Use these links to rapidly review the document
TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on May 12, 2011

Registration No. 333-173381

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Amendment No. 1 to

Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Wesco Aircraft Holdings, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  5072
(Primary Standard Industrial
Classification Code Number)
  20-5441563
(I.R.S. Employer
Identification No.)



27727 Avenue Scott
Valencia, CA 91355
(661) 775-7200

(Address, including zip code, and telephone number, including area code, of the registrant's principal executive offices)

John G. Holland
General Counsel
27727 Avenue Scott
Valencia, CA 91355
(661) 775-7200
(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Rachel W. Sheridan
Jason M. Licht

Latham & Watkins LLP
555 11 th  Street, NW
Washington, DC 20004
(202) 637-2200

 

Michael Kaplan
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
(212) 450-4000



Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.

         If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o

         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.  o

         If this Form is a post-effective amendment filed pursuant to Rule 462(c) 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.  o

         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 effective registration statement for the same offering.  o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  o   Accelerated filer  o   Non-accelerated filer  ý   Smaller reporting company  o

          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 or until this registration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine.


Table of Contents

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED MAY 12, 2011

PROSPECTUS

            Shares

LOGO

Wesco Aircraft Holdings, Inc.

Common Stock



        This is an initial public offering of the common stock of Wesco Aircraft Holdings, Inc. The selling stockholders are offering             shares of our common stock in this offering. We will not receive any proceeds from the sale of shares held by the selling stockholders. The selling stockholders in this offering include                .

        We expect the public offering price to be between $        and $        per share. Currently, no public market exists for the shares. We will apply to list our common stock on            under the symbol "WAIR."

         Investing in our common stock involves risks. See "Risk Factors" beginning on page 10 of this prospectus.

       
 
 
  Per Share
  Total
 

Public offering price

  $               $            
 

Underwriting discounts and commissions

  $               $            
 

Proceeds, before expenses, to the selling stockholders

  $               $            

 

        The selling stockholders have granted the underwriters a 30-day option to purchase up to an additional        shares from the selling stockholders on the same terms and conditions as set forth above if the underwriters sell more than        shares of common stock in this offering. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

        The underwriters expect to deliver the shares to purchasers on or about        , 2011.



Barclays Capital   Morgan Stanley
BofA Merrill Lynch   J.P. Morgan   William Blair & Company



                , 2011


Table of Contents


TABLE OF CONTENTS

 
  Page

Prospectus Summary

  1

Risk Factors

  10

Forward-Looking Statements

  25

Use of Proceeds

  26

Dividend Policy

  27

Capitalization

  28

Dilution

  30

Selected Consolidated Financial Data

  32

Management's Discussion and Analysis of Financial Condition and Results of Operations

  34

Industry Overview

  59

Business

  61

Management

  75

Compensation Discussion and Analysis

  81

Certain Relationships and Related Party Transactions

  99

Principal and Selling Stockholders

  102

Description of Capital Stock

  105

Shares Eligible For Future Sale

  108

Material U.S. Federal Tax Considerations For Non-U.S. Holders of Our Common Stock

  110

Underwriting

  114

Validity of Common Stock

  120

Experts

  120

Where You Can Find More Information

  120

Index to Consolidated Financial Statements

  F-1



         We have not authorized anyone to provide any information other than that contained or incorporated by reference in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. The selling stockholders are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted.



i


Table of Contents


MARKET AND INDUSTRY DATA

        We obtained the industry, market and competitive position data used throughout this prospectus from our own internal estimates and research as well as from industry publications, research, surveys and studies conducted by third parties, including the May 2010 and January 2011 publications of the Airline Monitor; the January 2011 report entitled "Business Jet Report" by the U.S. Federal Aviation Administration; the March 2011 report entitled "Lockheed Martin F-35 Joint Strike Fighter (JSF)" by Forecast International; the November 2011 report entitled "Boeing Current Market Outlook, 2010-2029" by Boeing; the 2009 and 2010 publications of the "Statistical Databook and Industry Outlook" by the General Aviation Manufacturers Association; the October 2010 report entitled "Business Aviation Outlook" by Honeywell; and an independent research report that was prepared by Stax Inc. for our use in connection with this offering. Industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable. We have not independently verified market and industry data from third-party sources. Estimates of historical growth rates in the markets where we operate are not necessarily indicative of future growth rates in such markets.


CERTAIN TRADEMARKS

        This prospectus includes trademarks, such as Wesco Aircraft® and the Wesco logo, which are protected under applicable intellectual property laws and are our property and/or the property of our subsidiaries. This prospectus also contains trademarks, service marks, copyrights and trade names of other companies, which are the property of their respective owners. Solely for convenience, our trademarks and tradenames referred to in this prospectus may appear without the® or™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and tradenames.

ii


Table of Contents


PROSPECTUS SUMMARY

         This summary highlights information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information that may be important to you. You should read this entire prospectus and should consider, among other things, the matters set forth under "Risk Factors," "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our financial statements and related notes thereto appearing elsewhere in this prospectus before making your investment decision. Unless otherwise noted in this prospectus, the term "Wesco Aircraft" means Wesco Aircraft Holdings, Inc., our top-level holding company, and the terms "Wesco," "the Company," "we," "us," "our" and "our company" mean Wesco Aircraft and its subsidiaries, including Wesco Aircraft Hardware Corp., our primary domestic operating company, and Wesco Aircraft Europe, Ltd., our primary foreign operating company. References to "fiscal year" mean the year ending or ended September 30. For example, "fiscal year 2010" or "fiscal 2010" means the period from October 1, 2009 to September 30, 2010.

Our Company

        We are one of the world's largest distributors and providers of comprehensive supply chain management services to the global aerospace industry on an annual sales basis. Our services range from traditional distribution to the management of supplier relationships, quality assurance, kitting, just-in-time, or JIT, delivery and point-of-use inventory management. We supply approximately 450,000 different stock keeping units, or SKUs, including hardware, bearings, tools and more recently, electronic components and machined parts. In fiscal 2010, sales of hardware represented 80% of our net sales, with highly engineered fasteners constituting 83% of that amount. We serve our customers under three types of arrangements: JIT contracts, which govern comprehensive outsourced supply chain management services; long term agreements, or LTAs, which set prices for specific parts; and ad hoc sales. JIT contracts and LTAs, which together comprised approximately 63% of our fiscal 2010 net sales, are multi-year arrangements that provide us with significant visibility into our future sales.

        Wesco was founded in 1953 by the father of our current chief executive officer and has a long history of consistent growth and profitability. We have grown our net sales at a 16% compound annual growth rate, or CAGR, over the past 10 years to $656.0 million in fiscal 2010. Our growth and profitability have been driven by our focus on customer service and our management's ability to make optimal inventory purchasing decisions through the use of our highly customized information technology, or IT, system. We believe that with more than 1,000 employees across 28 locations in 10 countries, we are well positioned to continue our track record of strong long-term growth and profitability.

        We believe we offer a compelling value proposition to both our customers and suppliers. Customers that utilize our comprehensive JIT supply chain management services are frequently able to realize significant benefits including: reduced inventory levels, fewer disruptions of production schedules, improved quality assurance and reduced administrative and overhead costs. Our more than 1,100 suppliers also derive several benefits from our scale, global reach and unique business model, including: access to over 7,200 customer accounts, improved manufacturing efficiency, reduced inventory levels, improved performance in meeting on-time-delivery targets to end customers and reduced administrative and overhead costs.

Industry Overview

        According to Stax, the global market for C class aerospace parts, which includes hardware, bearings, electronic components and machined parts for both commercial and military customers, was approximately $6.1 billion in 2009. Approximately $3.9 billion of this market flows through distributors.

1


Table of Contents

        The key trends and drivers of growth in our market include:

        Increased Demand for New Aircraft Production.     The original equipment manufacturer, or OEM, market for C class aerospace parts in 2009 was approximately $4.1 billion according to Stax, with approximately $2.5 billion of this total relating to sales to the commercial end market and $1.6 billion relating to the military end market. Increased passenger traffic volumes and the return to profitability of the global airline industry have renewed demand for commercial aircraft deliveries, which are forecasted by Airline Monitor to grow at a CAGR of approximately 4.5% over the next ten years. We also expect commercial aircraft production to be supplemented by increases in business and regional jet deliveries. Future military aerospace OEM demand is expected to be driven by increases in the production of the Lockheed Martin F-35 Joint Strike Fighter, or JSF. The JSF is a next-generation fighter that is designed for the U.S. Navy, Marines and Air Force, as well as key U.S. allies such as the United Kingdom, Italy and The Netherlands.

        Increased Demand from the MRO Market.     According to Stax, the combined commercial and military maintenance, repair and overhaul, or MRO, market represented approximately $2.0 billion of the total C class aerospace parts market in 2009. We expect commercial MRO providers to benefit from the same trends as those impacting the commercial OEM market, including increased revenue passenger miles, or RPMs, which will in turn drive growth in the commercial fleet and greater utilization of existing aircraft. We expect demand in the military MRO market to be driven by requirements to maintain aging military fleets, changes in the overall fleet size and the level of U.S. military activity overseas.

        Industry Consolidation.     We are one of the top two aerospace distribution companies by sales and, together with our largest competitor, accounted for approximately $1.4 billion, or 23%, of the approximately $6.1 billion C class aerospace parts market in 2009, of which approximately $612.7 million, or 10%, was attributable to us. The remainder of the market is highly fragmented, which creates significant opportunities for further consolidation. Several benefits typically accrue to distributors through consolidation, including efficiencies in leveraging costs over a larger revenue base, increased customer penetration facilitated by a larger product offering and a reduction in purchasing costs driven by larger volume-based discounts. We expect these benefits to support further consolidation in the industry.

        Globalization.     The manufacture of aircraft and aircraft structures is becoming more globalized, as nations such as China, India and the UAE invest heavily to develop their aerospace industries. In addition, many U.S. and European OEMs continue to expand their operations in international markets in order to benefit from labor cost savings as local businesses seek to partner with established global companies. These OEMs and subcontractors expect to receive the same quality parts and services in new markets that they receive in their home markets. We believe that these quality and service expectations and the overall growth rates in international aerospace markets present significant opportunities for global supply chain managers such as Wesco.

Our Competitive Strengths

        We believe our key competitive strengths include the following:

        Leader in Attractive Global Market.     We are one of the world's largest distributors and providers of comprehensive supply chain management services to the global aerospace industry on an annual sales basis. We believe we offer the world's broadest inventory of aerospace parts comprised of approximately 450,000 SKUs. In addition, we fill approximately 8,000 orders per work day and manage approximately 350,000 stocking bins throughout our customers' facilities. We believe that the scale of our global distribution network, our value-added services and the depth, breadth and dollar investment in our inventory provide us with a significant competitive advantage in an attractive market.

2


Table of Contents

        Compelling Value Proposition.     We offer a compelling value proposition to our customers by combining access to what we believe to be the world's broadest inventory of aerospace parts with our unique capabilities in comprehensive supply chain management. Our services can significantly improve on-time-delivery performance, enabling our customers to reduce their inventory while at the same time decreasing the frequency of production interruptions caused by part shortages. Aerospace companies that outsource to a supply chain manager like Wesco can reduce overhead and administrative costs relating to internal procurement, quality assurance, inventory stocking and other related personnel.

        Diverse Customer and Program Base.     We maintain strong relationships with over 7,200 active customers including major OEMs such as Airbus, Boeing, Bombardier, Embraer, Cessna, Gulfstream, BAE Systems, Bell Helicopter, Lockheed Martin, Northrop Grumman and Raytheon. We supply products to nearly every major Western aircraft in production, including the B-787, B-737, B-747, A-320, JSF and V-22. During fiscal 2010, no single customer or aircraft program represented more than 15% of our net sales. We have actively worked to transition our largest customers from ad hoc purchases to multi-year LTAs or comprehensive JIT supply chain management agreements, the latter two of which together represented approximately 63% of our fiscal 2010 net sales. By developing strong, long-term relationships with a diverse set of customers, we have significant visibility into our future sales.

        Superior Purchasing Capabilities and Supplier Relationships.     Our management is highly skilled in analyzing supply, demand, cost and pricing factors in order to make optimal inventory investment decisions, and we maintain close relationships with the leading suppliers in the industry. In particular, Precision Castparts Corp., or Precision Castparts, and Alcoa Fastening Systems supplied approximately 22% and 20%, respectively, of the products we purchased during fiscal 2010. As a result of our scale and the strength of our relationships, many of our suppliers offer us attractive volume-based price discounts. Our success in making optimal inventory purchasing decisions is driven by our management's deep understanding of our industry and is further facilitated by our highly customized IT system. Our superior inventory purchasing capabilities and strength of our supplier relationships have contributed substantially to what we believe are our industry-leading operating margins.

        Experienced Management Team with Significant Equity Ownership.     Our management team has extensive industry experience and company tenure. Our Chief Executive Officer and other executive officers have an average of more than 20 years of experience with us and more than 30 years in our industry. In addition, our executive officers will own approximately        % of the common stock of the Company following this offering. We believe that this significant equity ownership aligns the interests of our executive officers with our stockholders.

Our Strategy for Continued Growth

        We intend to pursue the following strategies in order to continue to grow our business:

        Continued Focus on Operational Excellence.     We intend to further our existing customer relationships by continuing to invest in our highly customized IT system and providing best-in-class on-time delivery performance and quality assurance. We believe that by focusing on operational excellence, we will be able to maintain high customer satisfaction and industry-leading operating margins.

        Win New Business from Existing Customers.     We will continue our strategy of expanding our relationships with existing customers by transitioning them to our comprehensive JIT supply chain management services as well as expanding our programs to include additional customer sites and SKUs, and by introducing new supply chain solutions that minimize costs, improve productivity and lower inventory investment.

3


Table of Contents

        Expand Customer Base.     We plan to expand our customer base and have had significant success in winning business when competing distributors have been unable to meet customer service level requirements and in situations where customers have outsourced work that was previously performed internally. In addition, we will increase our focus on serving airlines and airline maintenance organizations.

        Further Expand into International Markets.     We have recently established a presence in international locations such as China, India and Saudi Arabia, and we intend to expand into other high growth regions such as Mexico to support new and existing customers. Our international expansion efforts will enable us to better reach new customers and more effectively serve our existing customer base as the manufacture of aircraft and aircraft structures continues to become more globalized.

        Selectively Pursue Strategic Acquisitions.     Our industry is highly fragmented and we believe that there are opportunities for continued consolidation. We believe that we are well positioned to expand our product offering and geographical footprint through strategic acquisitions.

Recent Developments

        On April 7, 2011, Wesco Aircraft Hardware Corp., our wholly owned, primary domestic operating subsidiary, entered into a new $765.0 million senior secured credit facility with Barclays Bank PLC, as administrative agent and collateral agent, and Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Key Bank, N.A. and Barclays Capital, as joint lead arrangers, which we refer to as our new senior secured credit facilities.

        The purpose of the refinancing was to extend the maturity dates under the term loans of Wesco Aircraft Hardware Corp.'s existing senior secured credit facilities, which we refer to as our old senior secured credit facilities, increase the borrowing capacity under our revolver and pay related fees and expenses. The new senior secured credit facilities consist of a (i) $150.0 million revolving credit facility, which we refer to as the new revolving facility, (ii) $265.0 million term loan A facility, which we refer to as the new term loan A facility, and (iii) $350.0 million term loan B facility, which we refer to as the new term loan B facility. Wesco Aircraft is a guarantor of the new senior secured credit facilities.

Risks Related to Our Business

        Investing in our common stock involves substantial risk. You should carefully consider all of the information in this prospectus prior to investing in our common stock. There are several risks related to our business that are described under "Risk Factors" elsewhere in this prospectus. Among these important risks are the following:

4


Table of Contents

Our Sponsor

        The Carlyle Group, or Carlyle, is a global alternative asset manager with $106.7 billion of assets under management committed to 84 funds as of December 31, 2010. Carlyle invests across three asset classes—private equity, real estate and credit alternatives—in Africa, Asia, Australia, Europe, North America and South America, focusing on aerospace and defense, industrial and transportation, consumer and retail, energy and power, financial services, healthcare, infrastructure, technology and business services, and telecommunications and media. Since 1987, the firm has invested $68.7 billion of equity in 1,035 transactions. Carlyle employs more than 993 people in 19 countries. Representative Carlyle transactions include the acquisitions of The Hertz Corporation, the largest worldwide car rental brand, Booz Allen Hamilton, a provider of management and technology consulting services to the U.S. government in the defense, intelligence and civil markets, Kinder Morgan, an energy pipeline and storage company, and The Nielsen Company, an information and data measurement company.

        As of December 31, 2010, Carlyle, through Falcon Aerospace Holdings, LLC, owned approximately 83.8% of our outstanding common stock. Following the completion of this offering and assuming that the underwriters do not exercise their option to purchase additional shares of common stock, Carlyle will continue to own approximately      % of our outstanding common stock.

Company History

        Wesco Aircraft was incorporated in Delaware on July 21, 2006, as a holding company for Wesco Aircraft Hardware Corp., our wholly owned, primary domestic operating subsidiary, Wesco Aircraft Europe, Ltd., our primary foreign operating subsidiary, and certain other foreign operating subsidiaries, in connection with the acquisition of 100% of the outstanding stock of Wesco Aircraft Hardware Corp., Wesco Aircraft Israel and the European entities of Flintbrook Ltd., Wesco Aircraft France and Wesco Aircraft Germany by Wesco Aircraft, which we refer to as the Carlyle Acquisition. Wesco Aircraft Hardware Corp., our primary domestic operating company, was incorporated in California on October 11, 1971 and Wesco Aircraft Europe, Ltd., our primary foreign operating company, was incorporated in the United Kingdom on October 19, 1984.

        Our principal executive offices are located at 27727 Avenue Scott, Valencia, CA 91355 and our telephone number is (661) 775-7200. Our Internet address is www.wescoair.com. The contents of our website are not part of this prospectus.

5


Table of Contents


The Offering

Common stock offered by the selling stockholders

              shares.

Selling stockholders

 

The selling stockholders in this offering include                . See "Principal and Selling Stockholders."

Common stock outstanding after this offering

 

            shares.

Option to purchase additional shares of common stock

 

The selling stockholders have granted the underwriters a 30-day option to purchase up to an additional        shares of common stock at the initial public offering price to cover overallotments, if any.

Use of proceeds

 

We will not receive any net proceeds from the sale of shares by the selling stockholders, including with respect to the underwriters' overallotment option. See "Use of Proceeds."

Proposed            symbol

 

"WAIR."

Risk factors

 

See "Risk Factors" beginning on page 10 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

        The number of shares of our common stock to be outstanding after completion of this offering is based on            shares outstanding as of March 31, 2011 and excludes:

        Unless we specifically state otherwise, all information in this prospectus assumes:

        Concurrently with the amending and restating of our certificate of incorporation, the number of shares of our authorized common stock will be increased to                shares, and each share of common stock then outstanding, including the shares of our Class B common stock, that will have been converted, on a one-for-one basis, into shares of common stock, will be split into                shares of common stock by way of a stock split. Unless we specifically state otherwise, the share information in this prospectus reflects the increase in the authorized number of our common stock and the stock split.

6


Table of Contents


Summary Historical Financial Data

        The following tables set forth our summary historical financial data for the years ended September 30, 2008, 2009 and 2010 and for the six month periods ended March 31, 2010 and 2011. Our summary historical income statement data for each of the years in the three-year period ended September 30, 2010 have been derived from our audited financial statements included elsewhere in this prospectus. Our summary historical income statement data for the six months ended March 31, 2010 and 2011 and our summary historical balance sheet data as of March 31, 2011 have been derived from our unaudited financial statements included elsewhere in this prospectus that, in the opinion of management, include all adjustments consisting only of normal, recurring adjustments necessary for a fair presentation of the results for the unaudited interim period. Results for the six months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending September 30, 2011 or for any other period. The selected historical balance sheet data as of March 31, 2011 have been derived from our unaudited financial statements not included in this prospectus. The financial data set forth below are not necessarily indicative of future results of operations. This data should be read in conjunction with, and is qualified in its entirety by reference to, the "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Capitalization" sections and our financial statements and notes thereto included elsewhere in this prospectus.

 
  Year Ended September 30,   Six Months Ended
March 31,
 
(Dollars in thousands, except share and per share amounts)
  2008   2009   2010   2010   2011  
 
   
   
   
  (unaudited)
 

Consolidated statements of income:

                               

Net sales:

                               
 

North America

  $ 551,135   $ 557,874   $ 603,809   $ 283,285   $ 318,808  
 

Rest of the World

    112,623     102,796     95,342     47,259     57,527  
 

Intercompany eliminations

    (59,415 )   (47,983 )   (43,115 )   (19,633 )   (26,792 )
                       
   

Net sales

    604,343     612,687     656,036     310,911     349,543  

Gross profit:

                               
 

North America

    221,898     204,296     226,497     103,788     117,725  
 

Rest of the World

    42,143     39,733     34,167     17,265     19,523  
 

Intercompany eliminations

    (7,433 )   (5,742 )   (6,434 )   (3,214 )   (3,123 )
                       
   

Gross profit

    256,608     238,287     254,230     117,839     134,125  

Selling, general and administrative expenses:

                               
 

North America

    84,807     86,007     81,674     40,140     39,593  
 

Rest of the World

    20,951     17,888     18,241     9,185     10,288  
                       
   

Selling, general and administrative expenses

    105,758     103,895     99,915     49,325     49,881  
                       

Income from operations

    150,850     134,392     154,315     68,514     84,244  

Interest expense, net

    (48,743 )   (37,707 )   (36,270 )   (18,214 )   (12,586 )

Other income (expense), net

    746     (376 )   (458 )   1,056     (177 )
                       

Income before provision for income taxes

    102,853     96,309     117,587     51,356     71,481  
                       

Provision for income taxes

    44,251     37,862     43,913     19,171     27,873  
                       

Net income

  $ 58,602   $ 58,447   $ 73,674   $ 32,185   $ 43,608  
                       

Earnings per share data:

                               

Net income per share:

                               
   

Basic

  $ 6.22   $ 6.19   $ 7.32   $ 3.20   $ 4.33  
   

Diluted

  $ 6.02   $ 5.87   $ 7.28   $ 3.20   $ 4.24  

Weighted average shares outstanding:

                               
   

Basic

    9,420,433     9,440,596     10,063,237     10,063,237     10,065,678  
   

Diluted

    9,740,158     9,964,748     10,118,648     10,063,473     10,292,912  

7


Table of Contents

 
  Year Ended September 30,   Six Months Ended
March 31,
 
(Dollars in thousands)
  2008   2009   2010   2010   2011  
 
   
   
   
  (unaudited)
 

Consolidated balance sheet data:

                               
   

Cash and cash equivalents

  $ 15,998   $ 11,406   $ 39,463   $ 24,056   $ 45,670  
   

Working capital(1)

    438,863     526,375     565,126     552,997     600,679  
   

Total assets

    1,173,620     1,254,812     1,279,012     1,266,090     1,300,286  
   

Total liabilities

    763,847     780,872     733,273     763,674     709,696  
   

Total stockholders' equity

    409,773     473,940     545,739     502,416     590,590  

Statements of Cash Flows Data:

                               
   

Net cash provided by operating activities

  $ 24,702   $ 1,266   $ 100,773   $ 31,117   $ 23,657  
   

Net cash used in investing activities

    (115,798 )   (4,135 )   (3,077 )   (1,325 )   (2,761 )
   

Net cash provided by (used in) financing activities

    94,114     (1,720 )   (69,483 )   (16,471 )   (14,875 )

Other Financial and Operating Data:

                               
   

Capital expenditures

  $ (6,769 ) $ (4,135 ) $ (3,077 ) $ (1,325 ) $ (2,761 )
   

Adjusted EBITDA(2)

    184,060     156,985     166,467     75,857     89,047  
   

Adjusted Net Income(2)

    77,435     71,869     81,307     35,673     46,082  

(1)
Working capital is defined as our current assets minus our current liabilities.

(2)
We disclose Adjusted EBITDA and Adjusted Net Income, which are non-GAAP measures our management uses to evaluate our business, because we believe they assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. We believe these metrics are used in the financial community, and we present these metrics to enhance investors, understanding of our operating performance and cash flow. You should not consider Adjusted EBITDA and Adjusted Net Income as an alternative to net income, determined in accordance with GAAP, as an indicator of operating performance, or as an alternative to net cash provided by operating activities, determined in accordance with GAAP, as an indicator of our cash flow.

    We use Adjusted EBITDA and Adjusted Net Income to evaluate our performance relative to that of our peers. However, Adjusted EBITDA and Adjusted Net Income are not measurements of financial performance under GAAP, and these metrics may not be comparable to similarly titled measures of other companies.

    "Adjusted EBITDA" represents net income before: (i) income tax provision, (ii) net interest expense, (iii) depreciation and amortization, (iv) amortization of inventory step-up, and (v) Carlyle Acquisition related non-cash stock-based compensation expense. The following table reconciles Net income to Adjusted EBITDA:

 
  Year Ended September 30,   Six Months Ended
March 31,
 
(Dollars in thousands)
  2008   2009   2010   2010   2011  
 
   
   
   
  (unaudited)
 

Net income

  $ 58,602   $ 58,447   $ 73,674   $ 32,185   $ 43,608  

Income tax provision

    44,251     37,862     43,913     19,171     27,873  

Interest expense, net

    48,743     37,707     36,270     18,214     12,586  

Depreciation and amortization

    7,846     10,065     8,821     4,461     4,629  

Amortization of inventory step-up(a)

    11,418     3,861     2,200     1,032      

Carlyle Acquisition related non-cash stock-based compensation expense(b)

    13,200     9,043     1,589     794     351  
                       

Adjusted EBITDA

  $ 184,060   $ 156,985   $ 166,467   $ 75,857   $ 89,047  

(a)
Represents the amortization of the fair value step-up of inventory associated with the Carlyle Acquisition and the acquisition of Airtechnics, Inc. included in cost of sales.

(b)
Reflects stock-based compensation expense for restricted stock awards, restricted stock units and stock options granted in connection with the Carlyle Acquisition. This adjustment excludes any remaining stock compensation expense unrelated to the Carlyle Acquisition of $500, $1,346, $921, $487 and $559 for the years ended September 30, 2008, 2009, 2010 and the six months ended March 31, 2010 and 2011, respectively. Stock compensation expense in future periods may vary depending on the number of awards granted.

