Exhibit 99.3
AGREEMENT
This Agreement (as the same may be amended, modified or supplemented from
time to time in accordance with the terms hereof, the "Agreement"), dated as of
September 7, 2001, is entered into by and among Pacific Aerospace & Electronics,
Inc. (the "Company"), and each of the undersigned holders (each, a "Consenting
Noteholder") of the 11 1/4% Senior Subordinated Notes due 2005 (the "Notes")
issued pursuant to that certain indenture (the "Indenture") dated as of July 30,
1998 by and among the Company, the Guarantors (as defined therein) and The Bank
of New York (as successor to IBJ Xxxxxxxxx Bank & Trust Company), as Trustee
(the "Trustee").
RECITALS
WHEREAS the Company has failed to pay the interest payment on the Notes
which was due on August 1, 2001 (the "Default");
WHEREAS by reason of the Default, the holders of the Notes have certain
rights under the Indenture to accelerate payment of the Notes;
WHEREAS the Company and the Consenting Noteholders have engaged in good
faith negotiations with the objective of reaching a mutually acceptable
agreement for the exchange of the Notes for new notes (the "New Notes"), common
stock and preferred stock of the Company;
WHEREAS the Consenting Noteholders have agreed to exchange their Notes to
the Company on the terms set forth in the term sheet attached hereto as Exhibit
A (the "Term Sheet") and incorporated into this Agreement as if fully set forth
herein (the "Exchange"); and
WHEREAS to expedite and ensure implementation of the Exchange, (i) the
Company is prepared to propose the Exchange, seek the necessary approvals for
the Exchange as expeditiously as possible and perform its other obligations
hereunder and (ii) the Consenting Noteholders are prepared to commit, on the
terms and subject to the conditions of this Agreement and applicable law, to
exchange their Notes when solicited to do so and to perform their other
obligations hereunder.
NOW THEREFORE, in consideration of the foregoing recitals, terms and
conditions set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
Consenting Holder (each a "party" or "Party" and collectively, the "parties" or
"Parties"), intending to be legally bound, agree as follows:
1. Any term defined in the description of the Parties above or in any of
the recitals hereto shall have the meaning given to it in the description or
recital, as the case may be.
2. Means for Effecting the Exchange. The Company and the Consenting
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Noteholders agree that the Exchange shall be in accordance with the terms of the
Term Sheet annexed hereto as Exhibit A and be accomplished by an out of court
exchange and consent solicitation in which 100% of the Notes participate (which
percentage may be waived by the holders of 95% in aggregate principal amount of
the Notes). The exchange offer will be conducted to conform with the
requirements of Section 3(a)(9) of the Securities Act of 1933 and Rule 150,
adopted thereunder, and Section 14(e) of the Exchange Act and Regulation 14E,
adopted thereunder, and all other applicable federal and state securities laws.
3. Preparation of Exchange Documents. Promptly upon execution of this
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Agreement by the holders of at least 97.5% of the outstanding principal amount
of the Notes, the Company shall instruct its counsel to prepare for the review
and approval of the Parties hereto all documents needed to effectuate the
Exchange as contemplated in this Agreement (collectively, the "Exchange
Documents"). The Company and the Consenting Noteholders shall coordinate with
one another in the preparation of the Exchange Documents.
4. Conditions to the Exchange. The Exchange shall not close unless and
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until 100% of the outstanding principal amount of the Notes have tendered their
Notes for exchange (which provision may be waived by the holders of 95% in
aggregate principal amount of the Notes).
5. Support of the Exchange. Each of the Consenting Noteholders agrees
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that, subject to the conditions that, and only for so long as, (i) each of the
Exchange Documents shall be reasonably satisfactory to it, (ii) the material
terms of the Exchange Documents are substantially identical (subject to the "Tax
Considerations" section of the Term Sheet) to the terms set forth on the Term
Sheet annexed hereto as Exhibit A, and (iii) no Noteholders Termination Event
(as defined below) shall have occurred and not have been waived in accordance
herewith, it (1) shall exchange its Notes (and tender its Notes for exchange in
accordance with the Term Sheet), (2) hereby consents to amendments to the
Indenture if carried out substantially in accordance with the Term Sheet, (3)
shall execute an agreement setting forth the shareholder arrangements set forth
in the section entitled "Post Restructuring Board Composition" contained in the
Term Sheet, (4) to the extent permitted under the Indenture, hereby waives any
default existing on or prior to the date of this Agreement thereunder, and (5)
to the extent permitted under the Indenture, hereby agrees to waive any default
arising after the date of this Agreement under the Indenture through the earlier
of consummation of the Exchange or Termination of this Agreement in accordance
with the provisions hereof. Each of the Consenting Noteholders shall not: (a)
object to the consummation of the Exchange or otherwise commence any proceeding
to oppose the Exchange or any of the Exchange Documents so long as the Exchange
Documents contain terms and conditions substantially identical (subject to the
"Tax Considerations" section of the Term Sheet) with those contained in this
Agreement and the Term Sheet; (b) vote for, consent to, support or participate
in the formulation of any other out-of-court exchange for the Notes or
restructuring of the Company, or a plan of reorganization or liquidation under
applicable bankruptcy or insolvency laws, whether domestic or foreign, in
respect of the Company; (c) directly or indirectly seek, solicit, support or
encourage any other out-of-court exchange for the Notes or restructuring, plan,
proposal or offer of dissolution, winding up, liquidation, reorganization,
merger or restructuring of the Company (other than one agreed to in writing by
the Company and the Consenting Noteholders) that is
inconsistent with this Agreement; or (d) take any other action, including but
not limited to initiating any legal proceedings that is materially inconsistent
with, or that would materially delay consummation of, the Exchange; provided,
however, that nothing contained herein shall limit the ability of any Consenting
Holder to consult with the Company concerning any matter arising in connection
with the Exchange so long as such consultation is not inconsistent with such
Consenting Holder's obligations hereunder and the terms of the Exchange.
