EXHIBIT 99.3
First Supplement to Loan Agreement
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THIS FIRST SUPPLEMENT TO LOAN AGREEMENT (the "Agreement") is made as of
October 5 , 2001 by and among Pacific Aerospace & Electronics, Inc., Aeromet
America, Inc., Cashmere Manufacturing, Co., Inc., Ceramic Devices, Inc.,
Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific
Coast Technologies, Inc., Seismic Safety Products, Inc. and PA&E International,
Inc., as borrowers (collectively, the "Borrowers"), Pacific A&E Limited, Pacific
Aerospace & Electronics (UK) Limited and Aeromet International PLC (each a
"Foreign Subsidiary" and together with the Borrowers, the "Companies"), the
Lenders (as defined below) and DDJ Capital Management LLC, as agent for the
Lenders (the "Agent").
WHEREAS, the Borrowers, the Foreign Subsidiaries, the Agent and certain
funds managed by the Agent (the "Lenders") are parties to (a) a Loan Agreement
dated as of Xxxxx 0, 0000 (xxx "Xxxx Xxxxxxxxx"), (x) a Security Agreement,
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dated as of March 1, 2001 (the "Security Agreement") and (c) the various notes,
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guaranties and security documents executed and delivered in connection
therewith (as amended and in effect from time to time, and together with the
Loan Agreement and the Security Agreement, the "Transaction Documents");
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WHEREAS, Pacific Aerospace & Electronics, Inc., as issuer and the other
Borrowers, as guarantors, are parties to that certain Indenture dated as of
July 30, 1998 (the "Subordinated Note Indenture") pursuant to which Pacific
Aerospace & Electronics, Inc. issued its 11 1/4 % Senior Subordinated Notes due
2005 (the "Subordinated Notes");
WHEREAS, each of the Borrowers acknowledge that the Borrowers are and
expect in the future to be in default of those provisions of the Loan Agreement
set forth on Schedule A attached hereto (which defaults are hereinafter
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referred to as the "Specified Defaults"); and
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WHEREAS, the Borrowers, the Foreign Subsidiaries, the Lenders and the
Agent desire to supplement and amend the Loan Agreement in order to amend and
confirm certain provisions thereof, as more fully set forth herein.
NOW, THEREFORE, in consideration of the promises and the mutual agreements
herein contained and other good and valuable consideration, the adequacy of
which is hereby acknowledged, and subject to the terms hereof, the parties
agree as follows:
1. Definitions. All capitalized terms used herein without definition
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that are defined in the Loan Agreement, and in effect on the date hereof,
shall have the same meanings herein as therein.
2. Ratification of Existing Agreements. Each of the Borrowers hereby
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ratifies and confirms the enforceability in all respects all of the Transaction
Documents and all of each entity's obligations thereunder. Each of the
Borrowers acknowledges that the Agent on behalf of the Lenders has a valid
first-priority perfected lien securing repayment of the Obligations against
substantially all of the assets of the Borrowers. Each of the Borrowers
acknowledges that all notices (including notices of default) with respect to
the Specified Defaults required under the Transaction Documents have been
received or are hereby waived. The Borrowers agree that as of September 30,
2001, the outstanding aggregate principal amount of the Term Loans is
$13,731,457.68.
3. Representations and Warranties. Each of the Companies has adequate
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corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. This Agreement has been duly authorized,
executed and delivered by each of the Companies and does not contravene any
law, rule or regulation applicable to such Company or any of the terms of such
Company's charter documents, by-laws or other governing document or any
indenture, agreement or undertaking to which such Company is a party. The
obligations of each of the Companies under this Agreement and the Transaction
Documents constitute its legal, valid and binding obligations enforceable
against it in accordance with their respective terms except to the extent such
enforceability (a) may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to creditors' rights generally and
(b) is subject to general principles of equity. Except for Section 4.10 of the
Loan Agreement (solely as to defaults under the Subordinated Note Indenture),
all of the representations and warranties made by or on behalf of each of the
Companies in the Transaction Documents are true and correct on the date hereof
as if made on and as of the date hereof, unless such representation or warranty
is true only as of a specified date in the Loan Agreement.
4. Forbearance Obligations. Subject to the conditions set forth in (S)6
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hereof, the Agent and the Lenders agree to forbear from enforcing any of their
rights and remedies under the Transaction Documents with respect to the
acceleration of the Obligations or the exercise of remedies after an Event of
Default in connection with the Specified Defaults until that date (the
"Forbearance Termination Date") which is the earliest to occur of: (a) any of
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the Borrowers' failure to comply with any of the terms and conditions of this
Agreement; (b) an Event of Default (other than the Specified Defaults) under
any of the Transaction Documents; (c) any of the Borrowers or any person or
entity claiming by or through any of the Borrowers commences, joins in, assists,
cooperates or participates as an adverse party or adverse witness in any suit or
other proceeding against the Lenders relating to the indebtedness referred to as
the Obligations or any amounts owing hereunder; (d) any of the holders of the
Subordinated Notes accelerate the debt outstanding under the Subordinated Note
Indenture or exercise any of the rights or remedies available to them under such
Subordinated Note Indenture; (e) the mortgagee of the property located 000 Xxxx
Xxxxxxx Xxxx, Xxxxxxxxx, Xxxxxxxxxx shall exercise any of its rights or remedies
to foreclose on the deed of trust judicially or by method of sale under the
mortgage for such property; and (f) December 31, 2001. Upon the Forbearance
Termination Date, the Lenders and the Agent shall be free in their sole and
absolute discretion to proceed to enforce any or all of their rights and
remedies under or in respect of the Transaction Documents and applicable law,
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including without limitation, acceleration and enforcement of all other rights
and remedies arising by virtue of the occurrence of the Specified Defaults.