8


Table of Contents

    "Adjusted Net Income" represents net income before: (i) amortization of intangible assets, (ii) amortization of inventory step-up, (iii) amortization or write-off of deferred financing costs and original issue discount, or OID, (iv) Carlyle Acquisition related non-cash stock-based compensation expense and (v) the tax effect of items (i) through (iv) above calculated using an assumed effective tax rate. The following table reconciles Net income to Adjusted Net Income:

 
  Year Ended September 30,   Six Months Ended
March 31,
 
(Dollars in thousands)
  2008   2009   2010   2010   2011  
 
   
   
   
  (unaudited)
 

Net income

  $ 58,602   $ 58,447   $ 73,674   $ 32,185   $ 43,608  

Amortization of intangible assets(a)

    3,391     5,763     4,119     2,136     1,848  

Amortization of inventory step-up(b)

    11,418     3,861     2,200     1,032      

Amortization of deferred financing costs(c)

    3,379     3,703     4,814     1,852     1,925  

Carlyle Acquisition related non-cash stock-based compensation expense(d)

    13,200     9,043     1,589     794     351  

Tax effect of above adjustments(e)

    (12,555 )   (8,948 )   (5,089 )   (2,326 )   (1,650 )
                       

Adjusted Net Income

  $ 77,435   $ 71,869   $ 81,307   $ 35,673   $ 46,082  

(a)
We include fixed asset depreciation expense in our presentation of Adjusted Net Income because fixed asset depreciation expense reflects recurring expenses associated with capital expenditures made in our business, whereas we exclude amortization of intangible assets from Adjusted Net Income because amortization of intangible assets is a result of historical, non-recurring transactions, including the Carlyle Acquisition and the acquisition of Airtechnics, Inc.

(b)
Represents the amortization of the fair value step-up of inventory associated with the Carlyle Acquisition and the acquisition of Airtechnics, Inc. included in cost of sales.

(c)
Represents the amortization of deferred financing costs associated with our term loans and revolving line of credit. Amortization of OID associated with our $765.0 million new senior secured credit facilities entered into on April 7, 2011 will be included in this adjustment in future periods.

(d)
Reflects stock-based compensation expense for restricted stock awards, restricted stock units and stock options granted in connection with the Carlyle Acquisition. This adjustment excludes any remaining stock compensation expense unrelated to the Carlyle Acquisition of $500, $1,346, $921, $487 and $559 for the years ended September 30, 2008, 2009, 2010 and the six months ended March 31, 2010 and 2011, respectively. Stock compensation expense in future periods may vary depending on the number of awards granted.

(e)
Reflects taxes on adjustments at an assumed marginal tax rate of 40%.

9


Table of Contents


RISK FACTORS

         An investment in our common stock involves a high degree of risk. You should consider carefully the following risks and other information contained in this prospectus before you decide whether to buy our common stock. If any of the events contemplated by the following discussion of risks should occur, our business, results of operations and financial condition could suffer significantly. As a result, the market price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stock. The following is a summary of all the material risks known to us.

Risks Related to Our Business and Industry

We are directly dependent upon the condition of the aerospace industry, which is closely tied to global economic conditions, and if the volatility in the global financial markets were to result in a slowdown in the current economic recovery or a return to a recession, our business, financial condition and results of operations could be negatively impacted.

        Demand for the products and services we offer is directly tied to the delivery of new aircraft and aircraft utilization, which, in turn, is impacted by global economic conditions. Although the economy has exhibited signs of recovery, global financial markets have experienced extreme volatility and disruption for more than two years, which, at times, reached unprecedented levels as a result of the financial crisis affecting the banking system and participants in the global financial markets. Concerns over the tightening of the corporate credit markets, inflation, energy costs and the dislocation of the real estate and mortgage markets have contributed to the volatility in the global financial markets and, together with the global financial crisis, have created uncertainties for global economic conditions in the future. The aerospace industry is particularly sensitive to changes in economic conditions. In 2009, RPMs on commercial aircraft declined due to the global recession. During the same period, the industry experienced declines in large commercial, regional jet and business jet deliveries. While demand for commercial and regional jets has recovered somewhat, business jet orders and deliveries have recovered more slowly. A slowdown in the current economic recovery or a return to a recession would negatively impact the aerospace industry, and could negatively impact our business, financial condition and results of operations.

Military spending, including spending on the products we sell, is dependent upon national defense budgets, and a reduction in military spending could have a material adverse effect on our business, financial condition and results of operations.

        During the year ended September 30, 2010, approximately 53% of our net sales were related to military aircraft. The military market is significantly dependent upon government budget trends, particularly the U.S. Department of Defense, or DoD, budget. Future DoD budgets could be negatively impacted by several factors, including, but not limited to, a change in defense spending policy by the current and future presidential administrations and Congress, the U.S. Government's budget deficits, spending priorities, the cost of sustaining the U.S. military presence in overseas operations and possible political pressure to reduce U.S. Government military spending, each of which could cause the DoD budget to decline. A decline in U.S. military expenditures could result in a reduction in military aircraft production, which could have a material adverse effect on our business, financial condition and results of operations.

We are subject to unique business risks as a result of supplying equipment and services to the U.S. Government directly and as a subcontractor, which could lead to a reduction in our net sales from, or the profitability of our supply arrangements with, the U.S. Government.

        Companies engaged in supplying defense-related equipment and services to U.S. Government agencies are subject to business risks specific to the defense industry. We contract directly with the U.S. Government and as a subcontractor to customers contracting with the U.S. Government. These risks include the ability of the U.S. Government to unilaterally suspend us from receiving new contracts

10


Table of Contents


pending resolution of alleged violations of procurement laws or regulations, reduce the value of existing contracts and audit our contract-related costs and fees. In addition, most of our U.S. Government contracts and subcontracts can be terminated by the U.S. Government or the contracting party, as applicable, at its convenience. Termination for convenience provisions provide only for our recovery of costs incurred or committed, settlement expenses and profit on the work completed prior to termination.

        In addition, the U.S. Government may seek to review our costs to determine whether our pricing is "fair and reasonable." Such a review could be costly and time consuming for our management and could distract from our ability to effectively manage the business. As a result of such a review, we could be required to provide a refund to the U.S. Government or we could be asked to enter into an arrangement whereby our prices would be based on cost or the DoD could seek to pursue alternative sources of supply for our parts. Any of those occurrences could lead to a reduction in our net sales from, or the profitability of certain of our supply arrangements with, certain agencies and buying organizations of the U.S. Government.

        We are also subject to the federal False Claims Act, which provides for substantial civil penalties and treble damages where a contractor presents a false or fraudulent claim to the government for payment. Actions under the False Claims Act may be brought by the government or by other persons on behalf of the government (who may then share in any recovery).

We do not have guaranteed future sales of the products we sell and when we enter into JIT contracts and LTAs with our customers we generally take the risk of cost overruns, and our business, financial condition, results of operations and operating margins may be negatively affected if we purchase more products than our customers require, product costs increase unexpectedly or our contracts are terminated.

        Our JIT contracts and LTAs are long-term, fixed-price agreements with no guarantee of future sales volumes, and they may be terminated for convenience on short notice by our customers, often without meaningful penalties, provided that we are reimbursed for the cost of any inventory specifically procured for the customer. In addition, we purchase inventory based on our forecasts of anticipated future customer demand. As a result, we may take the risk of having excess inventory in the event that our customers do not place orders consistent with our forecasts. We also run the risk of not being able to pass along or otherwise recover unexpected increases in our product costs, including as a result of commodity price increases, which may increase above our established prices at the time we entered into the customer contract and established prices for parts we provide. In the event that we purchase more products than our customers require, product costs increase unexpectedly or our contracts are terminated, our business, financial condition, results of operations and operating margins could be negatively affected.

If we lose significant customers, significant customers materially reduce their purchase orders or significant programs on which we rely are delayed, scaled back or eliminated, our business, financial condition and results of operations may be adversely affected.

        Our top ten customers for the year ended September 30, 2010 accounted for approximately 48% of our net sales. Boeing was our largest customer during fiscal 2010, accounting for approximately 15% of our net sales through purchases by its various divisions and subsidiaries. A reduction in purchasing by or loss of one of our larger customers for any reason, such as changes in manufacturing practices, loss of a customer as a result of the acquisition of such customer by a purchaser who does not fully utilize a distribution model or uses a competitor, in-sourcing by customers, a transfer of business to a competitor, an economic downturn, failure to adequately service our clients, decreased production or a strike, could have a material adverse effect on our business, financial condition and results of operations.

        As an example of changes in manufacturing practices that could impact us, OEMs such as Boeing and Airbus are currently incorporating an increasing amount of composite materials in the aircraft they

11


Table of Contents


manufacture. Aircraft utilizing composite materials generally require the use of significantly fewer C class aerospace parts than new aircraft made of more traditional non-composite materials, although the parts used are generally higher priced than C class aerospace parts used in non-composite aircraft structures. As Boeing, Airbus and other customers increase their reliance on composite materials, they may materially reduce their purchase orders from us.

        As an example of the loss of a customer resulting from the acquisition of such customer by a purchaser that does not intend to fully utilize our distribution model, we were notified by Boeing of its intent to perform certain supply chain management functions in-house that we were providing at two facilities under JIT contracts that were awarded to us prior to these particular facilities being acquired by Boeing. In fiscal 2010, sales at these facilities accounted for approximately 5.8% of net sales.

        As an example of the potential loss of business due to customer in-sourcing, it is our understanding that Boeing is undertaking an initiative to cause its first and second tier suppliers to source certain Boeing-specific materials, including fasteners, directly from manufacturers, rather than through distributors such as us. If Boeing's initiative is broadly implemented, a portion of our sales to these Boeing suppliers, and consequently our business, financial condition and results of operations, could be adversely affected.

        While we believe that we have a diversified customer and aircraft program base, we expect to derive a significant portion of our net sales from certain aerospace programs in their early production stages. In particular, our future growth will be dependent, in part, upon our sales to various OEMs and subcontractors related to the Boeing 787 and the Lockheed Martin JSF. For example, we estimate that 10% of our net sales during fiscal 2010, which includes the 5.8% of net sales generated at the facilities acquired by Boeing that are referenced above, were derived from sales to a number of customers related to the Boeing 787 and that approximately 20% of the parts we held in inventory primarily pertained to the Boeing 787. If production of any of the programs we support is terminated or delayed, or if our sales to customers affiliated with these programs are reduced or eliminated, our business, financial condition and results of operations could be adversely affected.

We operate in a highly competitive market and our failure to compete effectively may negatively impact our results of operations.

        We operate in a highly competitive global industry and compete against a number of companies, including divisions of larger companies, some of which may have significantly greater financial resources than we do, and therefore may be able to adapt more quickly to changes in customer requirements than we can. Our competitors consist of both U.S. and foreign companies and range in size from divisions of large public corporations to small privately held entities. We believe that our ability to compete depends on superior customer service and support, on-time delivery, sufficient inventory availability, competitive pricing and effective quality assurance programs. In order to remain competitive, we may have to adjust the prices of some of the products and services we sell and continue investing in our procurement, supply-chain management and sales and marketing functions, the costs of which could negatively impact our results of operations.

        In addition, we face competition for our JIT and LTA customers from both competitors in our industry and the in-sourcing of supply-chain management by our customers themselves. If any of our JIT or LTA customers decides to in-source the services we provide or switch to one of our competitors, we would be adversely affected.

We may be unable to effectively manage our inventory as we grow, which could have a material adverse effect on our business, financial condition and results of operations.

        We have experienced rapid growth in recent periods and intend to continue to grow our business by increasing our product offerings and expanding our customer base. Due to the lead times required by our suppliers, we order products in advance of expected sales, the volume of which orders may be significant as a result of our growth strategy. Lead times generally range from several weeks up to two

12


Table of Contents


years, depending on industry conditions, which make it difficult to successfully manage our inventory as we plan for expected growth. For example, in 2009, our cash flows were negatively impacted as our suppliers continued filling orders that we had placed in anticipation of future sales, while orders from our customers slowed because the aerospace industry had entered a significant downturn. In the future, if we are unable to effectively manage our inventory as we attempt to grow our business, our cash flows may be negatively affected, which could have a material adverse effect on our business, financial condition and results of operations.

If suppliers are unable to supply us with the products we sell in a timely manner, in adequate quantities and/or at a reasonable cost, we may be unable to meet the demands of our customers, which could have a material adverse effect on our business, financial condition and results of operations.

        Our inventory is primarily sourced directly from manufacturing firms, and we depend on the availability of large supplies of the products we sell. Our largest supplier for the year ended September 30, 2010 was Precision Castparts. During fiscal 2010, approximately 22% of the products we purchased were from Precision Castparts and 20% were purchased from Alcoa Fastening Systems. In addition, our ten largest suppliers during fiscal 2010 accounted for approximately 58% of our purchases. These manufacturers may experience capacity constraints that result in their being unable to supply us with products in a timely manner, in adequate quantities and/or at a reasonable cost. Contributing factors to manufacturer capacity constraints include, among other things, industry or customer demands in excess of machine capacity, labor shortages and changes in raw material flows. Any significant interruption in the supply of these products or termination of our relationship with any of our suppliers could result in us being unable to meet the demands of our customers, which would have a material adverse effect on our business, financial condition and results of operations.

Our business is highly dependent on complex information technology.

        The provision and application of IT is an increasingly critical aspect of our business. Among other things, our IT system must frequently interact with those of our customers, suppliers and logistics providers. Our future success will depend on our continued ability to employ an IT system that meets our customers' demands. The failure of the hardware or software that supports our IT system, including redundancy systems, could significantly disrupt our ability to service our customers and cause economic losses for which we could be held liable and which could damage our reputation.

        Our competitors may have or may develop IT systems that permit them to be more cost effective and otherwise better situated to meet customer demands than we are able to acquire or develop. Larger competitors may be able to develop or license IT systems more cost effectively than we can by spreading the cost across a larger revenue base, and competitors with greater financial resources may be able to acquire or develop IT systems that we cannot afford. If we fail to meet the demands of our customers or protect against disruptions of our IT system, we may lose customers, which could seriously harm our business and adversely affect our operating results and operating cash flow.

We may be unable to retain personnel who are key to our operations.

        Our success, among other things, is dependent on our ability to attract, develop and retain highly qualified senior management and other key personnel. Competition for key personnel is intense, and our ability to attract and retain key personnel is dependent on a number of factors, including prevailing market conditions and compensation packages offered by companies competing for the same talent. The inability to hire, develop and retain these key employees may adversely affect our operations.

There are risks inherent in international operations that could have a material adverse effect on our business, financial condition and results of operations.

        While the majority of our operations are based in the United States, we have significant international operations, with facilities in Canada, China, France, Germany, Israel, Italy, Saudi Arabia,

13


Table of Contents


South Korea and the United Kingdom, and customers throughout North America, Latin America, Europe, Asia and the Middle East. For the years ended September 30, 2009 and 2010, 32% and 26%, respectively, of our net sales were derived from customers located outside the United States.

        Our international operations are subject to, without limitation, the following risks:

        In addition, fluctuations in the value of foreign currencies affect the dollar value of our net investment in foreign subsidiaries, with these fluctuations being included in a separate component of stockholders' equity. At September 30, 2010, we reported a cumulative foreign currency translation adjustment of approximately $4.4 million in stockholders' equity as a result of foreign currency adjustments, and we may incur additional adjustments in future periods. In addition, operating results of foreign subsidiaries are translated into U.S. dollars for purposes of our statement of operations at average monthly exchange rates. Moreover, to the extent that our net sales are not denominated in the same currency as our expenses, our net earnings could be materially adversely affected. For example, a portion of labor, material and overhead costs for our facilities in the United Kingdom, Germany, France and Italy are incurred in British Pounds or Euros, but the related net sales are generally denominated in U.S. dollars. Changes in the value of the U.S. dollar or other currencies could result in material fluctuations in foreign currency translation amounts or the U.S. dollar value of transactions and, as a result, our net earnings could be materially adversely affected. For example, in fiscal 2009, the strengthening of the U.S. dollar relative to the British pound resulted in a negative impact of approximately $22.1 million. Although we at times engage in hedging transactions to manage or reduce our foreign exchange risk, our attempts to manage our foreign currency exchange risk may not be successful and, as a result, our business, financial condition and results of operations could be materially adversely affected.

        Our international operations also cause our business to be subject to the U.S. Export Control regime and similar regulations in other countries, in particular in the United Kingdom. In the United States, items of a commercial nature are generally subject to regulatory control by the U.S. Department of Commerce's Bureau of Industry and Security and to Export Administration Regulations, and other international trade regulations may apply as well. Additionally, we are not permitted to export some of the products we sell. In the future, regulatory authorities may require us to obtain export licenses or other export authorizations to export the products we sell abroad, depending upon the nature of items being exported, as well as the country to which the export is to be made. We cannot assure you that any of our applications for export licenses or other authorizations will be granted or approved. Furthermore, the export license and export authorization process is often time-consuming. Violation of export control regulations could subject us to fines and other penalties, such as losing the ability to

14


Table of Contents


export for a period of years, which would limit our sales and significantly hinder our attempts to expand our business internationally.

Our international operations require us to comply with anti-corruption laws and regulations of the U.S. government and various international jurisdictions, and our failure to comply with these laws and regulations could adversely affect our reputation, business, financial condition and results of operations.

        Doing business on a worldwide basis requires us and our subsidiaries to comply with the laws and regulations of the U.S. government and various international jurisdictions, and our failure to successfully comply with these rules and regulations may expose us to liabilities. These laws and regulations apply to companies, individual directors, officers, employees and agents, and may restrict our operations, trade practices, investment decisions and partnering activities. In particular, our international operations are subject to U.S. and foreign anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act, or FCPA. The FCPA prohibits us from providing anything of value to foreign officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment, and requires companies to maintain adequate record-keeping and internal accounting practices to accurately reflect the transactions of the company. As part of our business, we deal with state-owned business enterprises, the employees and representatives of which may be considered foreign officials for purposes of the FCPA. In addition, some of the international locations in which we operate lack a developed legal system and have elevated levels of corruption. As a result of the above activities, we are exposed to the risk of violating anti-corruption laws.

        We are also subject to International Traffic in Arms Regulation, or ITAR. ITAR requires export licenses from the U.S. Department of State for products shipped outside the U.S. that have military or strategic applications. Violations of these legal requirements are punishable by criminal fines and imprisonment, civil penalties, disgorgement of profits, injunctions, debarment from government contracts as well as other remedial measures. We have established policies and procedures designed to assist us and our personnel to comply with applicable U.S. and international laws and regulations. However, there can be no assurance that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage, and such a violation could adversely affect our reputation, business, financial condition and results of operations.

If any of our customers were to become insolvent or experience substantial financial difficulties, our business, financial condition and results of operations may be adversely affected.

        If any of the customers with whom we do business becomes insolvent or experiences substantial financial difficulties we may be unable to timely collect amounts owed to us by such customers and may not be able to sell the inventory we have purchased for such customers, which could have a material adverse effect on our business, financial condition and results of operations. For example, during the year ended September 30, 2009, we wrote off a receivable of $2.4 million and inventory of approximately $1.8 million after one of our customers filed for bankruptcy protection. The majority of these write-offs were recorded as a reduction to receivable and inventory reserves taken during prior fiscal years.

We, our suppliers or our customers may experience damage to or disruptions at our or their facilities caused by natural disasters and other factors, which may result in our business, financial condition and results of operations being adversely affected.

        Several of our facilities or those of our suppliers and customers could be subject to a catastrophic loss caused by earthquakes, tornadoes, floods, hurricanes, fire, power loss, telecommunication and information systems failure or other similar events. Should insurance be insufficient to recover all such losses or should we be unable to reestablish our operations, or if our customers or suppliers were to experience material disruptions in their operations as a result of such events, our business, financial condition and results of operations could be adversely affected.

15


Table of Contents


We are dependent on access to and the performance of third-party package delivery companies.

        Our ability to provide efficient distribution of the products we sell to our customers is an integral component of our overall business strategy. We do not maintain our own delivery networks, and instead rely on third-party package delivery companies. We cannot assure you that we will always be able to ensure access to preferred delivery companies or that these companies will continue to meet our needs or provide reasonable pricing terms. In addition, if the package delivery companies on which we rely experience delays resulting from inclement weather or other disruptions, we may be unable to maintain products in inventory and deliver products to our customers on a timely basis, which may adversely affect our business, financial condition and results of operations.

A significant labor dispute involving us or one or more of our customers or suppliers, or a labor dispute that otherwise affects our operations, could reduce our net sales and harm our profitability.

        Labor disputes involving us or one or more of our customers or suppliers could affect our operations. For example, a labor dispute affecting Boeing has contributed to delays in the Boeing 787 program and impacted the production of other aircraft platforms. If our customers or suppliers are unable to negotiate new labor agreements and our customers' or suppliers' plants experience slowdowns or closures as a result, our net sales and profitability could be negatively impacted.

        While our employees are not currently unionized, they may attempt to form unions in the future, and the employees of our customers, suppliers and other service providers may be, or may in the future be, unionized. We cannot assure you that there will not be any strike, lock out or material labor dispute with respect to our business or those of our customers or suppliers in the future that materially affects our business, financial condition and results of operations.

We may be materially adversely affected by high fuel prices.

        Fluctuations in the global supply of crude oil and the possibility of changes in government policies on the production, transportation and marketing of jet fuel make it impossible to predict the future availability and price of jet fuel. In the event there is an outbreak or escalation of hostilities or other conflicts or significant disruptions in oil production or delivery in oil-producing areas or elsewhere, there could be reductions in the production or importation of crude oil and significant increases in the cost of jet fuel. If there were major reductions in the availability of jet fuel or significant increases in its cost, commercial airlines would face increased operating costs. Due to the competitive nature of the airline industry, airlines are often unable to pass on increases in fuel prices to customers by increasing fares. As a result, an increase in jet fuel could result in a decrease in net income from either lower margins or, if airlines increase ticket fares, less net sales from reduced airline travel. Decreases in airline profitability could decrease the demand for new commercial aircraft, resulting in delays of or reductions in deliveries of commercial aircraft that utilize the products we sell, and, as a result, our business, financial condition and results of operations could be materially adversely affected.

Our financial results may fluctuate from period-to-period, making quarter-to-quarter comparisons of our business, financial condition and results of operations less reliable indicators of our future performance.

        There are many factors, such as the cyclical nature of the aerospace industry, fluctuations in our ad hoc sales, delays in major aircraft programs, downward pressure on sales prices and changes in the volume of our customers' orders, that could cause our financial results to fluctuate from period-to-period. For example, during the year ended September 30, 2010, approximately 37% of our net sales were derived from ad hoc sales. The prices we charge for ad hoc sales are typically higher than the prices under our JIT contracts or LTAs. However, ad hoc customers may not continue to purchase the same amount of products from us as they have in the past, so we cannot assure you that in any given year we will be able to generate similar net sales from our ad hoc customers as we did in the past. We are also actively working to transition customers from ad hoc purchases to multi-year LTAs or comprehensive JIT supply chain management agreements, which may also result in a reduction

16


Table of Contents


in ad hoc purchases. A significant diminution in our ad hoc sales in any given period could result in fluctuations in our financial results and operating margins. As a result of these factors, we believe that quarter-to-quarter comparisons of our financial results are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance.

Upon completion of this offering, we will continue to be controlled by Carlyle and its affiliates, whose interests in our business may be different than yours.

        The interests of Carlyle and its affiliates could conflict with yours. Upon completion of this offering, certain funds affiliated with Carlyle will own approximately          % and        % of our common stock, respectively, or approximately        % and      %, respectively, if the underwriters' overallotment option is exercised in full. As a result of this ownership, Carlyle will continue to have substantial influence over the outcome of votes on all matters requiring approval by our stockholders, including the election of directors, the adoption of amendments to our certificate of incorporation and bylaws and approval of significant corporate transactions. Carlyle will also be able to take actions that have the effect of delaying or preventing a change in control of the Company or discouraging others from making tender offers for our shares, which could prevent stockholders from receiving a premium for their shares. These actions may be taken even if other stockholders oppose them. Moreover, this concentration of stock ownership may make it difficult for stockholders to replace management and may also adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. In addition, pursuant to the Amended and Restated Stockholders Agreement, Carlyle will continue to have certain rights to appoint directors to our board of directors following the consummation of this offering, and Randy Snyder, Susan Snyder, certain affiliates of Mr. Snyder and certain of our employees, which we collectively refer to as the Wesco Stockholders, are required to vote their shares in favor of such directors. See "Certain Relationships and Related Party Transactions." In addition, Carlyle and its affiliates may also in the future own businesses that directly compete with ours.

We are a "controlled company" within the meaning of the rules of the stock exchange on which we will be listed and, as a result, expect to qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

        Following the consummation of this offering, we expect that Carlyle will continue to control a majority of the voting power of our outstanding common stock. As a result, we expect to be a "controlled company" within the meaning of the corporate governance standards of the stock exchange on which we will be listed. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a "controlled company" and may elect not to comply with certain corporate governance requirements, including:

17


Table of Contents

        Following this offering, we intend to utilize these exemptions if we continue to qualify as a "controlled company." For these purposes, as a result of the provisions of the Amended and Restated Stockholders Agreement, the Wesco Stockholders and the affiliates of Carlyle that own shares will be treated as a "group," and therefore the Wesco Stockholders' shares will be included in determining whether we are a controlled company. If we utilize these exemptions we will not have a majority of independent directors and our nominating and corporate governance and compensation committees will not consist entirely of independent directors and such committees will not be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the listing exchange.

We will incur significant increased costs as a result of operating as a publicly traded company, and our management will be required to devote substantial time to new compliance requirements and investor needs.

        As a publicly traded company, we will incur significant legal, accounting and other expenses that we did not previously incur. Although we are currently unable to estimate these costs with any degree of certainty, they are likely to be material in amount. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules of the Securities and Exchange Commission, or the SEC, and the national securities exchange on which we will be listed have imposed various requirements on public companies. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain appropriate levels of coverage.

If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired and investors' views of us could be harmed.

        The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and, to the extent required, our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, with auditor attestation of the effectiveness of our internal controls, beginning with our annual report on Form 10-K for the fiscal year ending September 30, 2012. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of shares of our common stock could decline and we could be subject to sanctions or investigations by the stock exchange on which we will be listed, the SEC or other regulatory authorities, which would require additional financial and management resources.

        Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial

18


Table of Contents


reporting is effective and to obtain an unqualified report on internal controls from our auditors if required under Section 404 of the Sarbanes-Oxley Act. Moreover, we cannot be certain that these measures would ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Even if we were to conclude, and our auditors were to concur, that our internal control over financial reporting provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the U.S., or GAAP, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. This, in turn, could have an adverse impact on the trading price of our shares of common stock, and could adversely affect our ability to access the capital markets.

We are subject to health, safety and environmental laws and regulations, any violation of which could subject us to significant liabilities and penalties.

        We are subject to extensive and changing federal, state, local and foreign laws and regulations establishing health, safety and environmental quality standards and may be subject to liability or penalties for violations of those standards. We are also subject to laws and regulations governing remediation of contamination at facilities currently or formerly owned or operated by us or to which we have sent hazardous substances or wastes for treatment, recycling or disposal. We may be subject to future liabilities or obligations as a result of new or more stringent interpretations of existing laws and regulations. In addition, we may have liabilities or obligations in the future if we discover any environmental contamination or liability at any of our facilities, or at facilities we may acquire.

Our reputation and/or our business, financial condition and results of operations could be adversely affected if one of the products we sell causes an aircraft to crash.

        We may be exposed to liabilities for personal injury, death or property damage as a result of the failure of a product we have sold. We typically agree to indemnify our customers against certain liabilities resulting from the products we sell. Although we may seek third party indemnification from our suppliers in the event of a product failure, we cannot guarantee that we will be successful in doing so and may ultimately be held liable. While we maintain liability insurance to protect us in these situations, our insurers may attempt to deny coverage or any coverage we have may not be adequate. We also may not be able to maintain insurance coverage in the future at an acceptable cost. Any liability for which third party indemnification is not available that is not covered by insurance could have a material adverse effect on our business, financial condition and results of operations.

        In addition, a crash caused by one of the products we have sold could damage our reputation for selling quality products. We believe our customers consider safety and reliability as key criteria in selecting a provider of aircraft products and believe our reputation for quality assurance is a significant competitive strength. If a crash were to be caused by one of the products we sold, or if we were to otherwise fail to maintain a satisfactory record of safety and reliability, our ability to retain and attract customers may be materially adversely affected.

We sell products to a highly regulated industry and our business may be adversely affected if our suppliers or customers lose government approvals, if more stringent government regulations are enacted or if industry oversight is increased.

        The aerospace industry is highly regulated in the United States and in other countries. The U.S. Federal Aviation Administration, or the FAA, prescribes standards and other requirements for aircraft components in the U.S. and comparable agencies, such as the European Aviation Safety Agency, the Civil Aviation Administration of China and the Japanese Civil Aviation Bureau, regulate these matters in other countries. Our suppliers and customers must generally be certified by the FAA, the DoD and similar agencies in foreign countries. If any of our suppliers' government certifications are

19


Table of Contents


revoked, we would be less likely to buy such supplier's products, and, as a result, would need to locate a suitable alternate supply of such products, which we may be unable to accomplish on commercially reasonable terms or at all. If any of our customers' government certifications are revoked, their demand for the products we sell would decline. In each case, our business, financial condition and results of operations may be adversely affected.

        In addition, if new and more stringent government regulations are adopted or if industry oversight increases, our suppliers and customers may incur significant expenses to comply with such new regulations or heightened industry oversight. In the case of our suppliers, these expenses may be passed on to us in the form of price increases, which we may be unable to pass along to our customers. In the case of our customers, these expenses may limit their ability to purchase products from us. In each case, our business, financial condition and results of operations may be adversely affected.

We may be unable to successfully consummate or integrate future acquisitions, which could negatively impact our business, financial condition and results of operations.

        We may consider future acquisitions, some of which could be material to us. Depending upon the acquisition opportunities available, we may need to raise additional funds through the capital markets or arrange for additional debt financing in order to consummate such acquisitions. We may be unable to raise the capital required for future acquisitions on satisfactory terms or at all, which could adversely affect our business, financial condition and results of operations. In addition, we may not be able to successfully integrate acquired businesses into our operations and may be unable to realize any anticipated benefits from future acquisitions, which failure to do so could negatively impact our business, financial condition and results of operations.

Our total assets include substantial intangible assets, and the write-off of a significant portion of our intangible assets would negatively affect our financial results.

        Our total assets reflect substantial intangible assets. At September 30, 2010, goodwill and intangible assets, net represented approximately 47% of our total assets. Goodwill represents the excess of the purchase price of acquired businesses over the fair value of the assets acquired and liabilities assumed resulting from acquisitions, including the Carlyle Acquisition. Intangible assets, net represents tradenames, customer backlogs, non-compete agreements and customer relationships. On at least an annual basis, we assess whether there has been an impairment in the value of goodwill and indefinite lived intangible assets. If our testing identifies an impairment under generally accepted accounting principles in the United States, the impairment charge we calculate would result in a charge to operating earnings. Any determination requiring the write-off of a significant portion of goodwill and unamortized identified intangible assets would negatively affect our results of operations and total capitalization, which could be material.

Our substantial indebtedness could adversely affect our financial health and could harm our ability to react to changes to our business.

        We have a significant amount of indebtedness. As of March 31, 2011, our total long-term indebtedness outstanding under our old senior secured credit facilities was approximately $606.2 million, which was approximately 50.6% of our total capitalization.

        In addition, we may be able to incur substantial additional indebtedness in the future. Although the new senior secured credit facilities contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and the indebtedness incurred in compliance with these qualifications and exceptions could be substantial. If we incur additional debt, the risks associated with our substantial leverage would increase.

20


Table of Contents

        Our substantial indebtedness could have important consequences to investors. For example, it could:

        In addition, all of our debt under the new senior secured credit facilities bears interest at floating rates. Accordingly, in the event that interest rates increase, our debt service expense will also increase.

        Our substantial level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under the new senior secured credit facilities or otherwise in amounts sufficient to enable us to service our indebtedness. If we cannot service our debt, we will have to take actions such as reducing or delaying capital investments, selling assets, restructuring or refinancing our debt or seeking additional equity capital and cannot assure you that we will be successful in implementing any such actions or that any actions we take will allow us to stay in compliance with the terms of our indebtedness.

The terms of the new senior secured credit facilities and other debt instruments may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

        The new senior secured credit facilities contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests. The new senior secured credit facilities include covenants restricting, among other things, our ability to:

21


Table of Contents

        In addition, the new senior secured credit facilities contain financial maintenance covenants, including a maximum leverage ratio covenant and a minimum interest coverage ratio covenant. A breach of any of these covenants could result in a default under the new senior secured credit facilities. If any such default occurs, the lenders under the new senior secured credit facilities may elect to declare all outstanding borrowings, together with accrued interest and other amounts payable thereunder, to be immediately due and payable. The lenders under the new first lien credit facility also have the right in these circumstances to terminate any commitments they have to provide further borrowings. In addition, following an event of default under the new senior secured credit facilities, the lenders under those facilities will have the right to proceed against the collateral granted to them to secure the debt, which includes our available cash. If the debt under the new senior secured credit facilities was to be accelerated, we cannot assure you that our assets would be sufficient to repay in full our debt.

Risks Related to our Common Stock

There is no existing market for our common stock, and we do not know if one will develop to provide you with adequate liquidity to sell our common stock at prices equal to or greater than the price you paid in this offering.

        Prior to this offering, there has not been a public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the stock exchange on which we will list or otherwise or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling any of our common stock that you buy. The initial public offering price for the common stock will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell our common stock at prices equal to or greater than the price you paid in this offering, or at all.

The price of our common stock may fluctuate significantly, and you could lose all or part of your investment.

        Volatility in the market price of our common stock may prevent you from being able to sell your common stock at or above the price you paid for your common stock. The market price of our common stock could fluctuate significantly for various reasons, including:

22


Table of Contents

        In addition, in the past two and a half years, the U.S. stock market has experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. The changes frequently appear to occur without regard to the operating performance of the affected companies. Hence, the price of our common stock could fluctuate based upon factors that have little or nothing to do with our company, and these fluctuations could materially reduce our share price and cause you to lose all or part of your investment. Further, in the past, market fluctuations and price declines in a company's stock have led to securities class action litigations. If such a suit were to arise, it could have a substantial cost and divert our resources regardless of the outcome.

If securities analysts do not publish research or reports about our business or if they downgrade our stock, the price of our stock could decline.

        The research and reports that industry or financial analysts publish about us or our business may vary widely and may not predict accurate results, but will likely have an effect on the trading price of our common stock. If an industry analyst decides not to cover our company, or if an industry analyst decides to cease covering our company at some point in the future, we could lose visibility in the market, which in turn could cause our stock price to decline. We may be subject to greater risk of losing analyst coverage as a result of the size of this offering and the relative number of shares that will be available for trading in the public market. If an industry analyst downgrades our stock, our stock price would likely decline rapidly in response.

We have no plans to pay regular dividends on our common stock, so you may not receive funds without selling your common stock.

        We have no plans to pay regular dividends on our common stock. We generally intend to invest our future earnings, if any, to fund our growth. Any payment of future dividends will be at the discretion of our board of directors and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that our board of directors deems relevant. The new senior secured credit facilities also effectively limit our ability to pay dividends. Accordingly, you may have to sell some or all of your common stock in order to generate cash flow from your investment. You may not receive a gain on your investment when you sell your common stock and you may lose the entire amount of the investment.

23


Table of Contents


Provisions of our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, as a result, depress the trading price of our common stock.

        Following this offering, we expect that our amended and restated certificate of incorporation and amended and restated bylaws will contain provisions that could discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions will:

        These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take corporate actions other than those you desire.

Future sales of our common stock in the public market could lower our share price, and any additional capital raised by us through the sale of equity or convertible debt securities may dilute your ownership in us and may adversely affect the market price of our common stock.

        We and our existing stockholders may sell additional shares of common stock in subsequent public offerings. We may also issue additional shares of common stock or convertible debt securities to finance future acquisitions. After the consummation of this offering, we will have        shares of common stock authorized and        shares of common stock outstanding. This number includes        shares that the selling stockholders are selling in this offering, which may be resold immediately in the public market. Of the remaining shares,          , or        % of our total outstanding shares, are restricted from immediate resale under the lock-up agreements between us, all of our directors and executive officers, holders of more than          % of our outstanding stock, the selling stockholders and the underwriters described in "Underwriting," but may be sold into the market in the near future. These shares will become available for sale following the expiration of the lock-up agreements, which, without the prior consent of the representatives of the underwriters, is 180 days after the date of this prospectus, subject to compliance with the applicable requirements under Rule 144 of the Securities Act of 1933, or the Securities Act.

        We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including sales pursuant to Carlyle's registration rights and shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock. See "Certain Relationships and Related Party Transactions" and "Shares Eligible for Future Sale."

24


Table of Contents


FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements. The words "believe," "expect," "anticipate," "intend," "estimate" and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Although forward-looking statements reflect management's good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements speak only as of the date the statements are made. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to:

        We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations are disclosed under "Risk Factors" in this prospectus. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in our public communications. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

25


Table of Contents


USE OF PROCEEDS

        All of the shares of common stock offered by this prospectus are being sold by the selling stockholders. The selling stockholders in this offering include                        . We will not receive any of the proceeds from the sale of shares in this offering, including from any exercise by the underwriters of their overallotment option. For information about the selling stockholders, see "Principal and Selling Stockholders."

26


Table of Contents


DIVIDEND POLICY

        We have not paid dividends in the past and we do not intend to pay any cash dividends for the foreseeable future. We intend to retain earnings, if any, for the future operation and expansion of our business and the repayment of debt. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon our results of operations, cash requirements, financial condition, contractual restrictions, restrictions imposed by applicable laws and other factors that our board of directors may deem relevant. Our existing indebtedness effectively limits our ability to pay dividends and make distributions to our stockholders. For additional information on these limitations see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Senior Secured Credit Facilities—New Senior Secured Credit Facilities."

27


Table of Contents


CAPITALIZATION

        The following table sets forth our consolidated cash and cash equivalents and capitalization as of March 31, 2011 on an actual basis and as adjusted basis giving effect to the following, each of which will occur immediately prior to the effectiveness of this registration statement: (i) the adoption of our amended and restated certificate of incorporation, which will provide for authorized capital stock consisting of (1)         shares of common stock, $0.001 par value per share, and (2)         shares of preferred stock, $0.001 par value per share, (ii) the conversion of        shares of Class B common stock into shares of common stock, on a one-for-one basis, pursuant to our amended and restated certificate of incorporation, which will be effective prior to the consummation of this offering, and (iii) the effectuation of a    for    stock split with respect to our common stock, which will include the shares of Class B common stock that will have been converted, on a one-for-one basis, into shares of common stock.

        The information in this table should be read in conjunction with "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes thereto included elsewhere in this prospectus.

 
  March 31, 2011  
 
  Actual   As Adjusted  
 
  (unaudited; in thousands,
except share and per share
data)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

  $ 45,670   $    
           

Long-term debt, less current portion:

             
 

First lien credit facility(1)

  $ 477,243   $    
 

Second lien credit facility(1)

    129,000        
           
   

Total long-term debt, less current portion

    606,243        

Capital lease obligations, less current portion

    1,725        

Total stockholders' equity:

             
 

Preferred stock, $0.001 par value per share: 1,000,000 shares authorized, no shares issued and outstanding, actual;        shares authorized, no shares issued and outstanding, as adjusted

   
    
   
    
 
 

Common stock, $0.001 par value per share: 19,000,000 shares authorized; 9,319,450 shares issued and outstanding, actual;        shares authorized,        shares issued and outstanding, as adjusted

    9        
 

Class B common stock, $0.001 par value per share: 2,000,000 shares authorized; 126,039 shares issued and outstanding, actual; no shares authorized, no shares issued and outstanding, as adjusted

    1        
 

Additional paid-in capital

    330,166        
 

Retained earnings:

             
   

Beginning of period

    223,761        
   

Current period earnings

    43,608        
   

Accumulated other comprehensive loss

    (6,955 )      
           
   

Total stockholders' equity

    590,590        
           

Total capitalization

  $ 1,198,558   $    
           

(1)
On April 7, 2011, we entered into the new senior secured credit facilities. See "Prospectus Summary—Recent Developments." The proceeds of the new senior secured credit facilities were used to repay the old senior secured credit facilities and pay certain related fees and expenses. For a description of the new senior secured credit facilities and the old senior secured credit facilities,

28


Table of Contents

    see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Senior Secured Credit Facilities."

        The table set forth above is based on the number of shares of our common stock outstanding as of March 31, 2011. The table does not reflect:

29


Table of Contents


DILUTION

        If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share and the net tangible book value per share after this offering.

        As of March 31, 2011, we had a negative net tangible book value of approximately $            , or $            per share. Net tangible book value per share represents total tangible assets less total liabilities divided by the number of shares of common stock outstanding. After deducting estimated offering expenses payable by us in connection with this offering, our net tangible book value as of March 31, 2011 would have been approximately $         million, or $        per share. This represents an immediate                        in net tangible book value of $        per share to existing stockholders and an immediate dilution of $        per share to new investors purchasing common stock in this offering. The following table illustrates this dilution on a per share basis:

 
  Per Share

Assumed initial public offering price per share

   

Net tangible book value per share as of March 31, 2011

   

                        in net tangible book value per share attributable to this offering

   

Net tangible book value per share after this offering

   

Dilution per share to new investors

   

        The following table sets forth, as of March 31, 2011, the total number of shares of common stock owned by existing stockholders and to be owned by new investors, the total consideration paid and the average price per share paid by our existing stockholders and to be paid by new investors purchasing shares of common stock in this offering. The calculation below is based on an assumed initial public offering price of $            per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 
  Shares Purchased   Total Consideration    
 
 
  Average
Price Per
Share
 
 
  Number   Percent   Amount   Percent  
 
  (In thousands, other than shares and percentages)
 

Existing stockholders

                                  % $                               % $               

New investors

                                                                                      
                         
 

Total

                                  % $                               % $               
                         

        Each $1.00 increase (decrease) in the assumed initial public offering price of $            per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by all investors in this offering by $             million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and assuming that the number of shares offered by the selling stockholders, as set forth on the cover page of this prospectus, remains the same. Each increase (decrease) of 1.0 million in the number of shares offered by the selling stockholders would increase (decrease) total consideration paid by all investors in this offering by $             million, at the assumed public offering price of $             per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, assuming the assumed public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

30


Table of Contents

        If the underwriters' overallotment option to purchase                        additional shares from the selling stockholders in this offering is exercised in full, the following will occur:

        The tables and calculations above assume no exercise of outstanding options. As of            , there were            shares of common stock issuable upon exercise of outstanding options at a weighted average exercise price of approximately $            per share. To the extent that the            outstanding options are exercised, there will be further dilution to new investors purchasing common stock in the offering. See "Description of Capital Stock."

31


Table of Contents


SELECTED CONSOLIDATED FINANCIAL DATA

        The selected income statement and other data for each of the years ended September 30, 2008, 2009 and 2010 and the selected balance sheet data as of September 30, 2009 and 2010 have been derived from our audited consolidated financial statements that are included in this prospectus. The selected income statement and other data for the years ended September 30, 2006 and 2007 and the selected balance sheet data as of September 30, 2006, 2007 and 2008 have been derived from audited consolidated financial statements that are not included in this prospectus. The table below presents separately the period prior to the Carlyle Acquisition, or the Predecessor, on September 29, 2006 and the periods after the Carlyle Acquisition, or the Successor, to recognize the application of a different basis of accounting. Our selected historical income statement data for the six months ended March 31, 2010 and March 31, 2011 and our selected historical balance sheet data as of March 31, 2011 have been derived from our unaudited financial statements included elsewhere in this prospectus that, in the opinion of management, include normal recurring adjustments necessary for a fair presentation of the results for the unaudited interim period. The selected historical balance sheet data as of March 31, 2010 have been derived from our unaudited financial statements not included in this prospectus. Results for the six months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending September 30, 2011 or for any other period.

        The financial data set forth below are not necessarily indicative of future results of operations. This data should be read in conjunction with, and is qualified in its entirety by reference to, the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Capitalization" sections and our financial statements and notes thereto included elsewhere in this prospectus.

32


Table of Contents

 
   
  Successor  
 
  Predecessor    
   
   
   
  Six Months Ended
March 31,
 
 
  Year Ended September 30,  
 
  Year Ended
September 30,
2006(1)
 
(Dollars in thousands, except share and per share data)
  2007   2008   2009   2010   2010   2011  
 
   
   
   
   
   
  (unaudited)
 

Consolidated statements of income (loss):

                                           

Net sales:

                                           
 

North America

  $ 336,670   $ 416,899   $ 551,135   $ 557,874   $ 603,809   $ 283,285   $ 318,808  
 

Rest of the World

    68,033     89,888     112,623     102,796     95,342     47,259     57,527  
 

Intercompany elimination

    (27,071 )   (38,207 )   (59,415 )   (47,983 )   (43,115 )   (19,633 )   (26,792 )
                               
   

Net sales

    377,632     468,580     604,343     612,687     656,036     310,911     349,543  

Gross profit:

                                           
 

North America

    144,015     171,006     221,898     204,296     226,497     103,788     117,725  
 

Rest of the World

    22,412     36,698     42,143     39,733     34,167     17,265     19,523  
 

Intercompany elimination

    (2,746 )   (5,078 )   (7,433 )   (5,742 )   (6,434 )   (3,214 )   (3,123 )
                               
   

Gross profit

    163,681     202,626     256,608     238,287     254,230     117,839     134,125  

Selling, general and administrative expenses:

                                           
 

North America

    158,494     71,998     84,807     86,007     81,674     40,140     39,593  
 

Rest of the World

    16,599     18,320     20,951     17,888     18,241     9,185     10,288  
                               
   

Selling, general and administrative expenses

    175,093 (2)   90,318     105,758     103,895     99,915     49,325     49,881  
                               

Income (loss) from operations

    (11,412 )   112,308     150,850     134,392     154,315     68,514     84,244  

Interest income (expense), net

    1,018     (55,817 )   (48,743 )   (37,707 )   (36,270 )   (18,214 )   (12,586 )

Other income (expense), net

    (11,318 )   (2,857 )   746     (376 )   (458 )   1,056     (177 )
                               

Income (loss) before provision for income taxes

    (21,712 )   53,634     102,853     96,309     117,587     51,356     71,481  
                               

Provision for income taxes

    872     20,596     44,251     37,862     43,913     19,171     27,873  
                               
   

Net income (loss)

  $ (22,584 ) $ 33,038   $ 58,602   $ 58,447   $ 73,674   $ 32,185   $ 43,608  
                               

Earnings per share data:

                                           

Net income per share:

                                           
   

Basic

        $ 3.52   $ 6.22   $ 6.19   $ 7.32   $ 3.20   $ 4.33  
   

Diluted

        $ 3.48   $ 6.02   $ 5.87   $ 7.28   $ 3.20   $ 4.24  

Weighted average shares outstanding:

                                           
   

Basic

          9,384,384     9,420,433     9,440,596     10,063,237     10,063,237     10,065,678  
   

Diluted

          9,487,710     9,740,158     9,964,748     10,118,648     10,063,473     10,292,912  

 
  Successor  
 
  Year Ended September 30,   Six Months Ended
March 31,
 
 
  2006(3)   2007   2008   2009   2010   2010   2011  
 
   
   
   
   
   
  (unaudited)
 

Consolidated balance sheet data:

                                           
 

Cash and cash equivalents

  $ 80,022   $ 12,863   $ 15,998   $ 11,406   $ 39,463   $ 24,056   $ 45,670  
 

Total assets

    1,017,416     987,228     1,173,620     1,254,812     1,279,012     1,266,090     1,300,286  
 

Total long-term debt and capital lease obligations(4)

    600,143     589,269     688,128     684,268     622,032     674,701     607,968  
 

Total stockholders' equity

    285,967     335,783     409,773     473,940     545,739     502,416     590,590  

(1)
The effective date of the Carlyle Acquisition was at the close of business on September 29, 2006, the last business day of the Predecessor's 2006 fiscal year. September 30, 2006 was a weekend day and, as a result, the successor did not conduct any operations on that day. Due to the immateriality of the one day period ended September 30, 2006, the successor has accounted for the commencement of its operations as of October 1, 2006.

(2)
Includes $72.6 million of compensation costs related to the Carlyle Acquisition.

(3)
The selected balance sheet data as of September 30, 2006 presents the financial position of the Successor after giving effect to the acquisition as a business combination, which resulted in a new valuation for our assets and liabilities and our subsidiaries based upon fair value as of the date of the acquisition.

(4)
Total long-term debt and capital lease obligations excludes current portion.

33


Table of Contents


MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward looking statements as a result of various factors, including, without limitation, those set forth in "Risk Factors," "Forward-Looking Statements" and other matters included elsewhere in this prospectus. The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto included elsewhere in this prospectus, as well as the information presented under "Selected Consolidated Financial Data."

Executive Overview

        We are one of the world's largest distributors and providers of comprehensive supply chain management services to the global aerospace industry on an annual sales basis. Our services range from traditional distribution to the management of supplier relationships, quality assurance, kitting, JIT delivery and point-of-use inventory management. We supply approximately 450,000 different SKUs, including hardware, bearings, tools and more recently, electronic components and machined parts. In fiscal 2010, sales of hardware represented 80% of our net sales, with highly engineered fasteners constituting 83% of that amount. We serve our customers under three types of arrangements: JIT contracts, which govern comprehensive outsourced supply chain management services; LTAs, which set prices for specific parts; and ad hoc sales. JIT contracts and LTAs, which together comprised approximately 63% of our fiscal 2010 net sales, are multi-year arrangements that provide us with significant visibility into our future sales.

        Founded in 1953 by the father of our current CEO, Wesco has grown to serve over 7,200 customers in the commercial, military and general aviation sectors, including the leading OEMs and their subcontractors, through which we support nearly all major Western aircraft programs. We have grown our net sales at a 16% CAGR over the past 10 years to $656.0 million in fiscal 2010. We serve a large and growing global market, and believe that with more than 1,000 employees across 28 locations in 10 countries, we are well positioned to continue our track record of strong long-term growth and profitability.

        On September 29, 2006, 100% of the outstanding stock of Wesco Aircraft Hardware Corp., Wesco Aircraft Israel and the European entities of Flintbrook Ltd., Wesco Aircraft France and Wesco Aircraft Germany were acquired by Wesco Aircraft Holdings, Inc., which we refer to as the Carlyle Acquisition. The acquisition was completed in a leveraged transaction in which affiliates of Carlyle, the prior owner and certain employees of Wesco contributed the equity portion of the purchase price. The prior owner's and certain employees' investment represented a contribution of ownership in the predecessor company to the newly formed holding company. In accordance with Accounting Standards Codification, or ASC, 805, Business Combinations , the acquired assets and liabilities have been recorded at fair value for the interests acquired by new investors and at carryover basis for the continuing investors.

        On June 30, 2008, Wesco Aircraft Hardware Corp. acquired 100% of the outstanding stock of Airtechnics Inc., or Airtechnics, a distributor of electronic components for the aerospace industry, which we refer to as the Airtechnics Acquisition. The acquisition was funded through a provision in the old senior secured credit facilities (as defined below) that provided for additional borrowing under existing credit terms. Operating cash was also used by us to pay a portion of the purchase price and cover transaction fees and expenses. The assets and liabilities have been recorded at fair value for the interests we acquired.

34


Table of Contents

Recent Developments

        On April 7, 2011, Wesco Aircraft Hardware Corp. entered into a new $765.0 million senior secured credit facility with Barclays Bank PLC, as administrative agent and collateral agent, and Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Key Bank, N.A. and Barclays Capital, as joint lead arrangers, which we refer to as the new senior secured credit facilities.

        The purpose of the refinancing was to extend the maturity dates under the term loans of Wesco Aircraft Hardware Corp.'s existing senior secured credit facilities, which we refer to as the old senior secured credit facilities, increase the borrowing capacity under our revolver and pay related fees and expenses. The new senior secured credit facilities consist of a (i) $150.0 million revolving credit facility, which we refer to as the new revolving facility, (ii) $265.0 million term loan A facility, which we refer to as the new term loan A facility, and (iii) $350.0 million term loan B facility, which we refer to as the new term loan B facility. Wesco Aircraft is a guarantor of the new senior secured credit facilities.