6. Acknowledgment. This Agreement and the terms of the Exchange are the
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product of negotiations between the Company and the Consenting Noteholders. This
Agreement is not and shall not be deemed to be a solicitation for consents to
amendments to the Indenture or a solicitation to tender or exchange the Notes.
Acceptance of the Exchange will not be solicited from any holder of the Notes
until it has received the disclosures required under applicable law.
Notwithstanding anything contained herein, the Consenting Noteholders shall be
under no requirement to consent to amendments to the Indenture or to exchange
their Notes, if the Exchange Documents presented to the Consenting Noteholders
provide for any terms that are materially inconsistent with this Agreement,
including, not limited to, the provisions of the Term Sheet. The Company
acknowledges and agrees that (i) the Indenture and all instruments and documents
executed in connection therewith constitute valid and binding agreements of the
Company and (ii) the Company does not possess and will not assert, any claim,
counterclaim setoff or defense of any kind or nature, which would in any way
affect the validity or enforceability of any claim arising from the Notes, or
which would in any way reduce or affect the absolute and unconditional
obligation of the Company to pay all of the obligations arising from the Notes.
7. Company Agreements. The Company hereby agrees (i) to prepare all of
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the Exchange Documents in a timely fashion, (ii) to ensure that all of the
Exchange Documents contain terms and conditions substantially identical (subject
to the "Tax Considerations" section of the Term Sheet) with those contained in
this Agreement and the Term Sheet, (iii) to file all applicable reports and
other documents as required under the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder within the time limits or
periods specified therein, (iv) to afford reasonable opportunity in advance of
filing any such reports, documents or the Exchange Documents to Xxxxx Xxxxxxxxxx
LLP, on behalf of the Noteholders, to review and comment upon such reports,
documents, Exchange Documents and any other material disclosure or press
releases, (v) to take all reasonable steps necessary and desirable to obtain
approval for the Exchange as expeditiously as possible under applicable law, and
(vi) to use reasonable best efforts to obtain any and all requisite regulatory
and/or third party approvals for the Exchange.
8. Termination of the Consenting Noteholders' Obligations. Each of the
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Consenting Noteholders may terminate its obligations hereunder and rescind its
acceptance of the Exchange by giving written notice thereof to the other
Consenting Noteholders, if any, and the Company of the following (each, a
"Noteholders Termination Event"): (a) the Exchange Documents provide or are
modified to provide for any terms that are adverse to or materially inconsistent
with any of the terms or conditions of this Agreement or the Term Sheet, (b) the
Company materially breaches this Agreement or fails to satisfy any of the terms
or conditions of the Term Sheet in any material respect, (c) the sale of Aeromet
International PLC and its subsidiaries (the "Aeromet Sale") is not consummated
by October 31, 2001, (d) the Exchange is not consummated
by December 31, 2001, (e) the Company shall file any proceeding under any
provision of the Bankruptcy Code or under any other state, federal or foreign
bankruptcy law, (f) any person shall commence any proceeding under any provision
of the Bankruptcy Code or under any other state, federal or foreign bankruptcy
law against the Company, (g) the Company shall withdraw or revoke the Exchange,
or the Company shall publicly announce its intention not to pursue the Exchange,
or (h) any other Consenting Holder shall have materially breached any of its
material obligations under this Agreement, which breach shall not have been
cured within 10 days of receiving notice thereof. Upon the happening of a
Noteholder Termination Event under clause (c) of the foregoing sentence for
failure to complete the Aeromet Sale by October 31, 2001, the Consenting
Noteholders and the Company agree to negotiate in good faith an alternative deal
structure.
9. Termination of the Company's Obligations. The Company shall have the
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right to terminate this Agreement, by the giving of written notice thereof to
each of the Consenting Noteholders: (a) in the event of a material breach of
this Agreement, (b) the failure to satisfy any material term or condition of the
Term Sheet by any Consenting Noteholder or (c) the Exchange is not consummated
by December 31, 2001 (a "Company Termination Event").
