respect to such purchase or after the expiration of the last
notice period applicable to such purchase. The closing shall be held at 10:00
a.m., local time, on the Closing Date at the principal office of the Company, or
at such other time or place as the parties mutually agree.
13
<PAGE> 15
7.2. Deliveries at Closing; Method of Payment of Purchase Price.
On the Closing Date, any selling Stockholder shall deliver (1)
certificates representing the shares of Stock being sold, free and clear of any
lien, claim or encumbrance, (2) any documents representing options, rights or
convertible securities being sold, and (3) such other documents, including
evidence of ownership and authority, as the purchasers may reasonably request.
The purchase price shall be paid by delivery of a cashier's check, certified
check or wire transfer.
8. LEGEND
A copy of this Agreement shall be filed with the Secretary of the
Company and kept with the records of the Company. Each of the Stockholders
hereby agrees that each outstanding certificate representing shares of Stock
issued to any Stockholder, or any certificate issued in exchange for any
similarly legended certificate, shall, unless sold pursuant to a bona fide
registered public offering or pursuant to a Rule 144 Open Market Transaction,
bear a legend reading substantially as follows:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY BE OFFERED AND SOLD ONLY IF SO
REGISTERED OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THIS SECURITY ALSO IS SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN A SECURITIES PURCHASE AGREEMENT AND
AN AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, BETWEEN THE
HOLDER HEREOF AND THE COMPANY, COPIES OF WHICH MAY BE OBTAINED
FROM THE COMPANY. NO TRANSFER OF SUCH SHARES WILL BE MADE ON
THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF
COMPLIANCE WITH THE TERMS OF SUCH AGREEMENTS.
9. CERTAIN VOTING AND OTHER AGREEMENTS
9.1. Board of Directors of the Company.
(a) Subject to Section 9.1(f) hereof, the Board of Directors shall
initially be comprised of 9 members, of which the BLS Group shall be entitled,
but not required, to designate the majority (i.e., five (5)) of the members (the
"BLS Nominees") of the Board of Directors, and the Lehman Group shall be
entitled, but not required, to designate three (3) of the members (the "LBP
Nominees"). Each of the Stockholders agrees to vote its shares
14
<PAGE> 16
of Common Stock, at any regular or special meeting of the stockholders of the
Company called for the purpose of filling positions on the Board of Directors,
or in any written consent executed in lieu of such a meeting of stockholders,
and agrees to take all actions necessary, to ensure the election to the Board of
Directors of the LBP Nominees and the BLS Nominees as described herein.
(b) The Company and each Stockholder hereby agrees to use its best
efforts to call, or cause the appropriate officers and directors of the Company
to call, a special meeting of stockholders of the Company and to vote all of the
shares of Common Stock owned or held of record by such Stockholder for, or to
take all actions by written consent in lieu of any such meeting necessary to
cause, the removal (with or without cause) of any LBP Nominee if LBP (or any
Affiliate thereof designated by LBP) requests such director's removal for any
reason or any BLS Nominee if BLS requests such director's removal for any
reason. LBP and its Affiliates and BLS shall have the right to designate a new
nominee in the event any LBP Nominee or BLS Nominee, as applicable, shall be so
removed or vacate his directorship for any reason. The number of Directors that
shall constitute the entire Board of Directors may be increased or decreased
from time to time in accordance with the terms and provisions of this Agreement
and the by-laws.
(c) Subject to Section 9.1(b) hereof, each Stockholder hereby agrees
that, at any time it is then entitled to vote for the election or removal of
directors, it will not vote in favor of the removal of any LBP Nominee or BLS
Nominee unless such removal shall be for Cause otherwise than as required by
Section 9.1(b) hereof. For the purposes of this Section 9.1(c), "Cause" shall
mean the willful and continued failure by a director substantially to perform
duties as a director of the Company, the willful engaging by a director in
conduct which is demonstrably and materially injurious to the Company, or the
director's conviction of any crime constituting a felony.