        As a result of the refinancing, we will be recording a loss on extinguishment of debt in the amount of $7.1 million, consisting of write-offs of unamortized debt issuance costs and third party fees of $6.5 million and $0.6 million, respectively. The loss on extinguishment will be recorded as a component of interest expense, net in the consolidated statement of income during the nine months ended June 30, 2011. Additionally, $1.9 million of unamortized debt issuance costs will remain capitalized and new creditor fees associated with the April 7, 2011 refinancing in the amount of $12.5 million will be capitalized. These fees will be amortized over the term of the debt using the effective interest rate method.

Industry Trends Affecting Our Business

        We rely on demand for new commercial aircraft for a significant portion of our sales. Commercial aircraft demand is driven by many factors, including airline passenger volumes, airline profitability, the introduction of new aircraft models, general economic conditions and the aging life cycle of current fleets.

        During 2008 and 2009, our customers were impacted by the global recession and weak demand for air passenger travel, which resulted in significant losses for the global airline industry. According to Airline Monitor, during 2010, as the global economy began to recover, RPMs, a key measure of airline passenger volumes, grew approximately 5.5%. RPMs are expected to grow at approximately 5.9% annually, on average, from 2010 to 2020, due to the economic recovery in developed economies, continued growth in emerging markets, particularly in the Asia-Pacific region, and the secular trend towards increased air travel globally. Increased passenger traffic volumes and the return to profitability of the global airline industry have renewed demand for commercial aircraft, particularly for more fuel efficient models, such as the Boeing 787 and Airbus A350. According to Airline Monitor, annual deliveries of the Boeing 787 are projected to increase from 20 in 2011 to over 100 by 2014, and Airbus expects A350 deliveries to commence in 2013. Commercial MRO providers are expected to benefit from similar growth trends to those impacting the commercial OEM market, in particular, increased RPMs, which will in turn drive growth in the commercial fleet and greater utilization of existing aircraft.

        Growth in the commercial aerospace market is also expected to be aided by a recovery in business jet and regional jet deliveries. According to the FAA, business jet activity increased by over 11% in 2010 compared to 2009, and Honeywell projects that deliveries of business jets will increase from approximately 675 in 2010 to in excess of 1,000 in 2015. According to Airline Monitor, regional jet deliveries are expected to increase from approximately 135 in 2010 to 270 in 2015.

35


Table of Contents

        A significant portion of our sales are also reliant on demand for new military aircraft, which is primarily driven by government spending, the timing of military aircraft orders and evolving DoD strategies and policies. We believe the diversity of the military aircraft programs we service can help us mitigate the impact of program delays, changes or cancellations, through increased sales to other active programs that directly benefit from such delays, changes or cancellations. For example, we believe the delay in production of the Lockheed Martin JSF has resulted in an increase in our sales to manufacturers of the F-18. Going forward, we believe that our military aerospace business will be driven by increases in the production of the JSF, a program on which we believe our business is well positioned. According to Forecast International, deliveries of the JSF are expected to increase from 20 in 2011 to 98 by 2016.

        We also support customers in the military aerospace MRO market and believe that our presence in this market helps us mitigate the volatility of new military aircraft sales with sales to the aftermarket. We expect demand in the military MRO market to be driven by requirements to maintain aging military fleets, changes in the overall fleet size and the level of U.S. military activity overseas.

Other Factors Affecting Our Financial Results

        There are many factors, such as fluctuations in ad hoc sales, timing of aircraft deliveries, changes in selling prices and the volume or timing of customer orders, that can cause fluctuations in our financial results from quarter-to-quarter. To normalize for short-term fluctuations, we tend to look at our performance over several quarters or years of activity rather than discrete short-term periods. As such, it can be difficult to determine longer-term trends in our business based on quarterly comparisons.

        We will continue our strategy of seeking to expand our relationships with existing customers by transitioning them to our comprehensive JIT supply chain management services as well as expanding relationships with our existing JIT customers to include additional customer sites and additional SKUs. We believe this strategy serves to mitigate fluctuations in our net sales. However, we have recently been notified by Boeing of its intent to perform certain supply chain management functions in-house that we are currently providing at two Boeing facilities under JIT contracts that were awarded to us when these particular facilities were under different ownership. In fiscal 2010, sales under these contracts accounted for approximately 5.8% of our net sales. If any of our customers attempt to implement additional in-sourcing initiatives, it could have a negative effect on our strategy to mitigate fluctuations in our net sales. Additionally, although we derive a significant portion of our net sales from the building of new commercial and military aircraft, we have not typically experienced extreme fluctuations in our net sales when sales for an individual aircraft program decrease, which we believe is attributable to our diverse base of customers and programs. In addition, we believe our substantial sales under JIT contracts and LTAs help to mitigate fluctuations in our financial results, as JIT and LTA customers tend to have steadier purchasing patterns than ad hoc customers.

        We entered the electronic components business in 2008 after the Airtechnics Acquisition. As we continue to grow our electronics products group, or EPG, business, we expect that EPG sales as a percentage of our total net sales will increase. Gross profit margins on EPG products are lower than the gross profit margins on many of our other products, which we believe will result in a reduction in our overall gross profit margins as our EPG sales increase.

36


Table of Contents

        We believe that our strategy of growing our JIT and LTA sales and converting ad hoc customers into JIT and LTA customers will negatively affect our gross profit margins, as gross profit margins tend to be higher on ad hoc sales than they are in JIT and LTA-related sales. However, we believe any potential adverse impact on our gross profit margins is outweighed by the more stable long-term revenue stream attributable to JIT contracts and LTAs.

        Our JIT contracts and LTAs generally provide for fixed prices, which can expose us to risks if prices we pay to our suppliers rise due to increased raw material or other costs. However, we believe our expansive product offerings and inventories, our ad hoc sales and, where possible, our longer-term agreements with suppliers have enabled us to mitigate this risk.

        We believe our cash flows may be affected by fluctuations in our inventory that can occur over time. When we are awarded new programs, we generally increase our inventory to account for expected sales related to the new program, which often take time to materialize. As a result, if certain programs for which we have procured inventory are delayed, we may experience a more sustained inventory increase. For example, we increased our inventory in anticipation of deliveries of the Boeing 787, which have been significantly delayed.

        Inventory fluctuations may also be attributable to general industry trends. For example, as production in the global aerospace industry increases, we typically see an increase in demand from our customers and a delay in deliveries from our suppliers, which tends to result in a temporary inventory reduction and increased cash flow. However, when production in the aerospace industry decreases, our suppliers are able to catch up on our outstanding orders, while demand from our customers decreases, which tends to result in an increase in inventory levels and decreased cash flow. For example, in 2009, as a result of the global economic recession, production in the aerospace industry decreased, freeing up our suppliers to ship previously ordered products to us faster than expected. As a result, we experienced an inventory build of approximately $111.1 million during fiscal 2009. Although we have made, and continue to make, adjustments to our purchasing practices in order to mitigate the effect of inventory fluctuations on our cash flows, inventory fluctuations continue to occur and, as a result, will continue to impact our cash flows.

Segment Presentation

        We conduct our business through two reportable segments: North America and Rest of the World. We evaluate segment performance based on segment operating earnings or loss. Each segment reports its results of operations and makes requests for capital expenditures and acquisition funding to our chief operating decision-maker, or CODM. Our Chief Executive Officer serves as our CODM. Each operating segment has separate management teams and infrastructures dedicated to providing a full range of products and services to their respective customers.

Key Components of Our Results of Operations

        The following is a discussion of the key line items included in our financial statements for the periods presented below under the heading "Results of Operations." These are the measures that management utilizes to assess our results of operations, anticipate future trends and evaluate risks in our business.

        Our net sales include sales of C class aerospace parts, including hardware, bearings, electronic components, machined parts and installation tooling, and eliminate all intercompany sales. We also provide certain services to our customers, including quality assurance, kitting and JIT supply chain

37


Table of Contents

management. However, these services are generally performed in connection with the sale of our products, and as such, the price of such services is included in the price of the products delivered to customers. We do not account for these services as a separate element, as the services do not generally have stand-alone value and typically cannot be separated from the product element of the arrangement. There are no significant post-delivery obligations associated with these services.

        We sell products and services to our customers using three types of contractual arrangements: JIT supply chain management contracts, LTAs and individual ad hoc sales. In fiscal 2009 and 2010, we experienced a decrease in ad hoc sales due to a weakening aerospace market that resulted in customers reducing their on-hand inventory and our strategy of transitioning ad hoc sales to JIT contracts or LTAs in an effort to achieve a more predictable revenue stream. JIT contracts and LTAs typically run for three to five years. Under JIT contracts, customers commit to purchase specified parts from us at a fixed price, on an if-and-when needed basis, and we are responsible for maintaining high levels of stock availability of those parts. LTAs are essentially negotiated price lists for customers or individual customer sites that cover a range of pre-determined parts, purchased on an as-needed basis. Ad hoc customers purchase parts from us on an as-needed basis and are generally supplied out of our existing inventory. In addition, JIT and LTA customers often purchase parts that are not captured under their contract on an ad hoc basis.

        EPG was not fully integrated into our enterprise resource planning, or ERP, system until the middle of 2009. As a result, in the discussion of our results of operations, the discussion related to JIT, LTA and ad hoc sales as a percentage of net sales does not include EPG sales, other than for the comparison of the six months ended March 31, 2010 to the six months ended March 31, 2011. We expect that future discussions of our JIT, LTA and ad hoc sales will include EPG sales.

        The principal component of our cost of sales is product cost, which averaged approximately 93.2% of our total cost of sales for the three-year period ended September 30, 2010. The remaining components are freight and expediting fees, import duties, tooling repair charges, amortization of inventory step-up, inventory excess and obsolescence write-down, packaging supplies and physical inventory adjustment charges, which collectively averaged approximately 6.8% of our total cost of sales for the three-year period ended September 30, 2010.

        Product cost is determined by the current weighted average cost of each inventory item and is a function of many factors, including fluctuations in the price of raw materials, the effect of inflation, the terms of long-term agreements we negotiate with certain of our suppliers, the timing of bulk purchases that allow us to take advantage of price breaks from suppliers and general market trends that can result in increases or decreases in our suppliers' available production capacity. Although we cannot specifically quantify trends relating to the costs of our products in inventory, during fiscal 2009 and 2010, as a result of the economic downturn and its effect on the global aerospace industry, our suppliers' collective production capacity increased, which generally resulted in a decrease in per part prices and a corresponding decrease in our product costs. We expect that conditions within the aerospace industry will continue to improve, and as a result, that per part prices will increase as our suppliers' capacity becomes more limited. However, we believe the long-term agreements we have with certain of our suppliers and our ability to make opportunistic, large-scale product purchases will allow us to mitigate the impact of future per part price increases. In addition, we believe we will be able to further mitigate the impact of any such price increases on our results of operations by passing along the price increases to customers who are not a party to contracts with pre-negotiated price lists.

        Inventory write-down is calculated to estimate the amount of excess and obsolete inventory we currently have on-hand, based on historical and forecasted sell-through rates. We review inventory for

38


Table of Contents


excess and obsolescence write-down monthly and adjust the expense and future forecasted sell-through rates as necessary.

        Cost of sales, as a percentage of net sales, trended up during fiscal 2009 and 2010, as our ad hoc sales, as a percentage of net sales, declined. This occurred as a result of our strategy to transition more ad hoc sales to LTA and JIT sales, as well as the effect of the recession. Ad hoc sales typically have higher margins than LTA and JIT sales. Also, in 2009 we had the first full year impact of EPG sales after the Airtechnics Acquisition, which sales typically have lower margins than hardware sales.

        The principal components of our selling, general and administrative expenses are salaries, wages, benefits and bonuses paid to our employees; stock-based compensation; commissions paid to outside sales representatives, or OSRs; travel and other business expenses; training and recruitment costs; marketing, advertising and promotional event costs; rent; bad debt expense; professional services fees (including legal, audit and tax); and ordinary day-to-day business expenses. Depreciation and amortization expense is also included in selling, general and administrative expenses, and consists primarily of scheduled depreciation for leasehold improvements, machinery and equipment, vehicles, computers, software and furniture and fixtures. Depreciation and amortization also includes intangible amortization expense.

        Selling, general and administrative expenses, as a percentage of net sales, have continued to decline as we have leveraged the fixed cost and labor component of our infrastructure while consolidated net sales have grown. We may experience an increase in selling, general and administrative expenses as a result of one-time costs associated with our initial public offering and ongoing costs associated with being a public company.

        Interest Expense, net.     Interest expense, net consists of the interest we pay on our short-term and long-term debt, fees on our revolver and our line-of-credit, deferred financing costs and the costs of hedging agreements, net of interest income.

        Other Income (Expense), net.     Other income (expense), net is primarily comprised of unrealized foreign exchange gain or loss associated with transactions denominated in currencies other than the respective functional currency of the reporting subsidiary.

Critical Accounting Policies and Estimates

        The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. We evaluate our estimates and judgments on an on-going basis. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what we anticipate, and different assumptions or estimates about the future could change our reported results. We believe the following accounting policies are the most critical in that they significantly affect our financial statements, and they require our most significant estimates and complex judgments.

        Our inventory is comprised solely of finished goods. Inventories are stated at the lower of weighted-average cost or market and in-bound freight-related costs are included as part of the cost of inventory held for resale. We record provisions, as appropriate, to write-down excess and obsolete

39


Table of Contents

inventory to estimated net realizable value. The process for evaluating excess and obsolete inventory often requires us to make subjective judgments and estimates concerning future sales levels, quantities and prices at which such inventories will be able to be sold in the normal course of business.

        Demand for our products can fluctuate significantly. Our estimates of future product demand may prove to be inaccurate, in which case we may have understated or overstated the write-down required for excess and obsolete inventories. In the future, if our inventories are determined to be overvalued, we would be required to recognize such costs in our cost of goods sold at the time of such determination. Likewise, if our inventories are determined to be undervalued, we may have over-reported our costs of goods sold in previous periods and would be required to recognize such additional operating income at the time such products are sold.

        Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination. In accordance with the provisions of ASC 350, Intangibles—Goodwill and Other , goodwill and indefinite-lived intangible assets acquired in a business combination are not amortized, but instead tested for impairment at least annually or more frequently should an event occur or circumstances indicate that the carrying amount may be impaired. Such events or circumstances may be a significant change in business climate, economic and industry trends, legal factors, negative operating performance indicators, significant competition, changes in strategy, or disposition of a reporting unit or a portion thereof. Goodwill impairment testing is performed at the reporting unit level on July 1 of each year.

        Goodwill impairment testing is a two-step test. The first step identifies potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. For all periods presented, our reporting units are consistent with our operating segments. The estimates of fair value of a reporting unit are determined based on a discounted cash flow analysis and market earnings multiples. A discounted cash flow analysis requires us to make various judgmental assumptions, including assumptions about future cash flows, growth rates and discount rates. These assumptions about future cash flows and growth rates are based on the forecast and long-term business plans of each operating segment. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting units. If the fair value exceeds its carrying amount, goodwill is not considered impaired and the second step of the test is unnecessary. If the carrying amount of a reporting unit's goodwill exceeds its fair value, the second step measures the impairment loss, if any. The second step compares the implied fair value of goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

        Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

        We reviewed the carrying value of our indefinite lived intangible assets by comparing such amount to its fair value and determined that the carrying amount did not exceed its respective fair value. During the years ended September 30, 2008, 2009 and 2010 the fair value of our reporting units was substantially in excess of the reporting units' carrying values. Additionally, the fair value of our indefinite lived intangible assets was substantially in excess of its carrying value. Accordingly, management believes there are no impairments as of September 30, 2010 related to either goodwill or the indefinite-lived intangible asset.

40


Table of Contents

        We recognize product and service revenue when (i) persuasive evidence of an arrangement exists, (ii) title transfers to the customer, (iii) the sales price charged is fixed or determinable and (iv) collection is reasonably assured. In instances where title does not pass to the customer upon shipment, we recognize revenue upon delivery or customer acceptance, depending on the terms of the sales contract.

        In connection with the sale of our products, we often provide certain supply chain services. These services are provided exclusively in connection with the sale of products, and as such, the price of such services is generally included in the price of the products delivered to the customer. We do not account for these services as a separate element, as the services do not have stand-alone value and cannot be separated from the product element of the arrangement. There are no significant post-delivery obligations associated with these services.

        We also enter into sales rebates and profit sharing arrangements. Such customer incentives are accounted for as a reduction to gross sales and recorded based upon estimates at the time products are sold. These estimates are based upon historical experience for similar programs and products. We review such rebates and profit sharing arrangements on an ongoing basis and accruals are adjusted, if necessary, as additional information becomes available.

        Management provides allowances for credits and returns based on historic experience and adjusts such allowances as considered necessary. To date, such provisions have been within the range of management's expectations and the allowance established. Sales tax collected from customers is excluded from net sales in the accompanying consolidated statements of income.

        We account for income taxes in accordance with ASC 740, Income Taxes . ASC 740, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established, when necessary, to reduce net deferred tax assets to the amount expected to be realized. Our foreign subsidiaries are taxed in local jurisdictions at local statutory rates.

        We account for all stock-based compensation awards to employees and members of our board of directors based upon their fair values as of the date of grant using a fair value method and recognize the fair value of each award as an expense over the requisite service period using the graded vesting method.

        For purposes of calculating stock-based compensation, we estimate the fair value of stock options using a Black-Scholes-Merton valuation model, which requires the use of certain subjective assumptions including expected term, volatility, expected dividend, risk-free interest rate, forfeiture rate and the fair value of our common stock. These assumptions generally require significant judgment.

        We estimate the expected term of employee options using the average of the time-to-vesting and the contractual term. We derive our expected volatility from the historical volatilities of several unrelated public companies within our industry because we have little information on the volatility of the price of our common stock since we have no trading history. When making the selections of our industry peer companies to be used in the volatility calculation, we also consider the size and financial

41


Table of Contents


leverage of potential comparable companies. These historical volatilities are weighted based on certain qualitative factors and combined to produce a single volatility factor. Our expected dividend rate is zero, as we have never paid any dividends on our common stock and do not anticipate any dividends in the foreseeable future. We base the risk-free interest rate on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to each grant's expected life.

        We estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior and other factors. Quarterly changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation expense, as the cumulative effect of adjusting the rate for all expense amortization is recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the consolidated financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the consolidated financial statements.

        The following table summarizes the amount of non-cash stock-based compensation expense recognized in our statements of operations:

 
  Year Ended September 30,   Six Months
Ended
March 31,
 
(Dollars in thousands)
  2008   2009   2010   2010   2011  

Non-cash stock-based compensation

  $ 13,700   $ 10,389   $ 2,510   $ 1,281   $ 910  

        For the years ending September 30, 2011 and September 30, 2012, we expect to incur stock-based compensation expense of $1.9 million and $0.3 million, respectively.

        If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past. If there is a difference between the assumptions used in determining stock-based compensation expense and the actual factors that become known over time, we may change the input factors used in determining stock-based compensation costs for future grants. These changes, if any, may materially impact our results of operations in the period such changes are made. We expect to continue to grant stock options in the future, and to the extent that we do, our actual stock-based compensation expense recognized in future periods will likely increase.

    Significant Factors Used in Determining Fair Value of Our Common Stock

        The fair value of the common stock that underlies our stock options has historically been determined by management and approved by our board of directors based upon information available to it at the time of grant. The following table summarizes, by grant date, the number of stock options granted since October 1, 2009 and the associated per share exercise price, which was not less than the fair value of our common stock for each of these grants.

Grant Date
  Number of Options
Granted
  Exercise Price Per
Share of
Common Stock
  Estimated Fair
Value Per Share of
Common Stock
 

October 1, 2009

    7,557   $ 56.64   $ 36.39  

December 2, 2010

    30,500   $ 70.00   $ 55.00  

42


Table of Contents

        Because there has been no public market for our common stock, our management has determined the fair value of our common stock-based on an analysis of relevant factors, including the following:

        In addition, we have obtained periodic valuation studies from an independent third-party valuation firm. In performing its valuation analysis, the valuation firm engaged in discussions with management, analyzed historical and forecasted financial statements and reviewed our corporate documents. In addition, these valuation studies were based on a number of assumptions, including industry, general economic, market and other conditions that could reasonably be evaluated at the time of the valuation. Third-party valuations were performed as of September 30, 2009 and June 30, 2010 using generally accepted valuation methodologies.

Results of Operations

 
  Year Ended September 30,   Six Months Ended
March 31,
 
(Dollars in thousands)
  2008   2009   2010   2010   2011  

Consolidated statements of income:

                               

Net sales:

                               
 

North America

  $ 551,135   $ 557,874   $ 603,809   $ 283,285   $ 318,808  
 

Rest of the World

    112,623     102,796     95,342     47,259     57,527  
 

Intercompany elimination

    (59,415 )   (47,983 )   (43,115 )   (19,633 )   (26,792 )
                       
   

Net sales

    604,343     612,687     656,036     310,911     349,543  

Gross profit:

                               
 

North America

    221,898     204,296     226,497     103,788     117,725  
 

Rest of the World

    42,143     39,733     34,167     17,265     19,523  
 

Intercompany elimination

    (7,433 )   (5,742 )   (6,434 )   (3,214 )   (3,123 )
                       
   

Gross profit

    256,608     238,287     254,230     117,839     134,125  

Selling, general and administrative expenses:

                               
 

North America

    84,807     86,007     81,674     40,140     39,593  
 

Rest of the World

    20,951     17,888     18,241     9,185     10,288  
                       
   

Selling, general and administrative expenses

    105,758     103,895     99,915     49,325     49,881  
                       

Income from operations

    150,850     134,392     154,315     68,514     84,244  

Interest expense, net

   
(48,743

)
 
(37,707

)
 
(36,270

)
 
(18,214

)
 
(12,586

)

Other income (expense), net

    746     (376 )   (458 )   1,056     (177 )
                       

Income before provision for income taxes

    102,853     96,309     117,587     51,356     71,481  
                       

Provision for income taxes

    44,251     37,862     43,913     19,171     27,873  
                       
   

Net income

  $ 58,602   $ 58,447   $ 73,674   $ 32,185   $ 43,608  
                       

43


Table of Contents

 
  Year Ended September 30,   Six Months Ended
March 31,
 
(as a % of total net sales; numbers have been rounded)
  2008   2009   2010   2010   2011  

Consolidated statements of income:

                               

Net sales:

                               
 

North America

    91.2 %   91.1 %   92.0 %   91.1 %   91.2 %
 

Rest of the World

    18.6     16.8     14.5     15.2     16.5  
 

Intercompany elimination

    (9.8 )   (7.8 )   (6.6 )   (6.3 )   (7.7 )
                       
   

Net sales

    100.0     100.0     100.0     100.0     100.0  

Gross profit:

                               
 

North America

    36.7     33.3     34.5     33.4     33.7  
 

Rest of the World

    7.0     6.5     5.2     5.6     5.6  
 

Intercompany elimination

    (1.2 )   (0.9 )   (1.0 )   (1.0 )   (0.9 )
                       
   

Gross profit

    42.5     38.9     38.8     37.9     38.4  

Selling, general and administrative expenses:

                               
 

North America

    14.0     14.0     12.4     12.9     11.3  
 

Rest of the World

    3.5     2.9     2.8     3.0     2.9  
                       
   

Selling, general and administrative expenses

    17.5     17.0     15.2     15.9     14.3  
                       

Income from operations

    25.0     21.9     23.5     22.0     24.1  

Interest expense, net

   
(8.1

)
 
(6.2

)
 
(5.5

)
 
(5.9

)
 
(3.6

)

Other income (expense), net

    0.1     (0.1 )   (0.1 )   0.3     (0.1 )
                       

Income before provision for income taxes

    17.0     15.7     17.9     16.5     20.4  
                       

Provision for income taxes

    7.3     6.2     6.7     6.2     8.0  
                       
   

Net income

    9.7 %   9.5 %   11.2 %   10.4 %   12.5 %
                       

Six Months Ended March 31, 2010 compared with the Six Months Ended March 31, 2011

        Consolidated net sales of $349.5 million for the six months ended March 31, 2011 increased approximately $38.6 million, or 12.4%, compared to the six months ended March 31, 2010. JIT, LTA and ad hoc sales as a percentage of net sales represented 32%, 30% and 38%, respectively, for the six months ended March 31, 2011, as compared to 30%, 32% and 38%, respectively, for the six months ended March 31, 2010.

        Net sales of $318.8 million in our North America segment for the six months ended March 31, 2011 increased approximately $35.5 million, or 12.5%, compared to the six months ended March 31, 2010. JIT, LTA and ad hoc net sales increased by $12.5 million, $3.6 million and $13.0 million for the six months ended March 31, 2011 as compared to the six months ended March 31, 2010. The increase in JIT net sales was primarily due to accelerated sales of $10.5 million of inventory to two customers in connection with the completion of their sales contracts with us, approximately $8.0 million of which we originally expected to occur during the three months ended June 30, 2011, as well as new SKUs added to existing contracts. The increase in LTA net sales was primarily driven by a new contract signed in the third quarter of fiscal 2009 with one of our major customers, which generated $3.4 million of additional revenue during the six months ended March 31, 2011. $3.3 million of the increase in ad hoc net sales was related to the completion of a contract with one of our customers as mentioned above and the remaining $9.7 million was attributable to general growth across numerous customers as no new material contracts were added during the period.

44


Table of Contents

        Net sales of $57.5 million in our Rest of the World segment for the six months ended March 31, 2011 increased approximately $10.2 million, or 21.7%, compared to the six months ended March 31, 2010. JIT, LTA and ad hoc net sales increased by $8.8 million, $1.6 million and $1.7 million, respectively. The JIT increase primarily resulted from new long-term contracts entered into in the latter half of fiscal 2010, which accounted for $5.7 million in net sales and the conversion of ad hoc sales to JIT contracts. $1.1 million of the LTA growth resulted from strong demand in B-787 sales with subcontractors, who had reduced spending in prior periods. Ad hoc net sales improved, despite the JIT conversions, due to a strengthening in demand across our customer base, with customers replenishing inventories that declined during the recession.

        Consolidated gross profit of $134.1 million for the six months ended March 31, 2011 increased approximately $16.3 million, or 13.8%, compared to the six months ended March 31, 2010. Gross profit as a percentage of net sales was 38.4% for the six months ended March 31, 2011, compared to 37.9% for the six months ended March 31, 2010.