10. Effects of Termination. Subject to Paragraph 22 hereof and the
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confidentiality provisions contained in the Term Sheet, upon the occurrence of a
Noteholders Termination Event or a Company Termination Event, unless such
Noteholders Termination Event or a Company Termination Event has been waived in
accordance with the terms hereof, in each case resulting in the termination of
the Consenting Noteholders' obligations or the Company's obligations (as the
case may be) under the terms of Paragraph 8 or Paragraph 9 above, this Agreement
shall terminate and no party hereto shall have any continuing liability or
obligation to pay any other party thereunder and each party shall have all of
the rights and remedies available to it under applicable law and/or any
Indenture, and any ancillary documents or agreements thereto, including under
this Agreement; provided, however, that no such termination shall relieve any
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party from liability for its breach or non-performance of its obligations
hereunder prior to the date of such termination.
11. Forbearance; Restrictions on Transfers. So long as obligations of the
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Consenting Noteholders have not been terminated: (a) the Consenting Noteholders
will (i) not file a notice of default or sale or take any other action to
collect on the Notes, including, without limitation, instructing the Indenture
Trustee on how to proceed in the exercise of any and all remedies, or (ii) give
instructions to the Indenture Trustee, if and when reasonably appropriate, to
desist from taking action that is inconsistent with this Agreement or the
Exchange, so long as no indemnity of such Consenting Noteholders is required for
such action to be taken by the Indenture Trustee; and (b) each of the Consenting
Noteholders will not, directly or indirectly, sell, assign, transfer,
hypothecate or otherwise dispose of (i) any Notes beneficially owned by it or as
to which it has investment authority or discretion (including Notes acquired
after the date hereof), (ii) any claim (as that term is defined in section
101(5) of the Bankruptcy Code) arising from, based on or related to the Notes,
or (iii) any option, interest in, or right to acquire any Notes or claim
referred to in clauses (i) and (ii) above, unless the transferee thereof agrees
in writing for the benefit of the other parties hereto to be bound by all of the
terms of this Agreement and executes a counterpart signature page of this
Agreement and the transferor provides each of the Company
and Xxxxx Xxxxxxxxxx LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, XX 00000,
Attention: Xxxxxxx X. Xxxx, Esq., Facsimile: 000-000-0000 with a copy thereof,
in which event each party shall be deemed to have acknowledged that its
obligations to the Consenting Holders hereunder shall be deemed to constitute
obligations in favor of such transferee.
12. Notices. Notices given under this Agreement shall be to:
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For the Company:
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Xxxxxxx X. Xxxxxxxx, Esq.
Milbank, Tweed, Xxxxxx & XxXxxx LLP
000 Xxxxx Xxxxxxxx Xxxxxx, 00/xx/ Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
For the Consenting Noteholders:
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Xxxxxxx X. Xxxx, Esq.
Xxxxx Xxxxxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
13. Reservation of Rights. Except as expressly provided in this Agreement,
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nothing herein is intended to, or does, in any manner waive, limit, impair or
restrict the ability of each Consenting Noteholder and the Trustee to protect
and preserve its rights, remedies and interests, including without limitation,
its claims against the Company. Nothing herein shall be deemed an admission of
any kind. Nothing contained herein effects a modification of the Consenting
Noteholders' or the Trustee's rights under the Indenture, the Notes or other
documents and agreements unless and until the Exchange is consummated. If the
transactions contemplated herein are not consummated, or if this Agreement is
terminated for any reason, the parties hereto fully reserve any and all of their
rights. Pursuant to Federal Rule of Evidence 408, any applicable state rules of
evidence and any other applicable law, foreign or domestic, this Agreement and
all negotiations relating thereto shall not be admissible into evidence in any
proceeding other than a proceeding to enforce its terms.
14. Good Faith Negotiations of Exchange Documents; Further Assurances. The
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Company and each of the Consenting Noteholders hereby further covenant and agree
to negotiate the definitive documents relating to the Exchange, including,
without limitation, the Exchange Documents, in good faith. Furthermore, each of
the Parties shall take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement (provided that no Consenting
Holder shall be required to incur any expense, liability or other monetary
obligation), and shall refrain from taking any action which would frustrate the
purposes and intent of this Agreement.
15. Effectiveness; Counterparts. This Agreement shall not become effective
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and binding on the parties hereto unless and until counterpart signature pages
hereto shall have been executed and delivered by the Company and each
undersigned Consenting Noteholder. This Agreement may be executed by one of more
of the parties hereto in any number of counterparts, each of which shall be
deemed to be an original, but all such counterparts when taken together shall
constitute one and the same instrument. Except as expressly provided for herein,
no modification, amendment or waiver of any provision of this Agreement or the
Term Sheet shall be effective unless such modification, amendment or waiver is
in writing and signed by each of the parties hereto. The agreements,
representations and obligations of the Consenting Noteholders under this
Agreement are, in all respects, several and not joint.
16. Representations and Warranties. Each Consenting Noteholder represents
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and warrants to the Company and each other that it is an accredited investor and
owns the Notes that represent a beneficial interest in the total principal
amount (of record and/or beneficially) set forth next to its name on the
signature pages hereof, or as to which such holder or its Affiliates (as that
term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as
amended, and over whom the Consenting Noteholder exercises sufficient control to
insure enforcement of the provisions of this Agreement) has investment authority
or discretion, and such Notes constitute all of such Notes so owned or
controlled by such holder and its Affiliates. Each party hereunder represents
and warrants that the following statements are true, correct and complete as of
the date hereof.
