Creation of EFH. In Part I, Step 1 of the French restructure, ETHL would create Esterline French Holdings SAS (“EFH”) as a wholly owned subsidiary. EFH would be disregarded for U.S. federal income tax purposes, but would not become a Subsidiary Guarantor in order to avoid issues related to the enforceability of guaranties from French entities. Accordingly, to the extent that the creation of EFH would result in an Investment under the Credit Agreement, such Investment would require the consent of the Required Lenders. Since EFH will be a disregarded entity for tax purposes, 100% of the equity interests of EFH could be pledged to the Administrative Agent. Required Lender consent should be requested in order to avoid using any Investment baskets in connection with the creation and transfer of assets to EFH. The consent should be broad enough to allow EFH to directly hold the following: 100% of the stock of Esterline French R&D SAS (“EF R&D”) (see discussion in Section 2.2 below), 83% of the stock of Xxxxx International Europe S.A. (“LIE France”) (see discussion in Section 2.6 below), and 100% of the stock of Auxitrol S.A. (see discussion in Section 2.7 below), and to receive the cash contribution described in Section 2.5 below. The Required Lender consent would not permit additional contributions to the capital of EFH without the use of the Investment baskets provided for in Section 5.02(f)(i)(C) and Section 5.02(f)(ix), except as described in Section 3.2 below as it relates to the conversion of inter-company debt to equity.