(d) The Company covenants that it will not, without the consent of LBP,
take any action requiring (under the Company's by-laws) the approval of at least
one LBP Nominee if the only LBP Nominees approving such action are Persons whose
removal from the Board of Directors LBP has requested at or prior to the time of
such action; provided, that any consent heretofore granted by the LBP Nominees
and any action heretofore authorized by the Board of Directors or otherwise
currently in effect shall remain in full force and effect.
(e) The initial LBP Nominees shall be Alan Washkowitz, David Brand and
Steve Berger. LBP acknowledges and agrees that it will consult BLS with respect
to any future LBP Nominees designated to replace the initial LBP Nominees with a
view towards ensuring a harmonious Board of Directors.
15
<PAGE> 17
(f) BLS and LBP agree that the member of the Board not otherwise
appointed by BLS or LBP shall initially be Robert Towbin.
(g) In the event that BLS shall have died, retired or resigned as
Chairman or Chief Executive Officer, or become incapable of acting as chairman
of the Board of Directors of the Company for 180 consecutive days due to
physical or mental illness, the BLS Group and the Lehman Group will each have
the right to designate 50% of the Board of the Directors; provided, that upon
the occurrence of any transfer pursuant to Section 3.1(c)(iv) hereof, the rights
of the Lehman Group pursuant to this Section 9.1(g) shall terminate and shall no
longer be available to the Lehman Group, any member of the Lehman Group or any
transferee thereof.
9.2. Chairman of the Board.
In the event that BLS shall have died, retired or resigned as Chairman
or Chief Executive Officer, or become incapable of acting as chairman of the
Board of Directors of the Company for 180 consecutive days due to physical or
mental illness, the successor chairman of the Board shall be selected by the
Board of Directors.
9.3. Charter and By-laws.
(a) Exhibits A and B set forth copies of the Company's Charter and
By-laws, each in the form in effect on the date hereof (the "Charter
Documents").
(b) The Company covenants that it will act in accordance with the
Charter Documents and will not (subject to Section 9.1(d)), without the approval
of an LBP Nominee then in office, amend either of the Charter Documents. Each
Stockholder shall vote its Common Stock at any regular or special meeting of
stockholders of the Company or in any written consent executed in lieu of such a
meeting of stockholders, and shall take all actions necessary to ensure that the
Charter Documents do not, at any time, conflict with the provisions of this
Agreement and (unless otherwise specified by LBP) to ensure that the Charter
Documents continue to provide as specified in Exhibits A or B, as applicable.
9.4. Certain Stock-Related Compensation Plans.
Each of the Stockholders agrees to vote all of the shares of Common
Stock entitled to vote owned or held of record by such stockholder to approve
any and all Stock-related employee compensation plans of the Company provided
any such plan has been approved by the Board of Directors in accordance with the
By-laws of the Company.
16
<PAGE> 18
10. NO IMPLIED RIGHT TO EMPLOYMENT
Neither this Agreement nor any provision hereof nor any action taken or
omitted to be taken hereunder shall be deemed to create or confer on any
Stockholder who is an employee of the Company or any Affiliate any right to be
retained in the employ of the Company or any Affiliate thereof, or to interfere
with or limit in any way the right of the Company or any Affiliate thereof to
terminate the employment of such Stockholder at any time.
11. TERMINATION
11.1. Termination.
(a) Except as provided in subsection (b) below, this Agreement shall
terminate after a public offering as a result of which more than 75% of the then
outstanding shares of Common Equivalents, after giving effect to such offering,
have been sold to the public pursuant to one or more effective registration
statements under the Securities Act or are otherwise owned by Persons other than
Stockholders; provided that the registration rights contained in Exhibit C
hereto shall continue with respect to any remaining shares of Common Stock held
by the Stockholders for so long as they hold such shares.
(b) The provisions contained in Article 9 shall terminate on the tenth
anniversary of the date hereof.