(a) Power, Authority and Authorization. Execution, delivery and
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performance of this Agreement by such party has been duly authorized by all
necessary corporate action on the part of such party, and the person
executing this Agreement on behalf of such party is duly authorized to do
so;
(b) No Conflicts. The execution, delivery and performance of this
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Agreement by such party does not and shall not (i) violate any provision of
law, rule or regulation applicable to it or any of its subsidiaries or its
organizational documents or those of any of its subsidiaries or (ii) except
to the extent previously disclosed in writing to the Noteholders, conflict
with, result in a breach of or constitute (with due notice or lapse of time
or both) a default under any material contractual obligations to which it
or any of its subsidiaries is a party or under its organizational
documents;
(c) Governmental Consents. The execution, delivery and performance by
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it of this Agreement do not and shall not require any registration or
filing with, consent or approval of, or notice to, or other action to, with
or by, any federal, state or other governmental authority or regulatory
body, except such filing as may be necessary and/or required for disclosure
by the Securities and Exchange Commission or pursuant to state securities
or "blue sky" laws; and
(d) Binding Obligation. This Agreement is the legally valid and
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binding obligation of each of the undersigned, enforceable against it in
accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws,
both foreign and domestic, relating to or limiting creditors' rights
generally or by equitable principles relating to enforceability.
17. Disclosure of Individual Holdings. Unless required by applicable law
---------------------------------
or regulation, the Company shall not disclose (i) the amount of a Consenting
Noteholder's holdings of Notes, or (ii) the terms of this Agreement, without the
prior written consent of such Consenting Noteholder; and if such announcement or
disclosure is so required by law or regulation, the Company shall afford the
Consenting Noteholders a reasonable opportunity to review and comment upon any
such announcement or disclosure prior to such announcement or disclosure by the
Company. The foregoing shall not prohibit the Company from disclosing the
approximate aggregate holdings of Notes by the Consenting Noteholders or the
holders of the Notes as a group.
18. Entire Agreement. This Agreement, including the Term Sheet and the
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Exchange Documents, constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings of the parties in connection therewith.
19. Representation by Counsel. Each party hereto acknowledges that it has
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been represented by counsel (or had the opportunity to and waived its right to
do so) in connection with this Agreement and the transactions contemplated by
this Agreement. Accordingly, any rule of law or any legal decision that would
provide any party hereto with a defense to the enforcement of the terms of this
Agreement against such party based upon lack of legal counsel shall have no
application and is expressly waived. The provisions of this Agreement shall be
interpreted in a reasonable manner to effect the intent of the parties hereto.
None of the parties hereto shall have any term or provision construed against
such party solely by reason of such party having drafted the same.
20. Specific Performance. It is understood and agreed by each of the
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parties hereto that money damages would not be a sufficient remedy for any
breach of this Agreement by any party and each non-breaching party shall be
entitled to specific performance and injunctive or other equitable relief as a
remedy of any such breach.
21. Prevailing Party. If any party brings an action against any other
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party based upon a breach by such other party of its obligations hereunder, the
prevailing party shall be entitled to all reasonable expenses incurred,
including reasonable attorneys', accountants' and financial advisors' fees in
connection with such action.
22. Survival. Notwithstanding the sale of the Notes in accordance with
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Paragraph 11 hereof or the termination of the Consenting Noteholders'
obligations hereunder in accordance with Paragraph 8 hereto, the Company's
obligations and agreements set forth in Paragraph 17 (with respect to disclosure
of certain information) hereof shall survive such termination and shall continue
in full force and effect for the benefit of the Consenting Noteholders in
accordance with the terms hereof.
23. Successors and Assigns. This Agreement is intended to bind and inure
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to the benefit of the parties and their respective successors, assigns, heirs,
executors, administrators and representatives; provided, however, that nothing
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contained in this Paragraph shall be deemed to permit sales, assignments or
transfers other than in accordance with Paragraph 11.
24. No Third Party Beneficiaries. Unless expressly stated herein, this
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Agreement shall be solely for the benefit of the parties hereto and no other
person or entity.
25. Headings. The headings of the sections, paragraphs and subsections of
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this Agreement are inserted for convenience only and shall not affect the
interpretation thereof.
26. Further Acquisition of Notes. Any Consenting Holder may acquire
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additional Notes to the extent permitted by applicable law. However, each such
Consenting Holder agrees that it shall exchange any such additional Notes, in
accordance with the terms hereof and for so long as such Consenting Holder is
obligated to exchange its Notes in accordance with the terms hereof.