5. Amendment to Loan Agreement. The Borrowers, the Agent and the
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Lenders agree to amend the Loan Agreement as follows:
(a) Section 6.2(a) of the Loan Agreement shall be deleted in its
entirety and replaced with the following:
6.2(a). If the Aeromet Sale is consummated, the Borrowers shall
repay the aggregate principal amount of the Term Loans outstanding,
plus all accrued and unpaid interest thereon, and all other fees,
expenses and other payments due to the Lenders under this Agreement
(as amended by the First Supplement) and the Transaction Documents, if
any.
(b) The term "Term Loan Maturity Date" as set forth in Schedule II
of the Loan Agreement, is hereby amended by deleting "March 1, 2003" and
replacing the same with "December 31, 2001."
6. Conditions to Effectiveness. This Agreement shall become effective
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upon satisfaction of the following conditions:
(a) The Lenders, the Agent, the Foreign Subsidiaries and the
Borrowers shall have executed and delivered counterparts of this Agreement
to the Agent;
(b) The Borrowers shall have received the consent of the holders of
the Subordinated Notes to amend Section 4.10 of the Subordinated Note
Indenture to allow the Borrowers to incur Bank Indebtedness (as defined in
the Subordinated Note Indenture) in excess of $15,000,000.
7. Covenants and Agreements. Without any prejudice or impairment
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whatsoever to any of the rights and remedies of any of the Lenders and the
Agent contained in any of the Transaction Documents or in any agreement,
document or instrument executed in connection therewith, each of the Borrowers
covenants and agrees with the Agent and the Lenders as follows:
(a) Interest.
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(i) The Term Loan Notes shall accrue interest at a rate of
twenty-one percent (21%) per annum from August 1, 2001 through and
including the date on which the Term Loans, plus all accrued and unpaid
interest thereon, and all other fees, expenses and other payments due to
the Lenders under the Loan Agreement, as amended by this Agreement, are
paid in full.
(ii) The Interest Payment due and payable on September 30, 2001,
shall be paid to the Lenders in kind, in lieu of cash, thereby increasing
the amount outstanding under the Term Loans.
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(b) Transaction Fee. The Borrowers shall pay the Agent, for the
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ratable benefit of the Lenders, a transaction fee in an amount equal to
$288,658.13, which fee shall be fully earned as of the date hereof and
payable in kind, in lieu of cash, thereby increasing the amount
outstanding under the Term Loans.
(c) Compliance with Transaction Documents. Each of the Borrowers
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shall comply and continue to comply with all of the terms, covenants and
provisions contained in the Transaction Documents and any other
instruments evidencing or creating any of the Obligations except as such
terms, covenants and provisions are expressly modified or waived by this
Agreement.
(d) Further Assurances. Each of the Borrowers shall at any time or
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from time to time execute and deliver such further instruments, and take
such further action as the Agent or any Lender may reasonably request, in
each case further to effect the purposes of this Agreement, the
Transaction Documents and all documents, agreements and instruments
executed in connection therewith.
8. Expenses. Each of the Borrowers agrees to pay to the Lenders and the
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Agent (a) on demand by the Lenders or the Agent, an amount equal to any and all
reasonable out-of-pocket costs or expenses (including reasonable legal fees and
disbursements of counsel to the Lenders and the Agent), consulting, filing,
collateral audit, accounting, appraisal, and similar professional fees and
charges) incurred or sustained by any of the Lenders or the Agent in connection
with the negotiation and preparation of this Agreement and all related matters
and (b) from time to time any and all reasonable out-of-pocket costs, expenses
(including reasonable legal fees and disbursements of counsel to the Lenders
and the Agent), consulting, accounting, appraisal, and similar professional
fees and charges) hereafter incurred or sustained by any of the Lenders or the
Agent in connection with the administration of the Loan Agreement or the
preservation of or enforcement of their rights under the Transaction Documents
or in respect of the Borrowers' other obligations to them.
9. Amendments. This Agreement shall not be amended without the written
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consent of the Borrowers, the Agent and all of the Lenders.
10. No Waiver. Except as otherwise expressly provided for in this
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Agreement, nothing in this Agreement shall extend to or affect in any way any
of the Borrowers' obligations or any of the rights and remedies of the Lenders
and the Agent in respect of the Loan Agreement arising on account of the
occurrence of any Event of Default other than the Specified Defaults, all of
which are expressly preserved.