12. MISCELLANEOUS
12.1. Recapitalization, Exchanges, etc., Affecting the Common Stock.
The provisions of this Agreement shall (a) apply to the full extent set
forth herein with respect to the shares of Stock and (b) as appropriate with
respect to any and all shares of capital stock of the Company or any successor
or assign of the Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in exchange for, or in
substitution for the shares of Stock, by reason of any stock dividend, split,
reverse split, combination, recapitalization, reclassification, merger,
consolidation or otherwise. In the event of any change in capitalization of the
Company, as a result of any stock split, stock dividend or stock combination,
the provisions of this Agreement shall be appropriately adjusted.
17
<PAGE> 19
12.2. Injunctive Relief.
It is hereby agreed and acknowledged that it will be impossible to
measure in money the damages that would be suffered if the parties fail to
comply with any of the obligations herein imposed on them and that in the event
of such failure, an aggrieved person will be irreparably damaged and will not
have an adequate remedy at law. Any such person shall, therefore, be entitled to
injunctive relief, including specific performance to enforce such obligation,
without the posting of any bond, and if any action should be brought in equity
to enforce any of the provisions of this Agreement, none of the parties hereto
shall raise the defense that there is an adequate remedy at law.
12.3. Successors and Assigns.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto, and their respective successors and assigns; provided that
(i) except as expressly provided herein, neither this Agreement nor any rights
or obligations hereunder may be transferred by the Company and (ii) no rights of
any Stockholder under this Agreement may be assigned except that any Stockholder
may transfer its rights and obligations hereunder, in whole or in part, to a
Transferee in connection with a Transfer of Stock made in compliance with all of
the provisions of this Agreement to a Person who is or thereby becomes a
Stockholder. If any Stockholder shall acquire additional Stock, such Stock
shall, except as expressly provided herein, be held subject to all of the terms
of this Agreement.
12.4. Amendment; Waiver.
This Agreement may be amended (i) by a written instrument signed by the
Company and by Stockholders holding an aggregate of at least 80% of the Common
Equivalents held by the Stockholders and, in the case of any provision of any
amendment that adversely affects any Stockholder or all of the members of any
group of Stockholders differently from any of the other Stockholders, the
written consent of such Stockholder or members of such group of Stockholders
holding an aggregate of at least 75% of the Common Equivalents held by such
group of Stockholders, respectively, or (ii) by a written instrument signed by
BLS and LBP.
No provision of this Agreement may be waived orally, but only by a
signed, written instrument. Stockholders shall be bound from and after the date
of the receipt of a written notice from the Company setting forth such amendment
or waiver by a consent authorized by this Section, whether or not the Common
Stock shall have been marked to indicate such consent.
18
<PAGE> 20
12.5. Notices.
Except as otherwise provided in this Agreement, notices and other
communications under this Agreement shall be in writing (including a writing
delivered by facsimile transmission) and shall be deemed to have been duly given
if delivered personally, or sent prepaid, or by overnight courier guaranteeing
next day delivery, or by telex or telecopier, addressed to the Company at 600
Third Avenue, New York, New York 10016 (telecopier (212) 867-1182) or to BLS
care of Loral Space & Communications Ltd., 600 Third Avenue, New York, New York
10016 (telecopier (212) 949-9879), in either case with a copy thereof to
O'Sullivan, Graev & Karabell, LLP at 30 Rockefeller Plaza, New York, New York
10112 Attention: George O'Sullivan (telecopier (212) 408-2467) and to the other
parties at the "Address for Notices" specified below its name on Schedule I
hereto. Each Stockholder, by written notice given to the Company in accordance
with this Section 13.5 may change the address to which such notice or other
communications are to be sent to such Stockholder. All such notices and
communications shall be deemed to have been received on the date of delivery
thereof if delivered by hand, on the next day after the sending thereof if by
overnight courier, when answered back if telexed, and when receipt is
acknowledged if telecopied. Whenever pursuant to this Agreement any notice is
required to be given by such Stockholder to any other Stockholder or
Stockholders, such Stockholder may request from the Company a list of addresses
of all Stockholders of the Company, which list shall be promptly furnished to
such Stockholder.