27. Amendments and Waivers. Once effective (unless otherwise provided
----------------------
herein), this Agreement may not be modified, amended or supplemented, and none
of the Noteholders Termination Events may be waived, except in writing signed by
holders of at least 75% of the aggregate principal amount of Notes; provided,
however, it shall require the waiver, in writing, of all parties hereto to
extend any of the dates set forth in Sections 8 and 9 hereto by more than ten
(10) business days from the dates set forth in such Section; and further
provided, however, that any modification of, or amendment or supplement to, this
Section 27 or any material term or provision of the Term Sheet or the Exchange
shall require the written consent of all of the parties.
28. GOVERNING LAW; JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY AND
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CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO ANY CONFLICTS OF LAW PROVISIONS WHICH WOULD REQUIRE THE APPLICATION OF
THE LAW OF ANY OTHER JURISDICTION. BY ITS EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES FOR
ITSELF THAT ANY LEGAL ACTION, SUIT OR PROCEEDING AGAINST IT WITH RESPECT TO ANY
MATTER UNDER OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR FOR
RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT RENDERED IN ANY SUCH ACTION, SUIT OR
PROCEEDING, MAY BE BROUGHT IN ANY FEDERAL OR STATE COURT IN THE BOROUGH OF
MANHATTAN, THE CITY OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF THE PARTIES HEREBY IRREVOCABLY ACCEPTS AND SUBMITS ITSELF TO
THE NONEXCLUSIVE JURISDICTION OF EACH SUCH COURT, GENERALLY AND UNCONDITIONALLY,
WITH RESPECT TO ANY SUCH ACTION, SUIT OR PROCEEDING.
29. Fees and Expenses. Notwithstanding anything contained herein to the
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contrary, the Consenting Holders shall not be obligated to perform under this
Agreement unless the Company shall have fully discharged all of its obligations
then due and owing under that certain letter agreement heretofore entered into
by the Company and Xxxxx Xxxxxxxxxx LLP.
30. Prior Negotiations. This Agreement and Exhibit A annexed hereto
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supersede all prior negotiations with respect to the subject matter hereof,
except that the parties acknowledge
that any confidentiality agreements heretofore executed between the Company and
each Consenting Holder shall continue in full force and effect.
31. Consideration. It is hereby acknowledged by the parties that no
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consideration shall be due or paid to the Consenting Holders for their agreement
to participate in the Exchange, in accordance with the terms and conditions of
this Agreement other than the obligations imposed upon the Company pursuant to
the terms of this Agreement and the Term Sheet, including, without limitation,
the obligation to take reasonable steps necessary and desirable to obtain
approval of the Exchange as expeditiously as possible under applicable law and
to use reasonable best efforts to obtain any and all requisite regulatory and/or
third party approvals for the Exchange in accordance with the terms and
conditions of this Agreement.
32. Severability. If any provision of this Agreement is held to be invalid
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or unenforceable in whole or in part, such invalidity or unenforceability shall
attach only to such provision or part thereof and the remaining part of such
provision hereof shall continue in full force and effect.
IN WITNESS WHEREOF, each of the parties below have executed a counterpart
of this Agreement, the terms of which shall be effective upon execution by the
Company and the Consenting Noteholders.
Dated: September 7, 2001 Pacific Aerospace & Electronics, Inc.
By: /s/ Xxxxxx Xxxxxx
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Name: Xxxxxx Xxxxxx
Title: Chief Executive Officer
Dated: September 7, 2001 GSCP Recovery, Inc.
By: /s/ Xxxxxxx Xxxxxxx
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Name: Xxxxxxx Xxxxxxx
Title: Managing Director
Address: 00 X. 00/xx/ Xxxxxx
Xxx Xxxx, XX 00000
Tel.: (000) 000-0000
Fax: (000) 000-0000
Principal amount of Notes held: $34.26 million
Dated: September 6, 2001 Alliance Capital Management L.P., as investment
advisor
By: Alliance Capital Management Corp
By: /s/ Xxxxxxx X. Xxxx
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Name: Xxxxxxx X. Xxxx
Title: Vice President
Address: 0000 Xxxxxx xx xxx Xxxxxxxx
00/xx/ Xxxxx
Xxx Xxxx, XX 00000
Tel.: (000) 000-0000
Fax: (000) 000-0000
Principal amount of Notes held: $8.5 million
Dated: September 7, 2001 M.W. Post Advisory Group L.L.C., as investment
advisor
By: /s/ Xxxxxxxx Post
---------------------------------
Name: Xxxxxxxx Post
Title: Managing Member
Address: 0000 Xxxxxxx Xxxx Xxxx
Xxxxx 000
Xxx Xxxxxxx, XX 00000
Tel.: (000) 000-0000
Fax: (000) 000-0000
Principal amount of Notes held: $17.145 million
Dated: September 7, 2001 Xxxxxxx X. Xxxxx & Sons Special Situation
Partners II, L.P.
By: /s/ Xxxx X. Xxxxxx
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Name: Xxxx X. Xxxxxx
Title: Principal
Address: 00000 Xxxxxxxx Xxxx, Xxxxx 000
Xxx Xxxxxxx, XX 00000
Tel.: 000-000-0000
Fax: 000-000-0000
Principal amount of Notes held: $2.5 million
EXHIBIT A
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TERM SHEET
PACIFIC AEROSPACE & ELECTRONICS, INC.