11. No Claims. Each of the Borrowers acknowledges and agrees that: (a)
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each such entity has no claim or cause of action against any of the Lenders or
the Agent (or any of their directors, members, officers, employees or agents);
(b) each such entity has no offset right, counterclaim or defense of any kind
against any of their obligations, indebtedness or liabilities to the Lenders or
the Agent; and (c) the Lenders and the Agent have heretofore properly performed
and satisfied in a timely manner all of their respective obligations to the
Borrowers.
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12. Miscellaneous. This Agreement shall be governed by and construed in
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accordance with the laws of the State of New York and shall take effect as a
sealed instrument under such laws. Any and all notices or other
communications required hereunder shall be in writing and shall be delivered as
required by the Loan Agreement.
13. Counterparts. This Agreement may be executed in any number of
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counterparts, but all such counterparts shall together constitute but one
instrument. In making proof of this letter agreement it shall not be necessary
to produce or account for more than one counterpart signed by each party hereto
by and against which enforcement hereof is sought.
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IN WITNESS WHEREOF, each of the Borrowers and the Lenders have caused
this Agreement to be executed and delivered by their respective duly authorized
officers as of the date set forth in the preamble on page one (1) of this
Agreement.
BORROWERS:
PACIFIC AEROSPACE & ELECTRONICS, INC.
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: President & CEO
AEROMET AMERICA, INC.
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
BALO PRECISION PARTS, INC.
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
CASHMERE MANUFACTURING CO., INC.
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
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CERAMIC DEVICES, INC.
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
ELECTRONIC SPECIALTY CORPORATION
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
NORTHWEST TECHNICAL INDUSTRIES, INC.
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
PACIFIC COAST TECHNOLOGIES, INC.
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
SEISMIC SAFETY PRODUCTS, INC.
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
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SKAGIT ENGINEERING & MANUFACTURING,
INC.
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
PA&E INTERNATIONAL, INC.
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: President
FOREIGN SUBSIDIARIES:
PACIFIC A&E LIMITED
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: Director
PACIFIC AEROSPACE & ELECTRONICS
(UK) LIMITED.
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: Director
AEROMET INTERNATIONAL, PLC
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: Director
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LENDERS:
B III CAPITAL PARTNERS, L.P.
By: DDJ Capital III, LLC, its
General Partner
By: DDJ Capital Management, LLC,
Manager
By: /s/ Xxxxx X. Xxxxxxxxx
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Name: Xxxxx X. Xxxxxxxxx
Title: Member
B III A CAPITAL PARTNERS, L.P.
By: GP III-A, LLC its General
Partner
By: DDJ Capital Management, LLC,
Manager
By: /s/ Xxxxx X. Xxxxxxxxx
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Name: Xxxxx X. Xxxxxxxxx
Title: Member
DDJ CANADIAN HIGH YIELD FUND
By: DDJ Capital Management, LLC,
its attorney-in-fact
By: /s/ Xxxxx X. Xxxxxxxxx
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Name: Xxxxx X. Xxxxxxxxx
Title: Member
State Street Bank & Trust, solely
in its capacity as Custodian for
General Motors Employees Global
Group Pension Trust as directed by
DDJ Capital Management, LLC, and
not in its individual capacity
By: /s/ Xxxxxxx X. Xxxxxxx
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Name: Xxxxxxx X. Xxxxxxx
Title: Vice President
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SCHEDULE A
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Specified Defaults
Section 7.1 Information (as to any defaults on or prior to the date hereof)
Section 7.2 Payment of Obligations (relating to obligations under the Loan Agreement and
the Indenture governing the senior subordinated notes)
Section 7.6 Compliance with Transaction Documents (as to defaults set forth on this
Schedule A)
Section 7.7 Corporate Existence (with respect to the shutting down of the relay,
fabrication, U.S. castings and display business units)
Section 8.1(e) Old Trades Payables (amount of old trade payables exceeds $100,000 and will
continue to exceed such amount for the foreseeable future)
Section 8.5(b) Consolidations, Mergers and Sales of Assets (with respect to the shutting
down of the relay, fabrication, U.S. castings and display business units)
Section 8.7 Minimum EBITDA (the Borrowers cannot predict whether they will be in
compliance at 11/30)
Section 8.8 EBITDA/Covenant Interest (the Borrowers cannot predict whether they will be
in compliance at 11/30)
Section 8.9 Covenant Debt/EBITDA (the Borrowers cannot predict whether they will be in
compliance at 11/30)
Section 8.10 Minimum Accounts Receivable and Inventory (the Borrowers cannot predict
whether they will be in compliance at 11/30)
Section 9.1(b) Events of Default (as to payment of interest)
Section 9.1(c)(i) Events of Default (as to defaults under Sections 8.1(e), 8.5(b), 8.7, 8.8,
8.9, and 8.10 of the Loan Agreement)
Section 9.1(c)(iii) Events of Default (as to defaults under Sections 7.2, 7.6, and 7.7 of the
Loan Agreement)
Section 9.1(d) Events of Default (as to defaults set forth on this Schedule A)
Section 9.1(f) Events of Default (as to defaults set forth on this Schedule A)
Section 9.1(g)(i) Events of Default (relating to the subordinated notes and other debt of the
Borrowers)
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