12.6. Inspection.
So long as this Agreement shall be in effect, this Agreement and any
amendments hereto shall be made available for inspection by a Stockholder at the
principal offices of the Company.
12.7. Applicable Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without giving effect to the conflicts of law
principles thereof.
12.8. Headings; References.
Article, section and paragraph headings are inserted herein for
convenience and do not form a part of this Agreement. All section, paragraph,
exhibit and schedule references are to this Agreement, unless otherwise
expressly provided.
19
<PAGE> 21
12.9. Integration.
This Agreement and the documents referred to herein or delivered
pursuant hereto contain the entire understanding of the parties with respect to
the subject matter hereof.
12.10. Severability.
Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdictions.
12.11. Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one such counterpart.
20
<PAGE> 22
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date set forth above.
K & F INDUSTRIES, INC.
By: /s/ Kenneth M. Schwartz
----------------------------
Name: Kenneth M. Schwartz
Title: Executive Vice President
/s/ Bernard L. Schwartz
--------------------------------
BERNARD L. SCHWARTZ
LEHMAN BROTHERS MERCHANT BANKING
PORTFOLIO PARTNERSHIP L.P.
By: /s/ Alan H. Washkowitz
----------------------------
Name: Alan H. Washkowitz
Title: Senior Vice President of
General Partner
LEHMAN BROTHERS OFFSHORE
INVESTMENT PARTNERSHIP L.P.
By: /s/ Alan H. Washkowitz
----------------------------
Name: Alan H. Washkowitz
Title: Authorized Signatory
LEHMAN BROTHERS OFFSHORE
INVESTMENT PARTNERSHIP - JAPAN L.P.
By: /s/ Alan H. Washkowitz
----------------------------
Name: Alan H. Washkowitz
Title: Authorized Signatory
LEHMAN BROTHERS CAPITAL PARTNERS
II, L.P.
By: /s/ Alan H. Washkowitz
----------------------------
Name: Alan H. Washkowitz
Title: Vice President of General
Partner
<PAGE> 23
SCHEDULE I
Addresses for Notices
Lehman Brothers Capital Partners II, L.P.
Lehman Brothers Merchant Banking Portfolio Partnership L.P.
Lehman Brothers Offshore Investment Partnership L.P.
Lehman Brothers Offshore Investment Partnership - Japan L.P.
3 World Financial Center
New York, New York 10285
Fax: (212) 526-3738
Attention: Alan Washkowitz
22
<PAGE> 1
<TABLE>
EXHIBIT 12.01
K & F INDUSTRIES, INC.
STATEMENT OF COMPUTATION OF EARNINGS (DEFICIENCY) TO FIXED CHARGES
(dollars in thousands)
<CAPTION>
Twelve Three
Months Months
Ended Nine Months Ended Ended Nine Months Ended
September 30, September 30, March 31, December 31, Years Ended March 31,
------------- ----------------- --------- ----------------- --------------------------------------
1997 1997 1996 1996 1996 1995 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before
income taxes $30,873 $25,850 $8,029 $(1,911) $14,963 $2,418 $507 $(10,173) $(31,736) $(21,210)
Fixed Charges(b)(1) 32,667 24,313 31,041 10,227 29,148 33,130 43,340 48,171 53,446 54,908
Less: capitalized
interest (392) (164) (340) (105) (568) 0 (105) 0 0 0
------------- ----------------- --------- ----------------- --------------------------------------
Earnings(a)(2) $63,148 $49,999 $38,730 $8,211 $43,543 $35,548 $43,742 $37,998 $21,710 $33,698
============= ================= ========= ================= ======================================
Ratio of earnings
available to cover
fixed charges(2)/(1) 1.93 2.06 1.25 1.49 1.07 1.01
Deficiency of earnings
available to cover
fixed charges (2)-(1) $(2,016) $(10,173) $(31,738) $(21,210)
</TABLE>
Note (a) Earnings consist of income (loss) before income taxes plus fixed
charges (excluding capitalized interest).