Exchange of Senior Subordinated Notes
September 7, 2001
The following constitutes the principal terms for an exchange (the "Exchange")
of the 11 1/4% Senior Subordinated Notes due 2005 (the "Notes") issued by
Pacific Aerospace & Electronics, Inc. (the "Company"), to be followed by (1) a
solicitation of the stockholders of the Company with respect to voting on an
amendment to the Company's Articles of Incorporation to increase the number of
authorized shares of common stock and (2) upon such amendment becoming
effective, an automatic conversion of the convertible preferred stock received
in the Exchange (collectively, with the Exchange, the "Transaction"). This term
sheet does not address any obligations of the Company to any other of its
creditors. The terms discussed herein are part of a comprehensive compromise,
each element of which is consideration for the other elements and an integral
aspect of the proposed restructuring. Except for the Confidentiality provision
below, this proposed term sheet does not constitute an offer or a legally
binding obligation of the Company or the Noteholders or any other party in
interest. This term sheet is proffered in the nature of a settlement proposal in
furtherance of settlement discussions, and is intended to be entitled to
protection from any use or disclosure to any party or person pursuant to Fed. R.
Evid. 408 or any other applicable rule of evidence.
OBJECTIVE: The holders of the Company's Notes (the "Noteholders")
will exchange their Notes for a combination of new
Pay-in-kind notes ("PIK Notes"), new senior subordinated
notes, common stock and convertible preferred stock. Upon
consummation of the Exchange and conversion of the
preferred stock issued hereunder, the pro forma
capitalization of the Company will be as follows:
Pro Forma percentage of
Holders: Common Stock:/1/
Participating Noteholders 95.0%
Existing Common Shrs (including 5.0%
all currently outstanding
options and other securities
convertible into Common Stock)
1 Does not reflect 10% of the Company's pro forma common
stock reserved for issuance to management as set forth
herein.
The Exchange will be effected pursuant to Section 3(a)(9)
of the Securities Act of 1933, as amended.
Exchange Consideration: The Company will exchange all of the
existing Notes, together with accrued
interest through the date of the Exchange
for the following package of securities:
1) That number of shares of common stock
that represents a majority of the
outstanding common shares of the
Company (the "Initial Common
Issuance"), with signed agreements of
the CEO, COO and General Counsel
locking up such officers' from
exercising their issued and
outstanding options and other
convertible securities of the
Company.
2) 1,000 shares of convertible preferred
stock (the "Preferred") with an
aggregate liquidation preference
equal to $30 million. The Preferred
will accrue dividends cumulatively at
a rate of 10% per annum from the date
of issuance (which dividend rate will
increase to 14% per annum if the
Automatic Conversion (as defined
below) has not occurred on or prior
to December 31, 2001). The Preferred
shall be automatically convertible
(the "Automatic Conversion") upon
shareholder authorization of a
sufficient number of shares of common
stock to effect the conversion in
full into that number of shares of
common stock that, when added to the
number of shares of common stock
issued to the Noteholders in the
Initial Common Issuance, would equal
95.0% of the authorized, outstanding
common stock of the Company. The
Preferred will rank senior to all
other classes of stock of the Company
as to liquidation, dissolution,
distributions, etc. The Preferred
shall have the voting rights
described under the section entitled
"Voting Rights" below.
3) PIK Notes in an aggregate principal
amount of $12.5 million with the
following terms:
Interest rate: 10% per annum
(increased to 14% if the Automatic
Conversion has not occurred on or
prior to December 31, 2001),
interest payable semi-annually
Maturity: August 1, 2005
Prepayment: Payable in full at any
time without penalty
Interest payment: Interest on the
PIK Notes shall be payable in cash
or in kind at the same interest
rate at the Company's option
through and including the third
interest payment on the PIK Notes.
Thereafter, interest on the PIK
Notes shall be payable in cash
only.
2
Redemption: As set forth in
"Aeromet Sale Proceeds" and "New
Senior Financing" below.
4) New senior subordinated notes (the
"New Senior Subordinated Notes") in
the aggregate principal amount of
$17.5 million on the following terms:
Interest rate: 10% per annum
(increased to 14% if the Automatic
Conversion has not occurred on or
prior to December 31, 2001),
payable semi-annually on the same
interest payment dates as the PIK
Notes
Maturity: August 1, 2005
Redemption: The New Senior
Subordinated Notes shall be
mandatorily redeemable upon sale
of the Aeromet International PLC
and its subsidiaries ("Aeromet")
at an aggregate price equal to the
lesser of (i) $17.5 million plus
all accumulated but unpaid
interest then due, if any, or (ii)
the proceeds of the Aeromet sale
minus (x) the amount required to
pay off the Company's senior
secured lenders in full, minus (y)
fees and expenses of the Aeromet
sale and Exchange transactions not
to exceed $5.6 million (the sale
proceeds after such deductions,
the "Net Proceeds"). If the New
Senior Subordinated Notes have not
been redeemed in full upon the
Aeromet sale, the remaining
outstanding New Senior
Subordinated Notes shall be
mandatorily redeemable upon the
Company obtaining the New Senior
Facility (as defined below) that
permits such redemption, at an
aggregate price equal to the
lesser of (i) the then outstanding
aggregate principal amount of the
New Senior Subordinated Notes plus
all accumulated but unpaid
interest then due, if any, or (ii)
the proceeds of the New Senior
Facility, minus the fees and
expenses of the New Senior
Facility transaction not to exceed
$1.0 million (such proceeds, after
such deduction, the "Loan
Proceeds"). Notwithstanding the
foregoing, if the Company obtains
a New Senior Facility prior to
selling Aeromet, then the New
Senior Subordinated Notes shall be
mandatorily redeemable first upon
obtaining a New Senior Facility
that permits such redemption (on
the terms set forth in this
paragraph above), with any
remaining amount of New Senior
Subordinated Notes after such
redemption to be redeemed (in
accordance with this paragraph
above) upon the sale of Aeromet.