        Gross profit of $117.7 million in our North America segment for the six months ended March 31, 2011 increased approximately $13.9 million, or 13.4%, compared to the six months ended March 31, 2010. Gross profit as a percentage of net sales in our North America segment was 36.9% for the six months ended March 31, 2011 compared to 36.6% for the six months ended March 31, 2010. The increase in gross profit as a percentage of net sales was primarily driven by an additional $13.0 million of ad hoc sales for the six months ended March 31, 2011, which are typically higher margin sales, as well as a $12.5 million increase in JIT business with higher than average margins.

        Gross profit of $19.5 million in our Rest of the World segment for the six months ended March 31, 2011 increased approximately $2.3 million, or 13%, compared to the six months ended March 31, 2010. Gross profit as a percentage of net sales in our Rest of the World segment was 33.9% for the six months ended March 31, 2011 compared to 36.5% for the six months ended March 31, 2010. The lower gross profit percentage was primarily a result of changes in our sales mix. Overall, our ad hoc gross profit fell by $0.6 million as a result of fewer ad hoc purchases being made by the B-787 program. However, decreases in these higher margin sales were partially offset by increases in lower margin JIT and LTA sales, which generated margins of $2.3 million and $0.4 million, respectively.

        Total selling, general and administrative expenses of $49.9 million for the six months ended March 31, 2011 increased approximately $0.6 million, or 1.1%, compared to the six months ended March 31, 2010. However, total selling, general and administrative expenses as a percentage of net sales during the six months ended March 31, 2011 decreased by 1.6% compared to the six months ended March 31, 2010, as we continued to leverage our existing infrastructure.

        Selling, general and administrative expenses of $39.6 million in our North America segment for the six months ended March 31, 2011 decreased approximately $0.5 million, or 1.4%, compared to the six months ended March 31, 2010. This decrease was primarily due to a $2.2 million recovery of bad debt, partially offset by $0.6 million, $0.5 million, $0.4 million and $0.2 million in higher payroll costs, depreciation, group insurance costs and professional service fees, respectively.

        Selling, general and administrative expenses of $10.3 million in our Rest of the World segment for the six months ended March 31, 2011 increased approximately $1.1 million, or 12.0%, compared to the six months ended March 31, 2010. The increase was primarily due to increased payroll costs of $0.8 million driven by an 11% increase in headcount to support new contracts.

45


Table of Contents

        Interest expense, net of $12.6 million for the six months ended March 31, 2011 decreased approximately $5.6 million, or 30.9%, compared to the six months ended March 31, 2010. This decrease was a result of a $66.0 million reduction in the outstanding debt balances of the old senior secured credit facilities stemming from the repayment of principal under these facilities, as well as a $4.7 million decrease in swap expense for the six months ended March 31, 2011 as compared to the six months ended March 31, 2010.

        Other expense, net of $0.2 million for the six months ended March 31, 2011 increased approximately $1.2 million compared to the six months ended March 31, 2010. This change was primarily due to unrealized foreign exchange losses associated with transactions denominated in currencies other than the respective functional currency of the reporting subsidiary.

        Provision for income taxes of $27.9 million for the six months ended March 31, 2011 increased approximately $8.7 million, or 45.4%, compared to the six months ended March 31, 2010. Our effective tax rate was 37.3% and 39.0% during the six months ended March 31, 2010 and 2011, respectively. The increase in provision for income taxes was primarily a result of a $20.1 million, or 39.2%, increase in pre-tax income from the six months ended March 31, 2011 as compared to the six months ended March 31, 2010. Other items impacting our overall tax provision included a decrease in our effective tax rate in the U.S. for the six months ended March 31, 2010 related to the filing of an amended 2008 California return, which resulted in a $1.4 million refund.

        Due to the factors described above, we reported a net income of $43.6 million for the six months ended March 31, 2011, compared to net income of $32.2 million for the six months ended March 31, 2010. Net income as a percent of net sales increased 2.1% for the six months ended March 31, 2011, primarily due to an increase in gross profit as a percent of net sales and a decrease in selling, general and administrative expenses as a percent of net sales.

Year Ended September 30, 2009 compared with the Year Ended September 30, 2010

        Consolidated net sales of $656.0 million for the year ended September 30, 2010 increased $43.3 million, or 7.1%, compared to the year ended September 30, 2009. Excluding EPG products, JIT, LTA and ad hoc sales as a percentage of net sales represented 34%, 34% and 32%, respectively, for the year ended September 30, 2010, as compared to 29%, 31% and 40%, respectively, for the year ended September 30, 2009.

        Net sales of $603.8 million in our North America segment for the year ended September 30, 2010 increased $45.9 million, or 8.2%, compared to the year ended September 30, 2009. JIT and LTA net sales increased by $43.9 million and $42.0 million, respectively, while ad hoc and EPG net sales decreased by $9.6 million and $27.3 million, respectively, year over year. Approximately $21.0 million of the JIT increase was driven by increased sales relating to the B-787 program, $8.1 million by the addition of new sites for one of our major customers and $7.0 million by military programs such as the Chinook and V-22, while the remaining $7.8 million was attributable to general growth across numerous customers. $17.0 million of the LTA increase was due to a new contract for the F-18 program,

46


Table of Contents


$8.2 million related to the addition of new sites for one of our major customers and $5.1 million to other increases in military programs such as Chinook and V-22. The remaining $11.7 million was attributable to general growth across numerous customers. The decrease in ad hoc net sales was primarily driven by business shifting to JIT and LTA contract sales. The decrease in EPG net sales was due to the decline in the general aviation markets.

        Net sales of $95.3 million in our Rest of the World segment for the year ended September 30, 2010 decreased $7.5 million, or 7.3%, compared to the year ended September 30, 2009. JIT net sales increased by $4.4 million, while ad hoc and LTA net sales decreased by $9.3 million and $1.7 million, respectively. The reduction in ad hoc sales was attributed to a general market slowdown. JIT sales grew primarily due to $2.4 million of net sales related to the B-737 program, and $2.1 million related to growth in several of our military contracts. Other smaller increases in JIT net sales were driven primarily by the conversion of B-787 LTAs to JIT contracts in Italy.

        Consolidated gross profit of $254.2 million for the year ended September 30, 2010 increased $15.9 million, or 6.7% compared to gross profit for the year ended September 30, 2009. Gross profit as a percentage of net sales was 38.8% for the year ended September 30, 2010 compared to 38.9% for the year ended September 30, 2009.

        Gross profit of $226.5 million in our North America segment for the year ended September 30, 2010 increased $22.2 million, or 10.9%, compared to the year ended September 30, 2009. Gross profit as a percentage of net sales in our North America segment was 37.5% for the year ended September 30, 2010 compared to 36.6% for the year ended September 30, 2009. The increase in gross profit as a percentage of net sales was primarily driven by the $27.3 million decrease in EPG sales, which have lower margins than hardware sales.

        Gross profit of $34.2 million in our Rest of the World segment for the year ended September 30, 2010 decreased $5.6 million, or 14.0%, compared to the year ended September 30, 2009. Gross profit as a percentage of net sales was 35.8% for the year ended September 30, 2010 compared to 38.7% for the year ended September 30, 2009. The lower gross profit resulted from a $4.2 million decrease in higher margin ad hoc sales as well as a reduction in the average ad hoc gross profit percentage reducing the gross profit by $1.4 million. This was due to the general market decline. The increased JIT sales came at a reduced margin of $0.6 million, offsetting the margin lost from lower LTA sales of $0.5 million.

        Total selling, general and administrative expenses of $99.9 million for the year ended September 30, 2010 decreased $4.0 million, or 3.8%, compared to the year ended September 30, 2009, as we leveraged our infrastructure to support sales growth.

        Selling, general and administrative expenses of $81.7 million in our North America segment for the year ended September 30, 2010 decreased $4.3 million, or 5.0%, compared to the year ended September 30, 2009. This decrease was primarily a result of a reduction in non-cash stock-based compensation expense of $7.9 million, which was predominantly associated with restricted stock units that became fully vested on September 30, 2009, and a $1.6 million decrease in amortization expense related to certain intangible assets becoming fully amortized. These deductions were partially offset by increases of $0.6 million and $0.2 million in depreciation and professional service fees, respectively, as well as an increase in payroll expenses of $4.3 million, which was primarily driven by a $3.5 million increase in bonus expense.

        Selling, general and administrative expenses of $18.2 million in our Rest of the World segment for the year ended September 30, 2010 increased $0.4 million, or 2.0%, compared to the year ended

47


Table of Contents


September 30, 2009. This increase was primarily a result of increased payroll costs related to $0.4 million of additional bonus expense.

        Interest expense, net of $36.3 million for the year ended September 30, 2010 decreased $1.4 million, or 3.8%, compared to the year ended September 30, 2009. This decrease was primarily a result of principal debt payments of $67.4 million and a decrease in the average London Inter-Bank Offer Rate, or LIBOR, of 0.7% during the year ended September 30, 2010 as compared the year ended September 30, 2009. This was partially offset by $9.0 million in interest rate swap expense for the year ended September 30, 2010, an increase of $3.3 million as compared to the year ended September 30, 2009. We entered into our interest rate swap agreements midway through the year ended September 30, 2009 to hedge against interest rate fluctuations.

        Other expense, net of $0.5 million for the year ended September 30, 2010 increased $0.1 million, compared to the year ended September 30, 2009. This change was primarily due to unrealized foreign exchange losses associated with transactions denominated in currencies other than the respective functional currency of the reporting subsidiary.

        Provision for income taxes of $43.9 million for the year ended September 30, 2010, increased $6.1 million, or 16.0%, compared to the year ended September 30, 2009. Our effective tax rate was 39.3% and 37.3% during the years ended September 30, 2009 and 2010, respectively. The increase in the provision for income taxes was primarily a result of a $21.3 million, or 22.1%, increase in pre-tax income for the year ended September 30, 2010. Other items impacting the overall tax provision included a decrease in our effective tax rate in the U.S. for the year ended September 30, 2009 related to the filing of an amended 2008 California return, which resulted in a $1.4 million refund.

        Due to the factors described above, we reported a net income of $73.7 million for the year ended September 30, 2010, compared to net income of $58.4 million for the year ended September 30, 2009. Net income as a percent of net sales increased 1.7% for the year ended September 30, 2010 primarily due to a decrease in operating expenses as a percent of net sales as we continued to leverage our infrastructure to support sales growth.

Year Ended September 30, 2008 Compared with the Year Ended September 30, 2009

        Consolidated net sales of $612.7 million for the year ended September 30, 2009 increased $8.3 million, or 1.4%, compared to the year ended September 30, 2008. The U.S. dollar strengthened against the British pound from $0.51 to $0.65 from the year ended September 30, 2008 to the year ended September 30, 2009, impacting net sales negatively by $22.1 million on a consolidated basis. Without the negative foreign exchange impact, consolidated net sales would have increased by $30.4 million, or 5.0%, as compared to the year ended September 30, 2008. Excluding EPG products, JIT, LTA and ad hoc sales as a percentage of net sales represented 29%, 31% and 40%, respectively, for the year ended September 30, 2009, as compared to 26%, 27% and 47%, respectively, for the year ended September 30, 2008.

48


Table of Contents

        Net sales of $557.9 million in our North America segment for the year ended September 30, 2009 increased $6.7 million, or 1.2%, compared to the year ended September 30, 2008. EPG net sales increased by $60.2 million year over year as a result of the Airtechnics Acquisition. JIT and LTA net sales increased by $3.6 million and $10.2 million, respectively, while ad hoc net sales decreased by $55.8 million year over year. The increase in JIT net sales was primarily driven by increased sales relating to the B-787 platform. The increase in LTA net sales was primarily related to $10.4 million in increased sales to the military market, in part due to the startup of the JSF program. The decrease in ad hoc net sales was primarily due to the effect of the general economic decline across numerous customers as we did not lose any significant contracts during the period.

        Net sales of $102.8 million in our Rest of the World segment for the year ended September 30, 2009 decreased $9.8 million, or 8.7%, compared to net sales for the year ended September 30, 2008. The strengthening of the U.S. dollar impacted net sales negatively by $26.9 million. Without the negative foreign exchange impact, net sales in our Rest of the World segment would have increased by $17.1 million, or 15.2%, as compared to the year ended September 30, 2008. JIT sales increased $11.4 million and LTA sales increased $3.5 million, which was primarily due to increased sales to the European military market, and ad hoc sales increased by $0.8 million, which was primarily due to general increases across our customer base as a result of longer lead times from manufacturers.

        Consolidated gross profit of $238.3 million for the year ended September 30, 2009 decreased approximately $18.3 million, or 7.1% compared to the year ended September 30, 2008. Gross profit as a percentage of net sales was 38.9% for the year ended September 30, 2009, compared to 42.5% for the year ended September 30, 2008.

        Gross profit of $204.3 million in our North America segment for the year ended September 30, 2009 decreased $17.6 million, or 7.9%, compared to the year ended September 30, 2008. Gross profit as a percentage of net sales in our North America segment was 36.6% for the year ended September 30, 2009 compared to 40.3% for the year ended September 30, 2008. The decrease was primarily driven by a $60.2 million increase in EPG sales, which generally have lower margins than hardware sales, as well as a $55.8 million decrease in higher margin ad hoc sales.

        Gross profit of $39.7 million in our Rest of the World segment for the year ended September 30, 2009 decreased $2.4 million, or 5.7%, compared to the year ended September 30, 2008. Gross profit as a percentage of net sales in our Rest of the World segment was 38.7% for the year ended September 30, 2009 compared to 37.4% for the year ended September 30, 2008. The decline in gross profit of $2.4 million is primarily the result of an adverse foreign exchange impact of $8.8 million, partially offset by gross profit increases of $4.3 million, $0.9 million and $0.3 million for JIT, LTA and ad hoc sales, respectively.

        Total selling, general and administrative expenses of $103.9 million for the year ended September 30, 2009 decreased $1.9 million, or 1.8%, compared to the year ended September 30, 2008, as we continued to leverage our infrastructure to support sales growth and implemented cost saving initiatives around our travel and entertainment policy.

49


Table of Contents

        Selling, general and administrative expenses of $86.0 million in our North America segment for the year ended September 30, 2009 increased $1.2 million, or 1.4%, compared to the year ended September 30, 2008. This increase was primarily a result of a $4.2 million increase in payroll costs and $1.2 million in group insurance costs during the year ended September 30, 2009. This increase was primarily due to a full year of increased headcount related to the Airtechnics Acquisition as compared to only three months of expense in the year ended September 30, 2008. Amortization expense increased by $2.8 million due to a full year of amortization expense related to the intangibles acquired during the Airtechnics Acquisition. Offsetting these increases was a $3.3 million decrease in non-cash stock compensation related to stock option expense, a $0.3 million reduction in travel related expenses and a $3.4 million decrease in bad debt expense for the year ended September 30, 2009 as compared to the year ended September 30, 2008. The decrease in bad debt expense was primarily due to a one-time charge taken in the year ended September 30, 2008 for two customers who filed for bankruptcy during the year.

        Selling, general and administrative expenses of $17.9 million in our Rest of the World segment for the year ended September 30, 2009 decreased $3.1 million, or 14.6%, compared to the year ended September 30, 2008. This decrease was primarily a result of the exchange rate change during the periods. The foreign exchange impact to the year ended September 30, 2009 was a $5.5 million reduction to selling, general and administrative expenses as compared to September 30, 2008. Without the foreign exchange impact selling, general and administrative expenses would have increased $2.8 million over the prior year. This increase was primarily due to $1.2 million related to a full year of operational expenses of a new branch office.

        Interest expense, net of $37.7 million for the year ended September 30, 2009 decreased $11.0 million, or 22.6%, compared to the year ended September 30, 2008. This decrease was primarily a result of a decrease in LIBOR rates during the year ended September 30, 2009 as compared to the year ended September 30, 2008. The average LIBOR rate for the year ended September 30, 2008 was 3.9%, which dropped to an average rate of 1.0% for the year ended September 30, 2009, reducing interest expense by $17.2 million. This decrease was offset by an increase in the interest rate swap expense of $3.7 million and a $100.0 million increase to the first lien debt under the old senior secured credit facilities on June 30, 2008, in conjunction with the Airtechnics Acquisition, which increased interest expense by $2.0 million for the year ended September 30, 2009 as compared to the year ended September 30, 2008. Upon the maturity of our previous interest rate swaps, we entered into two interest rate swaps arrangements that expire in February and June 2012.

        Other expense, net was $0.4 million for the year ended September 30, 2009 compared to $0.7 million of income for the year ended September 30, 2008. This change was primarily due to unrealized foreign exchange losses associated with transactions denominated in currencies other than the respective functional currency of the reporting subsidiary.

        Provision for income taxes of $37.9 million for the year ended September 30, 2009 decreased $6.4 million, or 14.4%, compared to the year ended September 30, 2008. Our effective tax rate was 43.0% and 39.3% during the years ended September 30, 2008 and 2009, respectively. The decrease in provision for income taxes was primarily a result of a $6.5 million, or 6.4%, decrease in pre-tax income. Additionally, for the year ended September 30, 2009, we recognized a larger foreign tax credit than the

50


Table of Contents

prior year, resulting in an additional benefit of $0.8 million, which reduced the effective tax rate by almost 1.0%.

        Due to the factors described above, we reported a net income of $58.5 million for the year ended September 30, 2009, compared to net income of $58.6 million for the year ended September 30, 2008. Net income as a percent of net sales decreased 0.2% for the year ended September 30, 2009, primarily as a result of a 3.6% decrease in gross profit as a percent of net sales.

Supplemental Quarterly Financial Information

        The following table sets forth our historical unaudited quarterly consolidated statements of operations for each of the last eight quarters ended March 31, 2011. This unaudited quarterly information has been prepared on the same basis as our consolidated audited financial statements appearing elsewhere in this prospectus, and includes all adjustments, consisting only of normal and recurring adjustments, that we consider necessary to present fairly the financial information for the quarters presented. We have not historically experienced any significant seasonality with respect to our results of operations.

        The quarterly data should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this prospectus.

 
  Three Months Ended  
(Dollars in thousands)
  June 30,
2009
  September 30,
2009
  December 31,
2009
  March 31,
2010
  June 30,
2010
  September 30,
2010
  December 31,
2010
  March 31,
2011
 
 
  (unaudited)
 

Consolidated statements of income:

                                                 

Net sales

  $ 150,715   $ 150,680   $ 146,806   $ 164,105   $ 171,116   $ 174,009   $ 173,528   $ 176,015  
                                   

Gross profit

    56,878     53,758     54,643     63,197     68,240     68,150     66,699     67,426  
                                   

Selling, general and administrative expenses

    24,079     25,904     24,758     24,568     24,968     25,621     25,388     24,493  
                                   

Income from operations

    32,799     27,854     29,885     38,629     43,272     42,529     41,311     42,933  
                                   

Interest expense, net

    (9,002 )   (10,628 )   (8,579 )   (9,635 )   (9,199 )   (8,857 )   (6,277 )   (6,309 )

Other income (expense), net

    (985 )   920     (41 )   1,098     (495 )   (1,020 )   516     (693 )
                                   

Income before provision for income taxes

    22,812     18,146     21,265     30,092     33,578     32,652     35,550     35,931  
                                   

Provision for income taxes

    9,188     6,925     7,194     11,978     12,121     12,620     13,880     13,993  
                                   
 

Net income

  $ 13,624   $ 11,221   $ 14,071   $ 18,114   $ 21,457   $ 20,032   $ 21,670   $ 21,938  
                                   

Liquidity and Capital Resources

    Overview

        We have historically funded our operations, debt payments, capital expenditures and discretionary funding needs from our cash from operations. We had total available cash and cash equivalents of approximately $24.1 million and $45.7 million as of March 31, 2010 and 2011, respectively, and approximately $16.0 million, $11.4 million and $39.5 million as of September 30, 2008, 2009 and 2010,

51


Table of Contents

respectively. In addition, as of March 31, 2011, we had no amounts outstanding under the old revolving facility.

        Following the completion of this offering, our primary sources of liquidity will continue to be cash flow from operations and available borrowings under our new revolving facility. Our primary uses of cash following this offering will be for:

    operating expenses;

    working capital requirements to fund the growth of our business;

    capital expenditures that primarily relate to IT equipment and our warehouse operations; and

    debt service requirements for borrowings under the new senior secured credit facilities.

        Generally, cash provided by operating activities has been adequate to fund our operations. Due to fluctuations in our cash flows and the growth in our operations, it may be necessary from time to time in the future to borrow under our new revolving facility to meet cash demands. We anticipate that cash provided by operating activities, cash and cash equivalents and borrowing capacity under our new revolving facility will be sufficient to meet our cash requirements for the next twelve months. As of March 31, 2011, we did not have any material capital expenditure commitments.

    Senior Secured Credit Facilities

    Old Senior Secured Credit Facilities

        As of March 31, 2011, our outstanding indebtedness under our old senior secured credit facilities was approximately $606.2 million. The old senior secured credit facilities consisted of a $625.0 million first lien credit facility, which we refer to as the old first lien credit facility, and a $150.0 million second lien credit facility, which we refer to as the old second lien credit facility. At the time of initial incurrence, the old first lien credit facility was comprised of a $450.0 million first lien term loan facility and a $75.0 million first lien revolving line of credit. On June 30, 2008, we modified the terms of the old first lien credit facility to include an additional $100.0 million of term loan borrowings thereunder to fund the Airtechnics Acquisition, bringing the old first lien term loan facility up to $550.0 million at such time. As of March 31, 2011, we had approximately $477.2 million outstanding under the old first lien credit facility.

        The interest rate on term loans under the old first lien credit facility was calculated using either Alternate Base Rate, or ABR (which is defined as Prime Rate plus an applicable margin rate of 1.25%), or Eurocurrency rate (defined as LIBOR plus an applicable margin rate of 2.25%), at our option. The interest rate on the term loans under the old first lien credit facility was 2.50% as of March 31, 2011.

        There were no outstanding borrowings under the old revolving facility as of March 31, 2011, or at any point during fiscal 2010 or the six months ended March 31, 2011. The annual commitment fees for the old revolving facility were approximately $0.3 million.

        As of March 31, 2011, we had approximately $129.0 million outstanding under the old second lien credit facility. The interest rate on the old second lien credit facility was calculated using ABR (defined as Prime Rate plus the applicable margin rate of 4.75%) or Eurocurrency rate (defined as LIBOR plus an applicable margin rate of 5.75%), at our option. The interest rate on the old second lien credit facility was 6.00% as of March 31, 2011.

        During the year ended September 30, 2010, we made repayments totaling approximately $60.4 million with respect to the term loans under the old first lien credit facility and $7.0 million with respect to the old second lien credit facility, inclusive of contractually scheduled payments.

52


Table of Contents

        Our subsidiary, Wesco Aircraft Europe Limited, has a £10.0 million (approximately $16.0 million based on the March 31, 2011 exchange rate) line of credit available that automatically renews annually on October 1, which we refer to as the UK Line of Credit. This line of credit bears interest based on the base rate plus an applicable margin of 1.15%. There were no outstanding borrowings under the UK Line of Credit as of March 31, 2011.

    New Senior Secured Credit Facilities

        Borrowings under the new revolving facility and new term loan A facility bear interest at the Eurocurrency rate plus the applicable margin or the ABR plus the applicable margin. Borrowings under the new term loan B facility bear interest at a rate equal to (A) the greater of (x) the Eurocurrency rate and (y) 1.25% or (B) the greater of (x) the ABR and (y) 1.25%, plus, in each case, the applicable margin.

        The applicable margin for the new revolving facility and the new term loan A facility is 3.00% for Eurocurrency loans and 2.00% for ABR loans for the six-month period after the closing of the new senior secured credit facilities, and thereafter the applicable margin will be based on our total net leverage ratio as determined in the most recently delivered financial statements, with the respective margins ranging from 2.25% to 3.25% for Eurocurrency loans and 1.25% to 2.25% for ABR loans. The applicable margin for the new term loan B facility is 3.00% for Eurocurrency loans and 2.00% for ABR loans for the period from the closing date of the new senior secured credit facilities until June 30, 2012, and thereafter the applicable margin will be based on our total net leverage ratio as determined in the most recently delivered financial statements, with the respective margins ranging from 2.75% to 3.00% for Eurocurrency loans and 1.75% to 2.00% for ABR loans.

        The new revolving facility and new term loan A facility each mature on April 7, 2016 and the new term loan B facility matures on April 7, 2017.

        The obligations under the new senior secured credit facilities are guaranteed by us and all of our direct and indirect, wholly owned, domestic restricted subsidiaries (subject to certain exceptions) and secured by a first lien on substantially all of our assets and the assets of our guarantor subsidiaries, including capital stock of subsidiaries (in each case, subject to certain exceptions).

        The new senior secured credit facilities contain customary negative covenants, including restrictions on our and our restricted subsidiaries' ability to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make acquisitions, loans, advances or investments, pay dividends, sell or otherwise transfer assets, optionally prepay or modify terms of any junior indebtedness or enter into transactions with affiliates. The new senior secured credit facilities also require the maintenance of a net debt-to-EBITDA ratio and an EBITDA-to-net interest expense ratio.

        The new senior secured credit facilities contain customary affirmative covenants, including delivery of financial and other information to the administrative agent, notice to the administrative agent upon the occurrence of certain material events, preservation of existence, payment of material taxes and other claims, maintenance of properties and insurance, maintenance of books and records, access to properties and records for inspection by administrative agent and lenders, further assurances and provision of additional collateral and guarantees.

        The new senior secured credit facilities provide that, upon the occurrence of certain events of default, the obligations thereunder may be accelerated and the lending commitments terminated. Such events of default include payment defaults to the lenders, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, voluntary and involuntary bankruptcy proceedings, material money judgments, material ERISA events, certain change of control events and other customary events of default.

53


Table of Contents

    Cash Flows

        A summary of our operating, investing and financing activities are shown in the following table:

 
  Year Ended September 30,   Six Months Ended
March 31,
 
(In thousands)
  2008   2009   2010   2010   2011  

Consolidated statements of cash flows data:

                               

Net cash provided by operating activities

  $ 24,702   $ 1,266   $ 100,773   $ 31,117   $ 23,657  

Net cash used in investing activities

    (115,798 )   (4,135 )   (3,077 )   (1,325 )   (2,761 )

Net cash provided by (used in) financing activities

    94,114     (1,720 )   (69,483 )   (16,471 )   (14,875 )

    Operating Activities

        Our operating activities generated $23.7 million of cash in the six months ended March 31, 2011, a decrease of $7.5 million, compared to the six months ended March 31, 2010. This was primarily the result of a $14.8 million increase in the change in accounts receivable for the six months ended March 31, 2011 as compared to the six months ended March 31, 2010. This increase in accounts receivable was due to the increase in net sales between the two periods.