Note (b) Fixed charges consist of interest on indebtedness (including
capitalized interest and amortization of debt issuance costs) plus
that portion of lease rental expense representative of the
interest factor (deemed to be one-third of lease rental expense).
<PAGE> 1
<TABLE>
EXHIBIT 12.02
K & F INDUSTRIES, INC.
STATEMENT OF COMPUTATION OF PRO FORMA EARNINGS TO FIXED CHARGES
(dollars in thousands)
<CAPTION>
Nine Months Nine Months Nine Months
Ended Ended Ended
September 30, December 31, September 30,
1997 1996 1997
------------- ------------ -------------
<S> <C> <C> <C>
Income before income taxes $13,612 $ 7,144 $14,856
Fixed Charges(b)(1) 36,360 36,180 48,420
Less: capitalized interest (164) (568) (392)
--------- -------- --------
Earnings(a)(2) $49,808 $42,756 $62,884
========= ======== ========
Ratio of earnings available to
cover fixed charges(2)/(1) 1.37 1.18 1.30
</TABLE>
Note (a) Earnings consist of income before income taxes plus fixed charges
(excluding capitalized interest).
Note (b) Fixed charges consist of interest on indebtedness (including
capitalized interest and amortization of debt issuance costs) plus
that portion of lease rental expense representative of the
interest factor (deemed to be one-third of lease rental expense).
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement on Form S-4 (No.
- ) of K & F Industries, Inc. of our report dated January 23, 1997,
appearing in the Prospectus, which is a part of such Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
New York, New York
November 25, 1997
<PAGE> 1
Exhibit 25.01
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE
TRUST INDENTURE ACT OF l939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
|_| CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(State of incorporation if (I.R.S. Employer
not a national bank Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Executive Vice President and General Counsel,
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
K & F INDUSTRIES, INC.
(Exact name of obligor as specified in its charter)
Delaware 34-1614845
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 Third Avenue, New York, New York 10016
(Address of principal executive offices) (Zip Code)
9-1/4% Senior Subordinated Notes due 2007
(Title of the indenture securities)
<PAGE> 2
Item l. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject:
Department of Banking and Insurance of
The Commonwealth of Massachusetts
100 Cambridge Street
Boston, Massachusetts
Board of Governors of the Federal Reserve System
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers:
The trustee is so authorized.
Item 2. Affiliations with obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
None with respect to the trustee or its parent, State Street
Corporation.
Item l6. List of exhibits. List below all exhibits filed as a part of
this statement of eligibility and qualification.
l. A copy of the Articles of Association of the trustee
as now in effect.
A copy of the Articles of Association of the trustee,
as now in effect, is on file with the Securities and
Exchange Commission as Exhibit 1 to Amendment No. 1
to the Statement of Eligibility and Qualification of
Trustee (Form T-1) filed with Registration Statement
of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
2. A copy of the Certificate of Authority of the trustee
to do Business.
A copy of a Statement from the Commissioner of Banks
of Massachusetts that no certificate of authority for
the trustee to commence business was necessary or
issued is on file with the Securities
- 2 -
<PAGE> 3
and Exchange Commission as Exhibit 2 to Amendment No.
1 to the Statement of Eligibility and Qualification
of Trustee (Form T-1) filed with Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and
is incorporated herein by reference thereto.
3. A copy of the Certification of Fiduciary Powers of
the Trustee.
A copy of the authorization of the trustee to
exercise corporate trust powers is on file with the
Securities and Exchange Commission as Exhibit 3 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with
Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference
thereto.
4. A copy of the By-laws of the trustee as now in
effect.
A copy of the By-Laws of the trustee, as now in
effect, is on file with the Securities and Exchange
Commission as Exhibit 4 to the Statement of
Eligibility and Qualification of Trustee (Form T-1)
filed with Registration Statement of Eastern Edison
Company (File No. 33-37823) and is incorporated
herein by reference thereto.
5. Consent of the trustee required by Section 32l(b) of
the Act.
6. A copy of the latest Consolidated Reports of
Condition of the trustee, published pursuant to law
or the requirements of its supervising or examining
authority.