Security: The New Senior
Subordinated Notes shall be
secured by all of the assets and
outstanding capital stock
3
of Aeromet International PLC, subject and
subordinated to any liens of the Company's
senior lenders and only to the extent such
security interest may be taken in
compliance with applicable laws.
Aeromet Sale Proceeds The proceeds received by the Company in the
Aeromet sale shall be applied in accordance with
the Redemption provisions of the New Senior
Subordinated Notes of the foregoing section
entitled "Exchange Consideration." If the proceeds
received by the Company in the Aeromet sale are in
excess of the amount required to fully redeem the
New Senior Subordinated Notes (the "Excess
Proceeds"), then the Excess Proceeds from such
sale shall be applied first to redeem the Working
Capital Loan (as defined below) with an equivalent
principal amount. Thereafter, any Excess Proceeds
will be used to pay off the PIK Notes and then to
fund operations.
New Senior Financing The Company shall use its best commercially
reasonable efforts to obtain a new senior credit
facility in the amount of $10.0 million (the "New
Senior Facility") and to cause the New Senior
Subordinated Notes to be repaid from the proceeds
of the New Senior Facility as contemplated above.
If the proceeds received by the Company from the
New Senior Facility are in excess of the amount
required to fully redeem the New Senior
Subordinated Notes as contemplated above (the
"Excess Loan Proceeds"), then the Excess Loan
Proceeds shall be applied first to redeem the
Working Capital Loan in an equivalent principal
amount, if permitted to do so by the terms for the
New Senior Facility. Thereafter, any Excess Loan
Proceeds will be used to pay off the PIK Notes, if
the Company is permitted to do so by the terms of
the New Senior Facility.
Working Capital The Noteholders, concurrently with the sale of
Aeromet, shall provide a $5.0 million working
capital loan to the Company (the "Working Capital
Loan"), which loan shall be secured by the U.S.
assets of the Company and its subsidiaries. For
the avoidance of doubt, the Noteholders will not
advance new capital; rather, $5 million of the
proceeds of the Aeromet sale otherwise payable to
the Noteholders will be lent to the Company for
working capital purposes. The Working Capital Loan
shall have the same payment terms as the New
Senior Subordinated Notes.
Voting Rights: The Preferred shall be entitled to vote with the
common stock on all matters requiring such vote
and shall be entitled to the number of votes equal
to the number of shares into which it is
convertible. The Preferred shall not vote as a
separate class for
4
any matter except as required by law.
Transfer: The Preferred shall be transferable without the
Company's consent only if such transfer is in
compliance with applicable securities laws and the
transferee thereof agrees in writing for the
benefit of all the parties to the Exchange to be
bound to the Lock-up Agreement to which this Term
Sheet is attached and the transferor provides
notice to the Company and Xxxxx Xxxxxxxxxx LLP,
0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, XX 00000,
Attn: Xxxxxxx X. Xxxx, Esq., Facsimile: (212)
259-6333. The common stock, the New Senior
Subordinated Notes and the PIK Notes shall be
transferable without the Company's consent in
compliance with applicable securities laws.
Management Incentives: 10% of the Company's common stock on a
fully-diluted basis shall be reserved for issuance
to management upon or after consummation of the
Exchange, allocated 50% to the Chief Executive
Officer, 25% to the Chief Operating Officer, and
25% to other senior management (in the discretion
of the Company's board of directors). Options
shall vest over 3 years and shall be outstanding
for ten years; 1/3 each anniversary from the date
of the Exchange. The percentage of the outstanding
common stock subject to the options will increase
based on increases in the enterprise value of the
Company pursuant to the following (all enterprise
value numbers assume consummation of the Aeromet
sale and shall be readjusted if the Aeromet sale
is not completed as contemplated herein):
1) 2.5% of the outstanding common stock - based on
a per share strike price determined by an
enterprise value of $30 million
2) 5% of the outstanding common stock - based on a
per share strike price determined by an enterprise
value of $40 million
3) 7.5% of the outstanding common stock - based on
a per share strike price determined by an
enterprise value of $50 million
4) 10% of the outstanding common stock - based on
a per share strike price determined by an
enterprise value of $60 million
Covenants: 1) File a proxy or information statement with the
SEC regarding increase in authorized common stock
as soon as reasonably practicable.