        Our operating activities generated $100.8 million of cash in the year ended September 30, 2010, an increase of $99.5 million compared to the year ended September 30, 2009. This increase was primarily the result of a $112.7 million net decrease in the change in inventory for the year ended September 30, 2010 as compared to the year ended September 30, 2009. Net income also increased $15.2 million during the year ended September 30, 2010. This was offset by a $12.2 million increase in the net change in accounts receivable for the year ended September 30, 2009 as compared to the year ended September 30, 2010. This increase was primarily driven by a $43.3 million, or 7.1%, increase in net sales for the year ended September 30, 2010.

        Our operating activities generated $1.3 million of cash in the year ended September 30, 2009, a decrease of $23.4 million compared to the year ended September 30, 2008. This decrease was primarily the result of a $52.4 million increase in the net change in inventory for the year ended September 30, 2009 as compared to the year ended September 30, 2008. This significant inventory increase was caused by increased supplier capacity that resulted in shorter lead times and faster shipments of our pre-existing orders. This was offset by a decrease of $15.6 million in accounts receivable driven by a lower days sales outstanding ratio.

    Investing Activities

        Our investing activities used $1.3 million and $2.8 million of cash in the six months ended March 31, 2010 and 2011, respectively, and $115.8 million, $4.1 million and $3.1 million in cash during the years ended September 30, 2008, 2009 and 2010, respectively. These amounts were used for investments in various capital expenditures and to purchase property and equipment. In addition, during the year ended September 30, 2008, $109.0 million of cash was used in the Airtechnics Acquisition.

        Our purchases of property and equipment may vary from period to period due to the timing of the expansion of our business and the investment requirements to provide us with technology that allows us to better serve our customers.

54


Table of Contents

    Financing Activities

        Our financing activities used $14.9 million of cash in the six months ended March 31, 2011. This amount primarily consisted of $14.0 million used to repay principal against the old second lien credit facility, and the remaining amount was used to make repayments under our capital lease obligations.

        Our financing activities used $16.5 million of cash in the six months ended March 31, 2010. This primarily consisted of $14.0 million used to repay principal against the old first lien credit facility, $1.4 million to make a required quarterly debt payment on our old senior secured credit facilities, $0.8 million to pay off the UK Line of Credit and $0.3 million to make repayments under our capital lease obligations.

        Our financing activities used $69.5 million of cash in the year ended September 30, 2010. This amount consisted of $67.4 million used to make repayments under the old senior secured credit facilities, $1.3 million used to make repayments under our capital lease obligations and $0.8 million used to make repayments under our UK Line of Credit.

        Our financing activities used $1.7 million of cash in the year ended September 30, 2009. This amount consisted of $0.7 million used to redeem vested stock options, $1.0 million used to make repayments under our capital lease obligations and less than $0.1 million used to make repayments under our UK Line of Credit, partially offset by less than $0.1 million in cash proceeds from the exercise of stock options.

        Our financing activities generated $94.1 million of cash in the year ended September 30, 2008. This amount consisted of $100.0 million in borrowings under the old first lien credit facility and $1.0 million in cash proceeds from the issuance of common stock, which was partially offset by approximately $2.4 million used to make repayments under our UK Line of Credit, $3.0 million used to pay certain financing fees associated with the Airtechnics Acquisition and $1.5 million used to make repayments under our capital lease obligations.

Contractual Obligations

        The following table is a summary of contractual cash obligations at September 30, 2010 (in thousands):

 
  Payments Due by Period  
 
  Less Than
1 Year
  1 - 3
Years
  3 - 5
Years
  More Than
5 Years
  Total  

Long-Term Debt Obligations(1)

  $   $ 477,243   $ 143,000   $   $ 620,243  

Capital Lease Obligations(2)

    1,577     1,676     99         3,352  

Operating Lease Obligations(3)

    3,629     6,314     4,395     7,166     21,504  

Purchase Obligations(4)

    193,696     2,565     110         196,371  
                       

Total

  $ 198,902   $ 487,798   $ 147,604   $ 7,166   $ 841,470  
                       

(1)
This line item includes our obligations under the old senior secured credit facilities. This line item does not reflect payment obligations for the new senior secured credit facilities. The payment obligations for the new senior secured credit facilities assuming an outstanding principal amount of $615.0 million, the balance as of April 7, 2011, the closing date of the new senior secured credit facilities, are $4,188, $35,156, $58,343 and $517,313 for the periods Less Than 1 Year, 1-3 Years, 3-5 Years and More Than 5 Years, respectively. These amounts assume no repayment of principal during such period and do not include interest payments required to be made under the old senior secured credit facilities and the new senior secured credit facilities, which bear interest at a

55


Table of Contents

    variable rate. See "—Liquidity and Capital Resources—Senior Secured Credit Facilities—New Senior Secured Credit Facilities."

(2)
This line item includes our payment obligations under leases classified as a capital lease.

(3)
This line item includes any payment obligations under leases classified as an operating lease.

(4)
This line item includes our current open purchase orders with respect to the purchase of products and the estimated timing of the transaction.

Off-Balance Sheet Arrangements

        We are not a party to any off-balance sheet arrangements.

Recently Adopted Accounting Pronouncements

        Changes to GAAP are established by the Financial Accounting Standards Board, or the FASB, in the form of Accounting Standards Updates, or ASUs, to the FASB's ASC.

        We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position and results of operations.

        In January 2010, the FASB issued guidance that revised two disclosure requirements concerning fair value measurements and clarifies two others. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers. It will also require the presentation of purchases, sales, issuances and settlements within Level 3 on a gross basis rather than a net basis. The amendments also clarify that disclosures should be disaggregated by class of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and non-recurring fair value measurements. These new disclosure requirements will become effective for our financial statements for the period ended September 30, 2011, except for the requirement concerning gross presentation of Level 3 activity, which will become effective for fiscal years beginning after December 15, 2010. Since we do not currently have any Level 3 fair value measurements, the adoption of this standard will not have an impact on our consolidated financial statements.

        In October 2009, the FASB issued guidance on revenue arrangements with multiple deliverables effective for our 2012 fiscal year, although early adoption is permitted. The guidance revises the criteria for separating, measuring, and allocating arrangement consideration to each deliverable in a multiple element arrangement. The guidance requires companies to allocate revenue using the relative selling price of each deliverable, which must be estimated since we do not have a history of selling the deliverable on a stand-alone basis or third-party evidence of selling price. We do not believe that the adoption of this guidance will significantly change the timing in which revenue is recorded as the pricing of our service components are included in the per unit price of the products delivered to the customer, which is solely contingent on the number of units sold. As a result, the revenue earned on the service element does not become fixed or determinable until delivery of the product has taken place.

        In June 2009, the FASB issued guidance to revise the approach to determine when a variable interest entity, or VIE, should be consolidated. The new consolidation model for VIEs considers whether we have the power to direct the activities that most significantly impact the VIEs' economic performance and shares in the significant risks and rewards of the entity. The guidance on VIEs requires companies to continually reassess VIEs to determine if consolidation is appropriate and provide additional disclosures. We adopted the provisions of this VIE guidance at the beginning of fiscal year 2011, and the adoption did not have a material impact on our financial statements.

56


Table of Contents

Quantitative and Qualitative Disclosures about Market Risk

        Our exposure to market risk consists of foreign currency exchange rate fluctuations and changes in interest rates.

    Foreign Currency Exposure

    Currency translation

        During the year ended September 30, 2010 and the six months ended March 31, 2011, approximately 15% and 17%, respectively, of our net sales were made by our foreign subsidiaries, and our total non-U.S. net sales represented approximately 26% and 29%, respectively, of our total net sales. As a result of these international operating activities, we are exposed to risks associated with changes in foreign exchange rates, principally exchange rates between the U.S. dollar, British pound and the Euro.

        The results of operations of our foreign subsidiaries are translated into U.S. dollars at the average exchange rate for each relevant period. This translation has no impact on our cash flow. However, as foreign exchange rates change, there are changes to the U.S. dollar equivalent of sales and expenses denominated in foreign currencies. Any adjustments resulting from the translation are recorded in accumulated other comprehensive income on our statements of changes in stockholders' equity. We do not consider the risk associated with exchange rate fluctuations to be material to our financial condition or results of operations.

        A hypothetical 5% increase in the value of the British pound and the Euro relative to the U.S. dollar would have resulted in an increase in our net income of approximately $0.3 million and less than $0.1 million, respectively, during fiscal 2010 and $0.2 million and less than $0.1 million, respectively, during the six months ended March 31, 2011. A corresponding decrease would have resulted in a decrease in our net income of approximately $0.3 million and less than $0.1 million, respectively, during fiscal 2010 and $0.2 million and less than $0.1 million, respectively, during the six months ended March 31, 2011.

    Currency transactions

        Currency transaction exposure arises where actual sales and purchases are made by a company in a currency other than its own functional currency. During the year ended September 30, 2010, our subsidiary in the United Kingdom had sales in U.S. dollars and Euros of approximately $66.0 million and €8.2 million, respectively, and had purchases in U.S dollars and Euros of approximately $47.9 million and €8.7 million, respectively. During the six months ended March 31, 2011, our subsidiary in the United Kingdom had sales in U.S. dollars and Euros of approximately $40.8 million and €4.6 million, respectively, and had purchases in U.S. dollars and Euros of approximately $33.5 million and €7.1 million, respectively. To the extent possible, we structure arrangements where the purchase transactions are denominated in U.S. dollars in order to minimize near-term exposure to foreign currency fluctuations.

        From September 30, 2008 to September 30, 2009, the average value of the U.S. dollar strengthened against the British pound by $0.42 (from $1.97 to $1.55). From September 30, 2009 to September 30, 2010, the British pound stabilized against the dollar. From September 30, 2010 through March 31, 2011, the pound strengthened slightly against the dollar by $0.04 (from $1.55 to $1.59). A strengthening of the U.S. dollar means we realize a lesser amount of U.S. dollar revenue on sales that were denominated in British pounds. In fiscal 2009, the strengthening of the U.S. dollar relative to the British pound resulted in a negative impact of approximately $22.1 million in net sales as compared to the exchange rate during fiscal 2008 and resulted in a decrease of approximately $2.9 million in our net income in fiscal 2009. As a result of the stabilization of the value of the British pound against the U.S.

57


Table of Contents


dollar during fiscal 2010 and the slight weakening of the U.S. dollar during the six months ended March 31, 2011, currency transactions did not have a material impact on our financial results during those periods. A hypothetical 5% increase in the value of the British pound relative to the U.S. dollar would have resulted in an increase in our net income of approximately $0.3 million and $0.2 million during fiscal 2010 and the six months ended March 31, 2011, respectively, attributable to our foreign currency transactions. A corresponding decrease would have resulted in a decrease in our net income of approximately $0.3 million and $0.2 million during fiscal 2010 and the six months ended March 31, 2011, respectively.

        We have historically entered into currency forward and option contracts to limit exposure to currency rate changes and will continue to monitor our transaction exposure to currency rate changes. Gains and losses on these contracts are deferred until the transaction being hedged is finalized. As of March 31, 2011, we had no outstanding currency forward and option contracts.

    Interest Rate Risk

        Our principal interest rate exposure relates to the new senior secured credit facilities, which bear interest at a variable rate. See "—Liquidity and Capital Resources—Senior Secured Credit Facilities New Senior Secured Credit Facilities." If there is a rise in interest rates, our debt service obligations on the borrowings under the new senior secured credit facilities would increase even though the amount borrowed remained the same, which would affect our results of operations, financial condition and liquidity. At our debt level and borrowing rates as of April 7, 2011, the closing date of the new senior secured credit facilities, annual cash interest expense, including fees under our new revolving facility, would have been approximately $24.4 million. If variable interest rates were to change by 1.0%, our interest expense would fluctuate approximately $6.2 million per year, without taking into account the effect of any hedging instruments or the minimum LIBOR requirement.

        We periodically enter into interest rate swap agreements to manage interest rate risk on our borrowing activities. Upon the maturity of our previous interest rate swap agreements, we entered into two interest rate swap agreements that expire in February and June 2012, respectively, which we refer to collectively as the Swaps. Each Swap converts the interest rate on approximately $200.0 million (notional amount) of our outstanding indebtedness from variable rates to a fixed interest rate. During the year ended September 30, 2010 and the six months ended March 31, 2011, we recorded a loss in the amount of approximately $2.6 million and a gain in the amount of $2.9 million, respectively, as a result of changes in fair value of derivative financial instruments. These gains and losses are recorded as a component of interest expense.

        We do not hold or issue derivative financial instruments for trading or speculative purposes.

58


Table of Contents


INDUSTRY OVERVIEW

        According to Stax, the global market for C class aerospace parts, which includes hardware, bearings, electronic components and machined parts for both commercial and military customers, was approximately $6.1 billion in 2009. This market is generally segmented by end customer or sales channel. On a customer basis, OEMs and their subcontractors, which we refer to collectively as the OEM market, accounted for approximately $4.1 billion of sales and the remaining approximately $2.0 billion of sales was made to airlines and aftermarket MRO providers. On a sales channel basis, approximately $3.9 billion of all C class aerospace parts flow through distributors and approximately $2.0 billion of sales are made directly to end customers. The following charts provide additional information on the breakdown of the C class aerospace parts market as of 2009.

GRAPHIC


Source: Stax.

We believe that the key trends and drivers of growth in the aerospace parts distribution market include:

    Increased Demand for New Aircraft Production

        The OEM market for C class aerospace parts in 2009 was approximately $4.1 billion according to Stax, with approximately $2.5 billion of this total relating to sales of commercial aircraft and business jets. According to Airline Monitor, the global commercial aircraft fleet has grown approximately 4.5% per year over the last 20 years, exceeding global GDP growth of 3% per year over the same period. RPMs, a key measure of airline passenger volumes, grew approximately 5.5% in 2010 and are expected to grow at 5.9% annually, on average, from 2010 to 2020, due to the economic recovery in developed economies, continued growth in emerging markets, particularly in the Asia-Pacific region, and the secular trend towards increased air travel globally. Increased passenger traffic volumes and the return to profitability of the global airline industry have renewed demand for commercial aircraft, particularly for more fuel efficient models such as the Boeing 787 and Airbus A350. According to Airline Monitor, annual deliveries of the Boeing 787 are projected to increase from 20 in 2011 to over 100 by 2014, and Airbus expects A350 deliveries to commence in 2013. Airline Monitor forecasts that overall commercial aircraft deliveries will grow at a CAGR of 4.5% over the next ten years. It further estimates that there were approximately 8,100 planes in the commercial aircraft order backlog as of December 31, 2010, which represents over five years of projected commercial aircraft deliveries. According to the General Aviation Manufacturers Association, business jet deliveries, which are generally correlated with market indicators, including the earnings and price performance of the S&P 500, suffered a 23% decline on average from 2008 to 2010. According to the FAA, however, business jet activity increased by over 11% in 2010. We also expect commercial aircraft production to be supplemented by increases in business and regional jet deliveries.

        According to Stax, the market for military C class aerospace parts was approximately $1.6 billion in 2009. Future military aerospace OEM demand is expected to be driven by increases in the production

59


Table of Contents


of the Lockheed Martin JSF. The JSF is a next-generation fighter that is designed for the U.S. Navy, Marines and Air Force, along with key U.S. allies such as the United Kingdom, Italy and The Netherlands. According to Forecast International, production of the JSF is expected to increase from 20 in 2011 to 98 by 2016.

    Increased Demand from the MRO Market

        According to Stax, the combined commercial and military MRO market represented approximately $2.0 billion of the total C class aerospace parts market in 2009. We expect commercial MRO providers to benefit from the same trends as those impacting the commercial OEM market, including increased RPMs, which will in turn drive growth in the commercial fleet and greater utilization of existing aircraft. According to Boeing, RPM growth is forecasted to be particularly strong in the Asia Pacific and Middle East regions, with annual growth projected to be 7.6% in China, 7.4% in South Asia, including India, and 7.1% in the Middle East from 2010 to 2019. The commercial MRO market may also benefit from directives or notifications announced by international industry regulators and trade associations. Such directives or notifications can serve to bolster required maintenance, and thus the demand for new and existing C class aerospace parts. We expect demand in the military MRO market to be driven by requirements to maintain aging military fleets, changes in the overall fleet size and the level of U.S. military activity overseas.

    Industry Consolidation

        We are one of the top two aerospace distribution companies by sales and, together with our largest competitor, accounted for approximately $1.4 billion, or 23%, of the approximately $6.1 billion C class aerospace parts market in 2009, of which approximately $612.7 million, or 10%, was attributable to us. The remainder of the market is highly fragmented, which creates significant opportunities for further consolidation. Several benefits typically accrue to distributors through consolidation, including efficiencies in leveraging costs over a larger revenue base, increased customer penetration facilitated by a larger product offering and a reduction in purchasing costs driven by larger volume-based discounts. We expect these benefits to support further consolidation in the industry.

    Globalization

        The manufacture of aircraft and aircraft structures is becoming more globalized, as nations such as China, India and the UAE invest heavily to develop their aerospace industries. In addition, many U.S. and European OEMs continue to expand their operations in international markets in order to benefit from labor cost savings as local businesses seek to partner with established global companies. These OEMs and subcontractors expect to receive the same quality parts and services in new markets that they receive in their home markets. We believe that these quality and service expectations and the overall growth rates in international aerospace markets present significant opportunities for supply chain managers such as Wesco.

60


Table of Contents


BUSINESS

Company Overview

        We are one of the world's largest distributors and providers of comprehensive supply chain management services to the global aerospace industry on an annual sales basis. Our services range from traditional distribution to the management of supplier relationships, quality assurance, kitting, JIT delivery and point-of-use inventory management. We supply approximately 450,000 different SKUs, including hardware, bearings, tools and more recently, electronic components and machined parts. In fiscal 2010, sales of hardware represented 80% of our net sales, with highly engineered fasteners constituting 83% of that amount. We serve our customers under three types of arrangements: JIT contracts, which govern comprehensive outsourced supply chain management services; LTAs, which set prices for specific parts; and ad hoc sales. JIT contracts and LTAs, which together comprised approximately 63% of our fiscal 2010 net sales, are multi-year arrangements that provide us with significant visibility into our future sales.

        Founded in 1953 by the father of our current CEO, Wesco has grown to serve over 7,200 customers in the commercial, military and general aviation sectors, including the leading OEMs and their subcontractors, through which we support nearly all major Western aircraft programs. We have grown our net sales at a 16% CAGR over the past 10 years to $656.0 million in fiscal 2010. We serve a large and growing global market, and believe that with more than 1,000 employees across 28 locations in 10 countries, we are well positioned to continue our track record of strong long-term growth and profitability. The following charts illustrate the composition of our 2010 net sales based on our sales data or management estimates.

GRAPHIC

        We have invested in building an integrated, highly customized IT system that enables our purchasing and sales organization to make more informed decisions and our inventory management system to operate at maximum efficiency. Specifically, our customized IT system provides us visibility into inventory quantities, stocking locations and purchases across our customer base by individual SKU, enabling us to accurately fill approximately 8,000 orders per day and provide an exceptional level of customer service. The scalable nature of our IT system helps us improve productivity and financial performance as sales volume increases. We believe our customized IT system is a key competitive advantage and critical element in our unique business model that creates significant value for our customers and our suppliers.

        We believe that our success has been driven by our focus on customer service and our ability to offer tailored solutions to our customers. We believe customers that utilize our comprehensive JIT supply chain management services are frequently able to realize significant benefits including:

61


Table of Contents

        Our customers also benefit from the strong relationships we maintain with a diverse group of over 1,100 suppliers. We believe these suppliers in turn derive several benefits from our scale, global reach and unique business model, including:

We believe we are well positioned to continue our track record of strong growth by partnering with our suppliers to provide a compelling combination of value-added services to our customers.

Competitive Strengths

        We believe that our key competitive strengths include the following:

        Leader in Attractive Global Market.     We are one of the world's largest distributors and providers of comprehensive supply chain management services to the global aerospace industry on an annual sales basis. We believe we offer the world's broadest inventory of aerospace parts comprised of approximately 450,000 SKUs. In addition, we fill approximately 8,000 orders per work day and manage approximately 350,000 stocking bins throughout our customers' facilities. Stax estimates the market for the C class aerospace parts we offer at approximately $6.1 billion on an annual basis, and we expect that it will continue to grow, driven by a broad-based recovery in the delivery of new aircraft. This market is fragmented, and we estimate that we and our top competitor together account for approximately 23% of the market, with the balance served by smaller regional or local distributors, or directly by the parts manufacturers. We believe that the scale of our global distribution network, our value-added services and the depth, breadth and dollar investment in our inventory provide us with a significant competitive advantage in an attractive market.

        Compelling Value Proposition.     We offer a compelling value proposition to our customers by combining access to what we believe to be the world's broadest inventory of aerospace parts with our unique capabilities in comprehensive supply chain management. Our services can significantly improve on-time-delivery performance, enabling our customers to reduce their inventory while at the same time decreasing the frequency of production interruptions caused by part shortages. Due to the high levels of precision and engineering standards in the aerospace industry, our customers must ensure the highest levels of quality assurance. Many of our customers have chosen to outsource these critical quality assurance functions to us, relying on our rigorous inspection processes. Aerospace companies that do not outsource to a supply chain manager like Wesco can incur significant additional overhead and administrative costs relating to internal procurement, quality assurance, inventory stocking and other related personnel.

        Diverse Customer and Program Base.     We maintain strong relationships with over 7,200 active customers including major OEMs such as Airbus, Boeing, Bombardier, Embraer, Cessna, Gulfstream, BAE Systems, Bell Helicopter, Lockheed Martin, Northrop Grumman and Raytheon. We supply

62


Table of Contents

products to nearly every major Western aircraft in production, including the B-787, B-737, B-747, A-320, JSF and V-22. During fiscal 2010, no single customer or aircraft program represented more than 15% of our net sales. We have actively worked to transition our largest customers from ad hoc purchases to multi-year LTAs or comprehensive JIT supply chain management agreements, the latter two of which together represented approximately 63% of our fiscal 2010 net sales. By developing strong, long-term relationships with a diverse set of customers, we have significant visibility into our future sales.

        Superior Purchasing Capabilities and Supplier Relationships.     Our management is highly skilled in analyzing supply, demand, cost and pricing factors in order to make optimal inventory investment decisions, and we maintain close relationships with the leading suppliers in the industry. In particular, Precision Castparts and Alcoa Fastening Systems supplied approximately 22% and 20%, respectively, of the products we purchased during fiscal 2010. Our top 10 suppliers have been doing business with us for an average of more than 10 years. We believe that our business model allows our suppliers to smooth out production, improve their cash flow and reduce administrative cost. As a result of our scale and the strength of our relationships, many of our suppliers offer us attractive volume-based price discounts. Our success in making optimal inventory purchasing decisions is driven by our management's deep understanding of our industry and their skill in analyzing fundamental supply, demand, cost and pricing data. These decisions are facilitated by our highly customized IT system. Our superior inventory purchasing capabilities and the strength of our supplier relationships have contributed substantially to what we believe are our industry-leading operating margins.

        Experienced Management Team with Significant Equity Ownership.     Our management team has extensive industry experience and company tenure. Our Chief Executive Officer and other executive officers have an average of more than 20 years of experience with us and more than 30 years in our industry. In addition, our executive officers will own approximately        % of the common stock of the Company following this offering. We believe that this significant equity ownership aligns the interests of our executive officers with our stockholders.

Our Strategy for Continued Growth

        We intend to pursue the following strategies in order to continue to grow our business:

        Continued Focus on Operational Excellence.     We have built strong relationships with our existing customers and suppliers through a relentless focus on operational excellence and improvement. We intend to continue providing our customers with best-in-class on-time delivery performance and quality assurance. We also intend to continue investing in our integrated, highly customized IT system and process automation technology. We believe that by focusing on operational excellence, we will be able to maintain high customer satisfaction and industry-leading operating margins.

        Win New Business from Existing Customers.     We will continue our strategy of expanding our relationships with existing customers by transitioning them to our comprehensive JIT supply chain management services as well as expanding our programs to include additional customer sites and SKUs. We are a key partner supplying fasteners and other C class parts to support the launch of new aircraft programs, such as the Boeing 787 and Lockheed Martin JSF. We will continue to support our customers in the launch of new aircraft programs by introducing new supply chain solutions that minimize costs, improve productivity, lower inventory investment and ensure a seamless supply of parts for new production and aftermarket support.

        Expand Customer Base.     We believe that our services and capabilities are attractive to potential new customers and plan to expand our customer base. We have had significant success in winning business when competing distributors have been unable to meet customer service level requirements and in situations where customers have outsourced work that was previously performed internally.

63


Table of Contents


Historically, we have focused our activities on the major OEMs and their subcontractors and less on airlines and airline maintenance organizations due to their tendency to order parts in smaller quantities with greater frequency, which makes them more costly to serve. We are in the process of adding a significant number of SKUs to an airline industry automated quoting system that we believe will provide us with a cost-effective way to penetrate this commercial MRO market that Stax estimates is approximately $900 million in size.

        Further Expand into International Markets.     We have recently established a presence in international locations such as China, India and Saudi Arabia, and we intend to expand into other high growth regions such as Mexico to support new and existing customers. Our international expansion efforts will enable us to better reach new customers and more effectively serve our existing customer base as the manufacture of aircraft and aircraft structures continues to become more globalized. We believe that we mitigate many of the risks associated with international expansion by entering into customer contracts before we establish a new stocking facility. Our international expansion efforts will enable us to better reach new customers and more effectively serve our existing customer base as the manufacture of aircraft and aircraft structures continues to become more globalized.

        Selectively Pursue Strategic Acquisitions.     Our industry is highly fragmented and we believe that there are opportunities for continued consolidation. In 2008, we acquired Airtechnics, which enabled us to expand our product offering to include electronic components, as well as gain additional customers. We believe that we are well positioned to expand our product offering and geographical footprint through strategic acquisitions. Consistent with this strategy, we continue to evaluate potential acquisition opportunities.

Our Products and Services

        We offer more than 450,000 different SKUs, consisting of C class aerospace hardware, bearings, electronic components and machined parts, which are generally priced below $350 per part. Stax estimates that C class parts typically contribute approximately 3.0% of the total cost of a large commercial aircraft. Many of the products we sell are highly engineered, precision parts that are specified for use in particular aircraft programs.