A copy of the latest report of condition of the
trustee published pursuant to law or the requirements
of its supervising or examining authority is annexed
hereto as Exhibit 6 and made a part hereof.
- 3 -
<PAGE> 4
NOTES
Inasmuch as this Form T-l is filed prior to the ascertainment
by the trustee of all facts on which to base its answer to Item 2, the answer to
said Item is based upon incomplete information. Said Item may, however, be
considered correct unless amended by an amendment to this Form T-l.
- 4 -
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of
l939, the trustee, State Street Bank and Trust Company, a Massachusetts trust
company, has duly caused this statement of eligibility and qualification to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of Hartford, and State of Connecticut, on the 21st day of November, 1997.
STATE STREET BANK AND TRUST
COMPANY,
Trustee
By /s/ Jacqueline Connor
Name: Jacqueline Connor
Title: Assistant Vice President
- 5 -
<PAGE> 6
EXHIBIT 5
CONSENT OF THE TRUSTEE
REQUIRED BY SECTION 321(b)
OF THE TRUST INDENTURE ACT OF 1939
The undersigned, as Trustee under an Indenture to be entered into
between K & F Industries, Inc. and State Street Bank and Trust Company, Trustee,
does hereby consent that, pursuant to Section 321(b) of the Trust Indenture Act
of 1939, reports of examinations with respect to the undersigned by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST
COMPANY,
Trustee
By /s/ Jacqueline Connor
Name: Jacqueline Connor
Title: Assistant Vice President
Dated: November 21, 1997
<PAGE> 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business March 31, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
ASSETS THOUSANDS OF DOLLARS
Cash and balances due from depository institutions:
<S> <C>
Noninterest-bearing balances and currency and coin .................... 1,665,142
Interest-bearing balances ............................................. 8,193,292
Securities ................................................................. 10,238,113
Federal funds sold and securities purchased under agreements to resell
in domestic offices of the bank and of its Edge subsidiary ............ 5,863,144
Loans and lease financing receivables:
Loans and leases, net of unearned income .............................. 4,936,454
Allowance for loan and lease losses ................................... 70,307
Loans and leases, net of unearned income and allowance ................ 4,866,147
Assets held in trading accounts ............................................ 957,478
Premises and fixed assets .................................................. 380,117
Other real estate owned .................................................... 884
Investments in unconsolidated subsidiaries ................................. 26,835
Customers' liability to this bank on acceptances outstanding ............... 45,548
Intangible assets .......................................................... 158,080
Other assets ............................................................... 1,066,957
-----------
TOTAL ASSETS ............................................................... 33,450,737
===========
LIABILITIES
Deposits:
In domestic offices ................................................... 8,270,845
Noninterest-bearing ............................................... 6,318,360
Interest-bearing .................................................. 1,952,485
In foreign offices and Edge subsidiary ................................ 12,760,086
Noninterest-bearing ............................................... 53,052
Interest-bearing .................................................. 12,707,034
Federal funds purchased and securities sold under agreements to
repurchase in domestic offices of the bank and of its Edge subsidiary . 8,216,641
Demand notes issued to the U.S. Treasury and Trading Liabilities ........... 926,821
Other borrowed money ....................................................... 671,164
Subordinated notes and debentures .......................................... 0
Bank's liability on acceptances executed and outstanding ................... 46,137
Other liabilities .......................................................... 745,529
-----------
TOTAL LIABILITIES .......................................................... 31,637,223
===========
EQUITY CAPITAL
Perpetual preferred stock and related surplus .............................. 0
Common Stock ............................................................... 29,931
Surplus .................................................................... 360,717
Undivided profits and capital reserves/Net unrealized holding gains (losses) 1,426,881
Cumulative foreign currency translation adjustments ........................ (4,015)
TOTAL EQUITY CAPITAL ....................................................... 1,813,514
-----------
TOTAL LIABILITIES AND EQUITY CAPITAL ....................................... 33,450,737
===========
</TABLE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above-named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