2) Hold a shareholders meeting to approve increase
in authorized common stock as soon as reasonably
practicable
5
following SEC clearance to do so.
3) Proceed diligently to sell Aeromet, such sale to be
subject to the approval of the Noteholders.
4) Sell Aeromet by October 31, 2001 for a price no less
than(pound)25 million.
5) Repay the Company's senior secured lender in full from
the proceeds of the Aeromet sale.
6) File with the SEC, and transmit to all holders of
common stock of the Company as of the applicable record
date, the information contemplated by Rule 14f-1 under
the Securities Exchange Act of 1934, as amended, so as
to permit the Noteholders to achieve the composition of
the Board of Directors of the Company contemplated
under "Post Restructuring Board Composition"
simultaneously with the consummation of the Exchange.
The Noteholders will supply the information with
respect to their designees for membership on the Board
of Directors of the Company as is contemplated by Rule
14f-1.
7) Obtain the New Senior Facility in the amount of $10.0
million from a new third party lender on terms more
favorable than the Company's existing senior secured
loan. The Company shall redeem any outstanding New
Senior Subordinated Notes, PIK Notes and the Working
Capital Loan from the proceeds of the New Senior
Facility, so long as the New Senior Facility permits
such redemption. The Company will use its best
commercially reasonable efforts to cause any New Senior
Facility to permit redemption of any then outstanding
New Senior Subordinated Notes, PIK Notes and the
Working Capital Loan.
Choice of Law: New York as to contracts, but Washington as to corporate
matters.
Conditions to 1) Executed lock-up agreement (including required
Closing: waivers and forbearance) by Noteholders holding 100% of
the outstanding principal amount of Notes (which
requirement may be waived by the holders of 95% of the
outstanding principal amount of Notes) and shareholder
(voting) agreement executed by each of such
Noteholders, the Company and the Company's CEO, COO and
General Counsel (which will assure the majority vote
required by Washington law to approve the increase in
the authorized
6
common stock).
2) If Aeromet is sold prior to the
Exchange, the Notes will be paid down
$17.5 million in lieu of issuance of
the New Senior Subordinated Notes;
provided, however, that if the Net
Proceeds are less than $17.5 million,
then the unpaid portion of the Notes
shall be exchanged for an equivalent
amount of New Senior Subordinated
Notes.
3) Tender of the Notes by holders of 100%
of the outstanding principal amount of
Notes (which requirement may be waived
by the holders of 95% of the
outstanding principal amount of Notes)
and execution and delivery of an exit
consent/supplemental indenture amending
the existing indenture governing the
Notes to remove all covenants except
payment covenants.
4) Opinion from a nationally recognized
investment bank other than Jefferies
& Co., as to the fairness of the
Transaction as a whole to the Company
and the Company's existing shareholders
not participating in the Exchange.
Post Restructuring Board Upon the issuance of the Common Stock and
the Preferred Stock in the Exchange, the
Noteholders shall be entitled to appoint
four of five board seats, with the fifth
seat being reserved for the Company's Chief
Executive Officer. A Shareholders' Agreement
shall provide how such seats are to be
allocated among the Noteholders as well as
certain other customary agreements among the
Company's shareholders.
Existing Employment Agreements: The Exchange and conversion of Preferred
shall be deemed not to constitute a change
of control pursuant to existing management
agreements. Following the Exchange, the
Noteholders shall cause the Company to enter
into new employment agreements with Xx.
Xxxxxx, Xx. Xxxxxxxxxxx and Xx. Xxxxxxx to
be effective upon the Initial Common
Issuance date on substantially the same
terms as the existing employment agreements,
including, but not limited to, terms
regarding change of control and severance
packages, except that the guaranteed option
grant provisions shall be eliminated. Such
new employment agreements shall have three
year terms.
Any and all existing consulting agreements
will be terminated.
Registration Rights: The Company shall grant the holders of new
common stock customary registration rights.
The terms of such registration rights are to
be determined.
7
Reverse Stock Split: After the Exchange and subsequent conversion of the
Preferred, the Company shall consummate a reverse
stock split to improve the liquidity of the
post-restructuring common stock, if deemed
appropriate by the post-restructuring board of
directors. Any fractional shares resulting from the
reverse stock split shall be rounded up to one whole
share, to the extent permitted under Washington law.
Tax Considerations: Each of the Company and the Noteholders hereby agrees
to work in good faith to permit the Noteholders, in
the case of the Company, or the other Noteholders and
the Company, in the case of a Noteholder, to make
economically neutral changes to the structure and
documentation of the Transaction as necessary to
enhance such party's respective tax position, so long
as no other party to the Transaction is economically
harmed by such change.
Confidentiality: Neither this Term Sheet nor the subject matter hereof
is to be shared with parties (other than the parties
to the Lock-up Agreement to which this term sheet has
been attached as an exhibit), their respective
counsel, their respective accountants and their
respective financial advisors at any time prior to or
after execution, except as required by law.
8