64


Table of Contents

        Our product categories include the following:

 
 
   
   
  Hardware
   
  Bearings
   
  Electronic
Components

   
  Machined Parts
and Other

   

  

  % of Total Market for C Class Aerospace Parts*       45%       26%       17%       12%    

  

  Wesco Fiscal 2010 Net Product Sales (in millions)       $527       $42       $70       $17    

  

  % of Wesco Fiscal 2010 Net Product Sales       80%       7%       11%       2%    

  

  Types of Products Offered      

•        Blind fasteners

•        Panel fasteners

•        Bolts and screws

•        Clamps

•        Hi lok pins and collars

•        Hose assemblies

•        Hydraulic fittings

•        Inserts

•        Lockbolts and collars

•        Nuts

•        Rivets

•        Springs

•        Valves

•        Washers

     

•        Airframe control bearings

•        Rod ends

•        Spherical bearings

•        Ball bearing rod ends

•        Roller bearings

•        Bushings
  
  
  
  
  
  
    

     

•        Connectors

•        Relays

•        Switches

•        Circuit breakers

•        Lighted products
  
  
  
  
  
  
    

     

•        Brackets

•        Milled parts

•        Shims

•        Stampings

•        Turned parts

•        Welded assemblies

•        Installation tooling
 
 
 
 
 
 
    

   

*    Source: Stax.

                                   

        Sales of C class aerospace hardware represented approximately 80% of our fiscal 2010 product sales. Fasteners are our largest product category, comprising approximately 83% of our hardware sales in fiscal 2010. Fasteners include a wide range of highly engineered aerospace parts that are designed to hold together two or more components, such as rivets (both blind and solid), bolts (including blind bolts), screws, nuts and washers. Many of these fasteners are designed for use in specific aircraft platforms and others can be used across multiple platforms. Materials used in the manufacture of these fasteners range from standard alloys, such as aluminum, steel or stainless steel, to more advanced materials, such as titanium, Inconel and Waspalloy.

        We began to offer aerospace bearings after acquiring the bearing distribution business of Kaman Industrial Technologies in 1999, which enabled us to support new customers and expand our product offering. Our product offering includes a variety of standard anti-friction products designed to both commercial and military aircraft specifications, such as airframe control bearings, rod ends, spherical bearings, ball bearing rod ends, roller bearings and bushings.

        In 2008, we acquired Wichita, Kansas-based Airtechnics, one of the largest distributors of aerospace electronic components in North America, which helped expand our product offering to our customer base. We offer highly reliable interconnect and electro-mechanical products, including connectors, relays, switches, circuit breakers and lighted products. We also offer value-added assembled products including mil-circular and rack and panel connectors and illuminated push button switches. We maintain large quantities of connector components in inventory, which allows us to respond quickly to customer orders. In addition, our lighted switch assembly operation affords customers same day service, including engraving capabilities in multiple languages.

65


Table of Contents

        Machined parts are designed for a specific customer and are assigned unique OEM-specific SKUs. The machined parts we distribute include laser cut or stamped brackets, milled parts, shims, stampings, turned parts and welded assemblies made of materials ranging from high-grade steel or titanium to nickel based alloys.

        We stock a full range of tools needed for the installation of our products, including air and hydraulic tools as well as drill motors, and we also offer factory authorized maintenance and repair services for these tools. In addition to selling these tools, we also rent or lease these tools to our customers.

        In addition to our traditional distribution services, we have developed innovative value-added services, such as quality assurance, kitting and JIT supply chain management for our customers.

        Our quality assurance, or QA, function is a key component of our service offering, with approximately 10% of our employees dedicated to this area. We believe we offer an industry-leading QA function as a result of our rigorous processes, sophisticated testing equipment and dedicated QA staff, and as evidenced by a comparison of our customers' aggregate rejection rate of the products we deliver, which was approximately 0.3% during fiscal 2010, to our rejection rate of the products we receive from our suppliers, which was approximately 3.2% during fiscal 2010.

        Our QA department inspects the inventory we purchase to ensure the accuracy and completeness of documentation. We also maintain an electronic copy of the relevant certifications for the inventory, which can include a manufacturer certificate of conformance, test reports, process certifications, material distributor certifications and raw material mill certifications. In addition, dimensional inspections are performed on all lots from suppliers that are not certified by our QA department, and all lots for our JIT customers undergo dimensional, and in some cases, structural inspections. For many of our customers, these inspections are conducted at our in-house laboratory, where we operate sophisticated testing equipment. Our industry-leading QA capabilities also allow our JIT customers to reduce the number of personnel dedicated to the QA function and reduce the delays caused by the rejection of improperly inspected parts.

        Kitting involves the packaging of an entire bill of materials or a complete "ship-set" of parts, which reduces the amount of time workers spend retrieving parts from storage locations. Kits can be customized in varying configurations and sizes and can contain up to several hundred different parts. All of our kits and components contain fully certified and traceable parts and are assembled by our full-service kitting department at our central stocking locations, or CSLs, or at our customer sites.

        JIT supply chain management involves the delivery of parts on an as-needed basis to the point-of-use at a customer's manufacturing line. JIT programs are designed to prevent excess inventory build-up and shortages and improve manufacturing efficiency. Each JIT contract requires us to maintain an efficient inventory tracking, analysis and replenishment program and is designed to provide high levels of stock availability and on-time delivery. We began offering JIT supply chain management services in 1993 as some OEMs began outsourcing certain support functions in an effort to cut costs at a time when defense spending was declining and the commercial aerospace industry was entering a

66


Table of Contents

cyclical downturn. Since that time, the popularity of our JIT programs has grown and we now support over 125 customer locations, including approximately 350,000 bins serviced worldwide. During fiscal 2010, our on-time delivery rate for JIT customers was over 99%. We believe customers that utilize our comprehensive JIT supply chain management services are frequently able to realize significant benefits including:

        Before signing a JIT contract, our customers typically experience outages of many SKUs and, in some cases, have up to a year's worth of inventory on hand. As part of our JIT programs, we generally assume the customer's existing inventory at the onset of the contract, immediately reducing their inventory on-hand and the associated management costs. Customer inventory is generally assumed on a consignment basis and is entered in our database in a distinct customer-specific "virtual warehouse." Software protocol in our IT system requires the system to first "look" to a customer's consigned inventory when parts replenishment is required. In many cases, we can sell this consigned inventory to our base of 7,200 active customers around the world, gradually drawing down the customer's inventory. As the consigned inventory for each SKU is exhausted, our stock of Wesco-sourced product is then used for replenishment. Due to the reliable nature of our services, our customers typically carry approximately 45 days worth of inventory in point-of-use bins instead of months or years worth of such products.

        Another key strength of our JIT program is our ability to utilize highly scalable and customizable point-of-use systems to develop an efficient supply chain management system and automated replenishment solution for any number of SKUs. In order to minimize inventory on hand, certain indicators are used to trigger the replenishment of product from a supplying location to the location of consumption. Our "Twin-Bin" system is an example of such an indicator. A JIT program designed around a Twin-Bin system utilizes a specially manufactured unit composed of two bins stacked on top of one another. In this system, a clear plastic bag, typically containing a 30-day supply of parts, is loaded in each bin. Production workers use all of the parts within the bottom bin before drawing a pullout slide between the two bins that drops the full plastic bag of parts from the top bin into the bottom bin. An empty top bin indicates the need to initiate replenishment of the parts and provides a clear visual management process on the manufacturing floor. All replenishment activity is done via hand-held scanners that transmit orders to our stocking locations.

Customer Contracts

        We sell parts to our customers under three types of arrangements: JIT supply chain management contracts, LTAs and ad hoc sales.

        JIT contracts are typically three to five years in length and are structured to supply the parts requirement for specific SKUs, production lines or facilities. Given our direct involvement with JIT customers, volume requirements and purchasing frequency under these contracts is highly predictable. Under JIT contracts, customers commit to purchase specified parts from us at a fixed

67


Table of Contents

price, on an if-and-when needed basis, and we are responsible for maintaining high levels of stock availability of those parts. JIT contracts typically contain termination for convenience provisions, which generally allow our customers to terminate their contracts on short notice without meaningful penalties, provided that we are reimbursed for the cost of any inventory specifically procured for the customer. JIT customers also often purchase parts from us that are not captured under their contracts on an ad hoc basis. Approximately 31% of our net sales during fiscal 2010 were generated from JIT contracts.

        Like JIT contracts, LTAs also typically run for three to five years. LTAs are essentially negotiated price lists for customers or individual customer sites that cover a range of pre-determined parts, purchased on an as-needed basis. The negotiated prices are typically tiered based on order size. LTAs generally obligate the customer to buy contracted SKUs from us and may obligate us to maintain stock availability for those parts. Once an LTA is in place, the customer is then able to place individual purchase orders with us for any of the contractually specified parts. LTAs typically contain termination for convenience provisions, which generally allow for our customers to terminate their contracts on short notice without meaningful penalties, provided that we are reimbursed for the cost of any inventory specifically procured for the customer. LTA customers also frequently purchase parts from us that are not captured under the pricing arrangement on an ad hoc basis. Approximately 32% of our net sales during fiscal 2010 were derived from our LTAs.

        Ad hoc customers purchase parts from us on an as-needed basis and are generally supplied out of our existing inventory. Typically, ad hoc orders are for smaller quantities of parts than those ordered under either JIT contracts or LTAs, and are often urgent in nature. Given our breadth and volume of inventory, it is not uncommon for our competitors to purchase parts from us on an ad hoc basis. In an environment of increasing aircraft production, parts shortages can become increasingly common for OEMs, subcontractors, MROs and distributors with less sophisticated forecasting abilities and procurement organizations. Approximately 37% of our net sales during fiscal 2010 were generated from ad hoc sales.

        Under each of the sales arrangements described above we typically warrant that the products we sell conform to the drawings and specifications that are in effect at the time of delivery in the applicable contract, and that we will replace defective or non-conforming products for a period of time that varies from contract to contract. The product manufacturer, in turn, typically indemnifies us for liabilities resulting from defective or non-conforming products. We do not accrue for warranty expenses as our claims related to defective and non-conforming products have been nominal to date.

        We believe that backlog is not a relevant measure of our business, given the long-term nature of our JIT contracts and LTAs with our customers.

Customers

        We sell to over 7,200 active customers worldwide. Boeing was our largest customer during fiscal 2010 and accounted for approximately 15% of our net sales. No other customer accounted for more than 10% of our net sales during fiscal 2010, and only three customers accounted for over 5% of our net sales during the same period, with each consisting of multiple independent programs. Our top 10 customers collectively accounted for 48% of our net sales during fiscal 2010.

        Approximately 87% of our fiscal 2010 net sales were derived from major OEMs, such as Airbus, Boeing, Bombardier, Embraer, Cessna, Gulfstream, BAE Systems, Bell Helicopter, Lockheed Martin, Northrop Grumman and Raytheon, and certain of their subcontractors. Government sales comprised roughly 5% of our net sales during fiscal 2010 and were derived from various military parts

68


Table of Contents


procurement agencies such as the U.S. Defense Logistics Agency, or from defense contractors buying on their behalf. Aftermarket sales to airline-affiliated or independent MROs made up roughly 2% of our fiscal 2010 net sales. Airlines and airline maintenance organizations traditionally order parts in smaller quantities with greater frequency, making them more costly to serve. However, we are in the process adding a significant number of products to an airline industry automated quoting system that we believe will provide us with a cost-effective way to penetrate this commercial MRO market. We are currently targeting international airlines and aircraft maintenance centers that are assuming an expanded role within the MRO market. The balance of our net sales are to other distributors.

        We estimate that during fiscal 2010, approximately 53% of our net sales were derived from customers supporting military programs and approximately 47% of our net sales were derived from customers supporting commercial programs. Our customers are principally located in the United States, comprising approximately 74% of our net sales during fiscal 2010. We also service international customers in markets that include Canada, the United Kingdom, Italy, France, Germany, China, South Korea and Australia.

Suppliers

        We source our inventory from over 1,100 suppliers, including Precision Castparts, Alcoa Fastening Systems, Amphenol Corporation, Lisi Aerospace and Monogram Aerospace Fasteners. During fiscal 2010, we purchased approximately 42% of our inventory from Precision Castparts and Alcoa Fastening Systems. Suppliers typically prefer to deal with a relatively small number of large and sophisticated distributors in order to improve machine utilization, reduce finished goods inventory and maintain pricing discipline. As a result of the scale of our operations and our long-standing relationships with many of our suppliers, we are often able to take advantage of significant volume-based discounts when purchasing inventory. Given our industry position, financial strength and philosophy of cooperation with suppliers, we believe we are in an excellent position to become a distributor for new product lines as they become available.

Procurement

        We consider our procurement expertise to be one of our principal competitive advantages. Our management is highly skilled in analyzing supply, demand, cost and pricing factors to make optimal inventory investment decisions and we maintain close relationships with the leading suppliers in the industry. In particular, Precision Castparts and Alcoa Fastening Systems supplied approximately 22% and 20%, respectively, of the products we purchased during fiscal 2010. Our strong understanding of the global aerospace industry is derived from our long-term relationships with major OEMs, subcontractors and suppliers. In addition, our direct insight into our customers' production rates often allows us to detect industry trends. Furthermore, our ability to forecast demand and place purchase orders with our suppliers well in advance of our customer requirements provides us with a distinct advantage in an industry where inventory availability is critical for customers that need specific parts within a stipulated timeframe to meet their own production and delivery commitments.

        We have created a structured procurement process that focuses on return on invested capital, or ROIC, and minimization of excess inventory, which helps us maintain what we believe are our industry-leading operating margins and parts availability. Prior to placing a purchase order, members of our supply chain organization analyze a "buy requisition," which is generated by our IT system. Buy requisitions provide several key pieces of information, including the amount of that SKU currently on-hand, a listing of all active customers that use the specific SKU, the quantities and rates at which the part has been consumed by these customers in the past, tiered pricing for various quantities at which the supplier offers price breaks and recent selling prices of various order sizes. Using the information obtained from the buy requisition, a Wesco employee then conducts an ROIC analysis to determine the expected payback period and margin on the specified inventory investment before

69


Table of Contents


making the final procurement decision. This calculated approach to inventory investment, combined with our unique market insight, has enabled us to generate and sustain industry-leading operating margins.

Operations

        We have developed a highly structured system in order to manage the receipt, processing and shipment of inventory. This system is based on an efficient warehouse layout, automated machinery, our customized IT system and hand-held scanners. The typical process that each lot of inventory undergoes is outlined below.

GRAPHIC

        Our warehouse operations are divided between CSLs and forward stocking locations, or FSLs. Our primary CSL is located at our global headquarters in Valencia, California. We also operate a CSL in Wichita, Kansas, which primarily serves our global EPG business, and a CSL in Clayton West, U.K., which primarily serves Europe, India and the Middle East. Our CSLs serve as the primary supply warehouses for most of our net sales and also house our procurement, customer service, document control, IT, material support and quality assurance functions. Our CSLs are supported by sales offices throughout the U.S., Canada, Germany, France, Italy and China.

        Complementing our CSLs and sales offices are FSLs. An FSL is a specialized stocking point for one or more JIT contracts located within a geographic region. FSLs are typically located either nearby or within a customer facility and are established to support large contracts. In certain instances, FSLs initially established to service a single customer are expanded to service other regional customers.

        All inventory enters our warehouses through a common receiving area. When shipments are received, each package is opened and the documentation is examined. If the documentation is missing or deficient, the shipment is either returned to the supplier or set aside in a designated holding area until accurate documentation is received. If the documentation is acceptable, a Wesco employee inputs the relevant information into our inventory management system, including the SKU, lot number, receipt date, quantity and unit cost.

        After a shipment has gone through receiving, it is then processed by the QA department. This department inspects the inventory we purchase to ensure the accuracy and completeness of documentation. We also maintain an electronic copy of the relevant certifications for the inventory, which can include a manufacturer certificate of conformance, test reports, process certifications, material distributor certifications and raw material mill certifications. In addition, dimensional inspections are performed on all lots from suppliers that are not certified by our QA department, and

70


Table of Contents

all lots for our JIT customers undergo dimensional, and in some cases, structural inspections. For many of our customers, these inspections are conducted at our in-house laboratory, where we operate sophisticated testing equipment.

        Inventory that passes the quality assurance inspection is placed on a conveyor to a staging area, where warehouse employees assign stocking locations to the parts. Upon arrival at the designated stocking location, an employee scans the bar code affixed to the lot of inventory and the bar code corresponding to the specific shelf location where the lot is to be placed. This stocking information is then transmitted wirelessly to our inventory management system.

        When we receive a purchase order from a customer, a notification is sent to the warehouse, where an employee uses a picker truck to retrieve the required part from its stocking location. Each picker truck is equipped with scales used to count the requested number of parts. Each different part type is then placed in a clear plastic bag and sealed. Labels are then generated using hand-held equipment and placed on the bags, and any required documentation is printed and placed along with the bags into color coded crates (crates are color coded based on order urgency so warehouse staff can effectively prioritize shipping requirements). The crates then travel on a conveyer system to the shipping area.

        Upon arriving in the shipping area, parts bags and related documentation are placed into boxes and sealed. The shipping clerk enters the order into a third-party shipping system, generating a label based on the shipping requirements for that customer (e.g., FedEx, UPS, DHL, etc.). Once processed, the system uploads tracking numbers and freight costs, if applicable, and can send an automatic notification to a customer that their order has shipped, or automatically send documentation via e-mail to a freight forwarder to prepare shipments for export. A variety of shipping options are available (same day, overnight, etc.) depending on customer requirements. The picking and shipping processes are organized such that, if necessary, we are able to ship product on the same day a purchase order is received in order to satisfy urgent customer requirements.

71


Table of Contents

Properties

        Our global headquarters is located at 27727 Avenue Scott, Valencia, California 91355. As of March 31, 2011, we have a total of 28 administrative, sales and/or stocking facilities located in 10 countries, all of which are either leased or located at a customer site. The following table sets forth certain information regarding these facilities:

Region
  Location   Purpose   Facility Size (Sq. Feet)

North America

  Valencia, CA (Wesco headquarters)   Sales, CSL and Administrative   150,428

  Wichita, KS (EPG headquarters)   Sales, CSL and Administrative   67,500

  Auburn, WA   Sales and FSL   9,370

  Charleston, SC   FSL   22,159

  Charleston, SC   FSL*   <500

  Fort Worth, TX   Sales and FSL   40,000

  Glen Cove, NY   Sales   3,700

  Holbrook, NY   Sales   1,050

  Indianapolis, IN   FSL   10,800

  Mesa, AZ   Sales   3,648

  Nashville, TN   FSL*   7,200

  Orlando, FL   Sales   4,636

  West Chester, PA   FSL   3,227

  St. Louis, MO   FSL   10,750

  Mississauga, Ontario   Sales   2,164

  Lachine, Quebec   Sales and FSL   31,037

Rest of the World

  Clayton West, UK   Sales, CSL and Administrative   36,577

  Filton, UK   FSL*   2,200

  Bremen, Germany   Sales   2,508

  Blagnac, France   Sales and FSL   4,746

  Marcon, Italy   Sales   1,865

  Grottaglie, Italy   FSL*   10,500

  Tessera, Italy   FSL*   1,076

  Holon, Israel   FSL   5,381

  Busan, South Korea   FSL*   <500

  Shanghai, China   Sales   1,222

  Xi'An, China   FSL*   1,500

  Ta'if, Saudi Arabia   FSL*   1,264

*
Located at customer site.

Information Technology System

        Our scalable IT infrastructure is based on IBM servers and the Oracle JD Edwards EnterpriseOne, or JDE, ERP system. Our IT system provides a powerful, highly distributed computing environment that enables us to quickly scale on demand as business dictates. We also employ virtualization technology to increase system availability, reduce hardware and maintenance costs and respond efficiently to market dynamics. Our entire data services infrastructure runs 24/7 and is protected by network security technologies, an uninterrupted power supply and a backup diesel generator. Remote access to our systems is provided via separate, high speed connections. Our IT infrastructure supports our business critical applications, such as JDE, TRA/X Shipping, AIMS Warehouse Management, or AIMS, and Electronic Data Interchange, or EDI.

72


Table of Contents

        At the core of our IT system is our JDE ERP system. JDE covers the full lifecycle of our distribution process, including procurement, planning, supply chain management, sales and accounting. JDE is fully capable of interfacing to external business systems and we have developed additional functionality within JDE for JIT delivery and direct line feed of the products we sell. This functionality includes recognition of signals and actions to fill customer bins from hand-held scanners, min/max data or proprietary signals from a customer's ERP system. JDE also supports our EDI functionality, which allows our system to interface with customers and suppliers, regardless of technology, data format or connectivity.

        For our shipping logistics and export compliance support, we employ Precision Software's TRA/X. TRA/X enables us to ship globally while maintaining tracking numbers and rating information for each customer shipment. In addition, at several of our distribution facilities, we use Minerva's AIMS inventory management system in order to provide the best possible warehouse flow and cycle times. AIMS is tailored to fit our global warehouse operational needs and allows us to provide an expandable warehouse management system that can also incorporate transaction processing, work-in-progress and other manufacturing operations. AIMS interfaces with a broad range of material handling equipment, including horizontal and vertical carousels, conveyors, sorting equipment, pick systems and cranes.

Competition

        The industry in which we operate is highly competitive and fragmented. We believe the principal competitive factors in our industry include the ability to provide superior customer service and support, on-time delivery, sufficient inventory availability, competitive pricing and an effective quality assurance program. Our competitors include both U.S. and foreign companies, including divisions of larger companies, some of which have significantly greater financial resources than we do, and therefore may be able to adapt more quickly to changes in customer requirements than we can. We estimate that Wesco and BE Aerospace together comprised approximately 23% of the $6.1 billion global market for C class aerospace parts during 2009, of which approximately $612.7 million, or 10%, was attributable to us. Our next largest competitors include the Pentacon business of Anixter International and the Pattonair business of Umeco.

        In addition to facing competition for JIT customers from our primary competitors, JIT customers or potential JIT customers may also determine that it is more cost effective to establish or re-establish an in-house supply chain management system. Under these circumstances, we may be unable to sufficiently reduce our costs in order to provide competitive pricing while also maintaining acceptable operating margins.

Sales and Marketing

        As of March 31, 2011, we employed 226 sales personnel with an average of over 8 years of experience at Wesco. Our sales professionals as of that date were located in the following regions: 167 in the U.S., 45 in Europe and 14 in Canada. Our marketing efforts are continuing to expand into emerging markets, including a recent office opening in India. We believe that maintaining both inside and outside sales representatives who are extremely facile in the technical details of the products we sell provides a substantial competitive advantage over our smaller competitors. As of March 31, 2011, we had 207 inside sales representatives who provide access to our entire inventory, as well as technical expertise on the products we sell. In addition, as of March 31, 2011, we also had 19 OSRs worldwide who provide support at certain of our customer sites. The support provided by these OSRs includes making recommendations for the products best suited for specific applications, providing technical assistance with drilling and the installation of fasteners and troubleshooting issues relating to installation tooling. Our OSRs' hands-on expertise and access to the customer site allows them a unique opportunity to market additional products to our customers.

73


Table of Contents

Employees

        As of March 31, 2011, we employed 1,021 personnel worldwide, 102 of which were located at customer sites. We have 238 employees located outside of North America. We are not a party to any collective bargaining agreements with our employees.

Regulatory Matters

        Governmental agencies throughout the world, including the FAA in the United States, prescribe standards for aircraft components, including virtually all commercial airline and general aviation products, as well as regulations regarding the repair and overhaul of airframes and engines. Specific regulations vary from country to country, although compliance with FAA requirements generally satisfies regulatory requirements in other countries. In addition, the products we distribute must also be certified by aircraft and engine OEMs. If any of the material authorizations or approvals that allow us to supply products is revoked or suspended, then the sale of the related products would be prohibited by law, which would have an adverse effect on our business, financial condition and results of operations.

        From time to time, the FAA or equivalent regulatory agencies in other countries propose new regulations or changes to existing regulations, which are usually more stringent than existing regulations. If these proposed regulations are adopted and enacted, we could incur significant additional costs to achieve compliance, which could have a material adverse effect on our business, financial condition and results of operations.

        We are also subject to government rules and regulations that include the FCPA, ITAR and the False Claims Act. See "Risk Factors—We are subject to unique business risks as a result of supplying equipment and services to the U.S. Government" and "—Our international operations require us to comply with anti-corruption laws and regulations of the U.S. government and various international jurisdictions."

Environmental Matters

        Although we are subject to various environmental regulations, we are not aware of any environmental issues that would be likely to have a materially adverse impact upon our business or financial condition.

Legal Proceedings

        We are involved in various legal matters that arise in the normal course of our business. We believe that the ultimate outcome of such matters will not have a material adverse effect on our financial position, results of operations or cash flows. There can be no assurance, however, that such actions will not be material or adversely affect our business, financial position, and results of operations or cash flows.

74


Table of Contents


MANAGEMENT

Directors and Executive Officers

        The following table sets forth certain information regarding our executive officers and directors, as of the date of this prospectus:

Name
  Age   Position
  Randy J. Snyder     61   Chairman of the Board of Directors, President and Chief Executive Officer
  Hal Weinstein     57   Executive Vice President of Sales and Marketing
  Tommy Lee     63   Executive Vice President
  Gregory A. Hann     56   Executive Vice President and Chief Financial Officer
  Alex Murray     41   Vice President of Global Operations
  Dayne A. Baird     35   Director
  Peter J. Clare     46   Director
  Paul E. Fulchino     64   Director
  John P. Jumper     66   Director
  Adam J. Palmer     38   Director
  Robert D. Paulson     65   Director
  David L. Squier     65   Director

         Randy J. Snyder has served as our President and Chief Executive Officer since 1977 and has been the Chairman of the Board of Directors since 2006.

        Our board of directors has concluded that Mr. Snyder should serve on our board of directors based upon his intimate knowledge of our operations and his role in leading our transition from a small niche distributor to the largest C class aerospace component distributor in the world and an authorized stocking distributor for all major aerospace hardware manufacturers worldwide. Mr. Snyder is a director nominee designated by the Wesco Stockholders, pursuant to the terms of the Stockholders Agreement described under "Certain Relationships and Related Party Transactions—Amended and Restated Stockholders Agreement."

         Hal Weinstein joined Wesco in 1983 and has served as the head of sales and marketing for the Company since 1988. Mr. Weinstein oversees our worldwide sales and marketing operations and is responsible for global marketing strategy, inclusive of advertising and website development and maintenance. He previously served as our Regional Sales Manager from 1983 to 1988. Prior to joining Wesco, Mr. Weinstein served as Director of Sales for Asset Financing International, an equipment leasing company based in Ridgefield, Connecticut, from 1981 to 1983.

         Tommy Lee joined Wesco in 1984 and has served as our Executive Vice President in charge of all of our operations, with special emphasis on procurement and supplier relations, since 1990. He previously served as our Vice President of Sales from 1984 to 1990. Mr. Lee has been actively involved in sales and management in the aerospace industry since 1967. Prior to joining Wesco, Mr. Lee worked for a Lockheed Martin Corporation-owned company from 1967 to 1971 and was the National Sales Manager for a major fastener distributor from 1971 to 1984.

         Gregory A. Hann has served as our Executive Vice President and Chief Financial Officer since joining Wesco in 2009. Mr. Hann was previously the Chief Financial Officer of Transamerican Auto Parts, a privately held retailer and distributor of 4-wheel drive and off road vehicle parts, from 2007 to 2009, and the Chief Financial Officer of publicly traded Ducommun Incorporated, a manufacturer of aerospace structures, from 2006 to 2007. Mr. Hann is a certified public accountant.

75


Table of Contents

         Alex Murray joined Wesco in 2000 and has served as Vice President of Global Operations since 2010. He previously served as our Logistic Manager from 2000 to 2003, Director of Contract Business from 2003 to 2005, and EU Managing Director from 2005 to 2010. Prior to joining Wesco, Mr. Murray was employed by BAE Systems in various roles within the logistics, procurement, supply chain and quality organizations.

         Dayne A. Baird has been a member of our board of directors since 2010. Mr. Baird is a Vice President at Carlyle where he focuses on U.S. buyout opportunities in the aerospace, defense and government services sectors. Mr. Baird has been with Carlyle since 2003. Prior to joining Carlyle, Mr. Baird worked in the mergers and acquisitions and global industrial groups of Lehman Brothers from 2000 to 2003, where he focused on transactions in the industrial, aerospace and defense sectors. Mr. Baird currently serves on the board of directors of ARINC Incorporated.

        Our board of directors has concluded that Mr. Baird should serve as a director because in addition to his demonstrated leadership as a Vice President of Carlyle, he brings valuable insight to our board of directors about the global aerospace and defense industries. Mr. Baird is a director nominee designated by Carlyle pursuant to the terms of the Stockholders Agreement described under "Certain Relationships and Related Party Transactions—Amended and Restated Stockholders Agreement."

         Peter J. Clare has been a member of our board of directors since 2006. Mr. Clare is a Managing Director of Carlyle and has served as Co-head of the U.S. Buyout group since 2011. He previously served as the Deputy Head of the U.S. Buyout group and as the Head of the Global Aerospace and Defense sector team. Mr. Clare has been with Carlyle since 1992. He currently serves on the boards of directors of ARINC Incorporated, Booz Allen Hamilton Holding Corporation, CommScope, Inc. and Sequa Corporation and previously served on the board of directors of Aviall, Inc., Avio SpA, Landmark Aviation, United Defense and Vought Aircraft Industries, Inc.

        Our board of directors has concluded that Mr. Clare should serve as a director because in addition to his demonstrated leadership as a Managing Director of Carlyle and his extensive experience in private equity, he brings valuable insight to our board of directors about the global aerospace and defense industries. In addition, as a result of his current service as a director of ARINC Incorporated, Booz Allen Hamilton Holding Corporation, CommScope, Inc. and Sequa Corporation, Mr. Clare brings valuable knowledge to our board of directors about the operations, compensation programs and corporate governance of other companies. Mr. Clare is a director nominee designated by Carlyle pursuant to the terms of the Stockholders Agreement described under "Certain Relationships and Related Party Transactions—Amended and Restated Stockholders Agreement."

         Paul E. Fulchino has been a member of our board of directors since 2008. From 2000 until his retirement in 2010, Mr. Fulchino served as Chairman, President and Chief Executive Officer of Aviall, Inc., which became a wholly-owned subsidiary of The Boeing Company on September 20, 2006. Mr. Fulchino had previously served as President and Chief Operating Officer of BE Aerospace, Inc. from 1996 to 1999 and President and Vice Chairman of Mercer Management Consulting, Inc. from 1990 to 1996. He currently serves on the boards of directors of Global Technologies and Spirit Aerosystems, Inc. and previously served on the board of directors of Aviall, Inc. and The Sports Authority, Inc.

        Our board of directors has concluded that Mr. Fulchino should serve as a director because in addition to his extensive experience in the aerospace MRO industry, he brings a unique perspective to our board of directors regarding the global aerospace industry. In addition, as a result of his current service as a director of Global Technologies and Spirit Aerosystems, Inc., Mr. Fulchino brings valuable knowledge to our board of directors about the operations, compensation programs and corporate governance of other companies. Mr. Fulchino is a director nominee designated by Carlyle pursuant to the terms of the Stockholders Agreement described under "Certain Relationships and Related Party Transactions—Amended and Restated Stockholders Agreement."

76


Table of Contents

         John P. Jumper has been a member of our board of directors since 2007. Mr. Jumper retired from the United States Air Force in 2005 after a distinguished 39-year military career. In his last position as Chief of Staff, he served as the senior military officer in the Air Force leading more than 700,000 military, civilian, Air National Guard and Air Force Reserve men and women. As Chief of Staff, he was a member of the Joint Chiefs of Staff providing military advice to the Secretary of Defense, the National Security Council and the President. In earlier assignments he served on the Joint Staff and as Senior Military Assistant to Secretary of Defense Dick Cheney and Secretary Les Aspin. He currently serves on the boards of directors of Goodrich Corporation, Jacobs Engineering, and SAIC, as well as on the non-profit board of directors of the Air Force Village Charitable Foundation, the American Air Museum at Duxford, England, the George C. Marshall Foundation and the VMT Board of Visitors. Mr. Jumper previously served on the board of directors of Tech Team Global and Somanetics Corporation.

        Our board of directors has concluded that Mr. Jumper should serve as a director because in addition to his demonstrated leadership throughout his 39-year military career, he brings knowledge regarding the military aerospace industry. In addition, as a result of his current service as a director of Goodrich Corporation, TechTeam Global, Jacobs Engineering, SAIC and Somanetics, Mr. Jumper brings valuable knowledge to our board of directors about the operations, compensation programs and corporate governance of other companies. Mr. Jumper is a director nominee designated by Carlyle pursuant to the terms of the Stockholders Agreement described under "Certain Relationships and Related Party Transactions—Amended and Restated Stockholders Agreement."

         Adam J. Palmer has been a member of our board of directors since 2006. Mr. Palmer is a Managing Director of Carlyle and has been the Head of the Global Aerospace and Defense sector team since 2011. Mr. Palmer joined Carlyle in 1996 as a member of the Aerospace, Defense and Government Services sector team. Prior to joining Carlyle, Mr. Palmer was with Lehman Brothers focusing on mergers, acquisitions and financings for defense electronics and information services companies. He currently serves on the boards of directors of RPK Capital Management Group, LLC, Sequa Corporation and Triumph Group, Inc. and previously served on the board of directors of Landmark Aviation, Standard Aero, Ltd., U.S. Investigations Services, Inc. and Vought Aircraft Industries, Inc.

        Our board of directors has concluded that Mr. Palmer should serve as a director because in addition to his demonstrated leadership as a Managing Director of Carlyle and his extensive experience in private equity and investment banking, he brings additional perspectives to our board of directors about the global aerospace and defense industries. In addition, as a result of his current service as a director of RPK Capital Management Group, LLC, Sequa Corporation and Triumph Group, Inc., Mr. Palmer brings valuable knowledge to our board of directors about the operations, compensation programs and corporate governance of other companies. Mr. Palmer is a director nominee designated by Carlyle pursuant to the terms of the Stockholders Agreement described under "Certain Relationships and Related Party Transactions—Amended and Restated Stockholders Agreement."

         Robert D. Paulson has been a member of our board of directors since 2006. Mr. Paulson has served as the Chief Executive Officer of Aerostar Capital LLC, a private equity investment firm, since he founded the firm in 1997. Prior to founding Aerostar Capital, Mr. Paulson retired from McKinsey & Company, Inc., an international management consulting firm, where he had served as the Los Angeles Office Manager from 1982 to 1989, led the Global Aerospace and Defense Practice from 1985 to 1997, and was twice elected to McKinsey's board of directors. He currently serves on the boards of directors of Ducommun Inc., Nationwide Health Properties, Inc. and the Grand Teton Music Festival, and previously served on the board of directors of US Rentals Inc. and Forgings International, L.P.

        Our board of directors has concluded that Mr. Paulson should serve as a director because in addition to his extensive experience in the aerospace defense industry, corporate governance practices,

77


Table of Contents

private equity and consulting, he brings unique insights to our board of directors regarding the global aerospace and defense industries. In addition, as a result of his current service as a director of Ducommun Inc. and Forgings International, LP, Mr. Paulson brings valuable knowledge to our board of directors about the operations, compensation programs and corporate governance of other companies. Mr. Paulson is a director nominee designated by Carlyle pursuant to the terms of the Stockholders Agreement described under "Certain Relationships and Related Party Transactions—Amended and Restated Stockholders Agreement."

         David L. Squier has been a member of our board of directors since 2007. Mr. Squier retired from Howmet Corporation in October 2000, where he served as the President and Chief Executive Officer for over eight years. Prior to his tenure as CEO of Howmet, Mr. Squier served in a number of senior management assignments at Howmet, including Executive Vice President and Chief Operating Officer. Mr. Squier was also a member of the board of directors of Howmet from 1987 until his retirement. Mr. Squier currently serves as an adviser to Carlyle. Mr. Squier currently serves on the board of directors of Sequa Corporation and previously served on the boards of directors of UCI International, Inc., Forged Metal, Inc. and Vought Aircraft Industries from 2003 to 2010.

        Our board of directors has concluded that Mr. Squier should serve as a director because in addition to his extensive industry experience and his current role as an advisor to Carlyle, he brings additional perspectives to our board of directors regarding the global aerospace and defense industries. In addition, as a result of his current service as a director of Sequa Corporation and prior experience with other companies, Mr. Squier brings valuable knowledge to our board of directors about the operations, compensation programs and corporate governance of other companies. Mr. Squier is a director nominee designated by Carlyle pursuant to the terms of the Stockholders Agreement described under "Certain Relationships and Related Party Transactions—Amended and Restated Stockholders Agreement."

Controlled Company

        For purposes of the rules of the stock exchange on which we will be listed, we expect to be a "controlled company" upon completion of this offering. Controlled companies under those rules are companies of which more than 50% of the voting power for the election of directors is held by an individual, a group or another company. We expect that Carlyle will continue to control more than 50% of the combined voting power of our common stock upon completion of this offering and will continue to have the right to nominate a majority of the members of our board of directors for nomination for election and the voting power to elect such directors following this offering. For these purposes, as a result of the provisions of the Amended and Restated Stockholders Agreement, the Wesco Stockholders and the affiliates of Carlyle which own shares, or the Carlyle Stockholders, will be treated as a "group," and therefore the Wesco Stockholders' shares will be included in determining whether we are a controlled company. Accordingly, we expect to be eligible to, and we intend to, take advantage of certain exemptions from corporate governance requirements provided in rules of the stock exchange on which we will be listed. Specifically, as a controlled company, we would not be required to have (i) a majority of independent directors, (ii) a nominating and corporate governance committee composed entirely of independent directors, (iii) a compensation committee composed entirely of independent directors or (iv) an annual performance evaluation of the nominating and corporate governance and compensation committees. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the applicable rules of the stock exchange on which we will be listed.

Board Composition

        Our board of directors is currently composed of eight directors, including Mr. Snyder, our Chairman of the Board of Directors, President and Chief Executive Officer.

78


Table of Contents

        We entered into a stockholders agreement with the Wesco Stockholders and the Carlyle Stockholders on September 29, 2006, which stockholders agreement was subsequently amended on November 30, 2007 and April 17, 2008, or as amended, the Stockholders Agreement. Upon effectiveness of the registration statement of which this prospectus forms a part, the Stockholders Agreement will be amended and restated, which we refer to as the Amended and Restated Stockholders Agreement. Under the Amended and Restated Stockholders Agreement, Carlyle Stockholders will have the right to nominate six board members and the Wesco Stockholders will have the right to nominate one board member. Our Board of Directors will be divided into three classes whose members will serve three-year terms expiring in successive years.

Board Committees

        Our board of directors directs the management of our business and affairs as provided by Delaware law and conducts its business through meetings of our board of directors and two standing committees: the audit committee and the compensation committee. Effective upon completion of this offering, our board of directors will also have a nominating and corporate governance committee.

        Our audit committee is responsible, among its other duties and responsibilities, for overseeing our accounting and financial reporting processes, the audits of our financial statements, the qualifications and independence of our independent registered public accounting firm, the performance of our internal audit function and independent registered public accounting firm. Our audit committee reviews and assesses the qualitative aspects of our financial reporting, our processes to manage business and financial risks and our compliance with significant applicable legal, ethical and regulatory requirements. Our audit committee is directly responsible for the appointment, compensation, retention and oversight of our independent registered public accounting firm. The charter of our audit committee will be available without charge on the investor relations portion of our website upon completion of this offering.

        Upon completion of this offering, the audit committee will consist of Messrs.             (chair),             and          . Our board of directors has determined that            is independent within the meaning of the rules of the stock exchange on which we will be listed and Rule 10A-3 under the Exchange Act, and has also determined that Mr.             is an "audit committee financial expert," as such term is defined under the applicable regulations of the SEC.

        Our compensation committee is responsible, among its other duties and responsibilities, for reviewing and approving all forms of compensation to be provided to our executive officers and directors, establishing our general compensation policies and reviewing, approving and overseeing the administration of our employee benefits plans. Our compensation committee also periodically reviews management development and succession plans. The charter of our compensation committee will be available without charge on the investor relations portion of our website upon completion of this offering.

        Upon completion of this offering, the compensation committee will consist of Messrs.             (chair),           and          .

        Our nominating and corporate governance committee will have responsibility for, among other things: (1) recommending persons to be selected by our board of directors as nominees for election as directors; (2) recommending persons to be selected by our board of directors as members and

79


Table of Contents

chairperson for each committee of the board of directors; (3) analyzing and proposing for decision of the board of directors the governance policies of the Company; and (4) monitoring our performance in meeting our obligations with respect to professional ethics and integrity in internal and external matters and our principles of corporate governance. The charter of our nominating and corporate governance committee will be available without charge on the investor relations portion of our website upon completion of this offering.

        Upon completion of this offering, the nominating and corporate governance committee will consist of Messrs.                 (chair),                 and          .

        In addition, from time to time, other committees may be established under the direction of our board of directors when necessary to address specific issues.

Compensation Committee Interlocks and Insider Participation

        During fiscal 2010, our compensation committee consisted of Messrs. Fulchino, Jumper, Palmer and Squier. None of the members of our compensation committee is currently one of our officers or employees. During fiscal 2010, none of our executive officers served as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of our board of directors or our compensation committee.

Code of Ethics

        We have adopted a code of ethics that applies to our executive officers. A copy of the code of ethics will be available on our website and will also be provided to any person without charge. Request should be made in writing to Director of Human Resources at 27727 Avenue Scott, Valencia, CA 91355.

80


Table of Contents


COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

        This Compensation Discussion and Analysis provides an overview and analysis of (i) the elements of our compensation program for our named executive officers, or NEOs, identified below, (ii) the material compensation decisions made under that program and reflected in the executive compensation tables that follow this Compensation Discussion and Analysis and (iii) the material factors considered in making those decisions. We intend to provide our NEOs with compensation that is significantly performance based. Our executive compensation program is designed to align executive pay with our performance on both short and long-term bases, link executive pay to specific, measurable results intended to create value for stockholders, and utilize compensation as a tool to assist us in attracting and retaining the high-caliber executives that we believe are critical to our long-term success.

        The primary elements of our executive compensation program and their corresponding objectives are summarized in the following table:

Compensation Element
  Objective

Base Salary

  To recognize performance of job responsibilities and as a necessary tool to attract and retain individuals with superior talent.

Annual performance-based compensation

  To promote our near-term performance objectives and reward individual contributions to the achievement of those objectives.

Discretionary long-term equity incentive awards

  To emphasize our long-term performance objectives, encourage the maximization of stockholder value and retain key executives by providing an opportunity to participate in the ownership of the Company.

Severance and change in control benefits

  To encourage the continued attention and dedication of key individuals and to focus the attention of key individuals when considering strategic alternatives.

Retirement savings (401(k))

  To provide an opportunity for tax-efficient savings and long-term financial security.

Other elements of compensation and perquisites

  To attract and retain talented executives in a cost-efficient manner by providing benefits with high perceived values at relatively low cost to us.

        To serve the foregoing objectives, our overall executive compensation program is generally designed to be flexible rather than formulaic. The compensation committee of our board of directors, or the compensation committee, has primary authority to determine and approve compensation decisions with respect to our NEOs. In alignment with the objectives set forth above, the compensation committee determines overall compensation, and its allocation among the elements described above, in reliance upon the judgment and general industry knowledge of its members obtained through years of service with comparably sized companies in our and similar industries.

        For the year ended September 30, 2010, our NEOs are Randy Snyder, our Chief Executive Officer, Greg Hann, our Executive Vice President and Chief Financial Officer, Hal Weinstein, our Executive Vice President, Sales and Marketing, Tommy Lee, our Executive Vice President, and Alex Murray, our Vice President, Global Operations. Our compensation decisions for the NEOs in fiscal 2010 are discussed below in relation to each of the above-described elements of our compensation program. The

81


Table of Contents


below discussion is intended to be read in conjunction with the executive compensation tables and related disclosures that follow this Compensation Discussion and Analysis.

Compensation Overview

        Our overall executive compensation program is structured to attract, motivate and retain highly qualified executive officers by paying them competitively, consistent with our success and their contribution to that success. We believe compensation should be structured to ensure that a significant portion of compensation opportunity will be related to factors that directly and indirectly influence stockholder value. Accordingly, we set goals designed to link each NEO's compensation to our performance. Consistent with our performance-based philosophy, we provide a base salary to our NEOs, significant incentive-based compensation, which includes variable cash awards under our annual incentive bonus program based on our financial and operational performance, as well as stock option and other equity and equity-based awards granted to our NEOs to align our NEOs' interests with our long-term performance.

        Total compensation for our NEOs has been allocated between cash and equity compensation taking into consideration the balance between providing short-term incentives and long-term investment in our financial performance to align the interests of management with stockholders. The variable annual incentive award and the equity awards are designed to ensure that total compensation reflects our overall success or failure and to motivate the NEOs to meet appropriate performance measures, thereby maximizing total return to stockholders. In anticipation of our initial public offering, we intend to adopt a new equity incentive plan, which we refer to as the "2011 Equity Incentive Award Plan."

Determination of Compensation Awards

        The compensation committee is provided with the primary authority to determine and approve the compensation awards available to our NEOs and is charged with reviewing our executive compensation policies and practices to ensure (i) adherence to our compensation philosophies and (ii) that the total compensation paid to our NEOs is fair, reasonable and competitive, taking into account our position within our industry and the level of expertise and experience of our NEOs in their positions. The compensation committee is primarily responsible for (i) determining each NEO's base salary and target bonus level (representing the bonus that may be awarded expressed as a percentage of base salary or as a dollar amount for the year), (ii) assessing the performance of the Chief Executive Officer and other NEOs for each applicable performance period and (iii) determining the amount of awards to be paid to our Chief Executive Officer and other NEOs under our annual incentive bonus program for each year, after taking into account any previously established target bonus levels and performance during the year, and the amount of any stock option or other equity or equity-based awards to be granted to our NEOs. To aid the compensation committee in making its determinations, our Chief Executive Officer provides recommendations annually to the compensation committee regarding the compensation of all officers, excluding himself. The performance of our senior executive management team is reviewed annually by the compensation committee and the compensation committee determines each NEO's compensation annually.

        In determining compensation levels for our NEOs, the compensation committee considers each NEO's unique position and responsibility and relies upon the judgment and industry experience of its members, including their knowledge of competitive compensation levels in our industry. We believe that our NEOs' base salaries should be competitive with salaries for executive officers in similar positions and with similar responsibilities in our marketplace and adjusted for financial and operating performance and previous work experience. In this regard, each NEO's current and prior compensation, including compensation paid by our predecessor or the NEO's prior employer, is considered as a base against which determinations are made as to whether increases are appropriate to retain the NEO in light of competition or in order to provide continuing performance incentives.

82


Table of Contents

        In making compensation determinations, the compensation committee historically has not made regular use of benchmarking or compensation consultants and historically has not referred to specific compensation survey data. Rather, in alignment with the considerations described above, the compensation committee determines the total amount of compensation for our NEOs, and the allocation of total compensation among each of our three main components of compensation, in reliance upon the judgment and general industry knowledge of its members obtained through years of service with comparably sized companies in our industry and other similar industries to ensure the attraction, development and retention of superior talent.

        We believe that direct ownership in our Company provides our NEOs with a strong incentive to increase the value of the Company and we therefore historically have encouraged equity ownership in the Company by NEOs and other employees through a variety of means, including direct stock ownership by NEOs and other employees, and the award of stock options and other equity-based interests that have been received by the NEOs. We believe that the equity ownership positions of our NEOs are substantial and therefore we have not implemented a formal policy with respect to requiring officers and directors to own our stock.

Base Compensation For 2010

        We set base salaries for our NEOs generally at a level we deem necessary to attract and retain individuals with superior talent, using the methodologies described above. Each year we determine base salary increases based upon the performance of the NEOs as assessed by the compensation committee, and for NEOs other than the Chief Executive Officer, in conjunction with recommendations made by the Chief Executive Officer. The compensation committee reviews and evaluates base salaries for our NEOs annually, but formulaic base salary increases are not provided to the NEOs.

        In fiscal 2009, the compensation committee determined to provide base salary increases to Messrs. Snyder, Weinstein, Lee and Murray to reward our continued superior performance through a period of economic uncertainty, to maintain their compensation at a fair, reasonable and competitive level and in recognition of the fact that they had not received base salary increases in several years. In addition, following the completion of the 2010 fiscal year, the compensation committee determined to adjust Mr. Hann's base salary, effective as of November 2, 2010, to reward Mr. Hann for our superior financial performance, to seek to ensure the retention of Mr. Hann as our Executive Vice President and Chief Financial Officer and in recognition of the fact that Mr. Hann had not received a base salary increase since commencing employment with us in February 2009. The base salaries for our NEOs before and after these increases are set forth in the following table:

Name and Principal Position
  Base Salary
Before Increase ($)
  Base Salary
After Increase ($)
 

Randy Snyder

    600,000     650,000  

Greg Hann

    300,000     325,000  

Hal Weinstein

    300,000     325,000  

Tommy Lee

    270,000     315,000  

Alex Murray(1)

    147,814     186,546  

(1)
Base salary amounts for Mr. Murray, who is employed in the United Kingdom, are presented based on an assumed conversion ratio of pounds to dollars of 1.5809, which was the exchange rate in effect on September 30, 2010.

Annual Performance-Based Compensation For 2010

        We structure our compensation programs to reward NEOs based on our performance and the individual executive's contribution to that performance. NEOs are eligible to receive bonus

83


Table of Contents


compensation under our Management Annual Incentive Plan in the event certain specified corporate performance measures are achieved.

        This annual bonus program consists of cash awards based upon our achievement of performance goals determined by the compensation committee. Under the terms of the annual bonus plan, NEOs have target bonus amounts based upon a percentage of their base salaries as of the start of the applicable fiscal year, as follows: Mr. Snyder: 100%; Mr. Hann: 60%; Mr. Weinstein: 60%; Mr. Lee: 45%; and Mr. Murray: 40%. Our NEOs have the ability to earn more or less than their target bonus amounts for over performance or under performance, as determined with reference to the applicable performance goals. None of our NEOs has a guaranteed minimum annual performance bonus. The maximum and minimum portions of target awards, if any, payable under the plan may vary from year to year and are set at levels that we determine are necessary to maintain competitive compensation practices and properly motivate our NEOs by rewarding them for our annual performance and their contributions to that performance.

        Awards paid under the plan are based upon the level of achievement in relation to two Company-wide performance metrics: Bonus EBITDA and Bonus Cash Flow. For this purpose, "Bonus EBITDA" is defined generally as our earnings before interest, taxes, depreciation expense and amortization expense, equity compensation expense, management and transaction fees and extraordinary and non-recurring items. "Bonus Cash Flow" is generally defined as our net cash from operating activities less capital expenditures. These terms may differ from Adjusted EBITDA and Adjusted Net Income presented elsewhere in this prospectus. We use Bonus EBITDA and Bonus Cash Flow as the primary performance metrics to determine the amount of awards paid under our annual bonus plan because the compensation committee believes that these metrics most directly correlate to the creation of value for our stockholders in relation to our financial performance over the annual performance period.

        For each performance year, the compensation committee assigns a target, minimum and maximum value to each performance metric. Minimum threshold goals must be met for performance metrics before awards may become payable under the plan. The maximum award (200% of target amounts) is payable only upon achievement of maximum-level performance for both metrics. Award amounts for performance between the baseline and maximum levels are determined at the beginning of the applicable performance period and depend upon the level of achievement for each metric relative to its assigned target value, in accordance with a pre-determined payout matrix. The board of directors makes final determinations of the amounts payable under the plan, in consultation with the Chief Executive Officer, after receipt of the applicable financial information. In addition, we, in our sole discretion, may adjust targets or awards to account for unusual events such as extraordinary transactions, asset dispositions and purchases, and mergers and acquisitions.

        The following chart sets forth the minimum, maximum and target values, and the performance achieved, for the performance metrics for the year ended September 30, 2010:

Performance Metric
  2010 Actual
($ MM)
  Minimum
($ MM)
  Target
($ MM)
  Maximum
($ MM)
 

Bonus EBITDA

    168.5     145.8     166.6     187.4  

Bonus Cash Flow

    97.7     59.6     79.5     109.3  

84


Table of Contents

        The following payout matrix sets forth an illustration of the payout levels in relation to the target bonus amounts that would apply under our annual bonus program under the range of possible performance scenarios, based on the minimum, target and maximum levels of performance as set forth above:

 
   
  Bonus Cash Flow vs. Target  
 
   
  < Minimum   75.0%   81.3%   87.5%   93.8%   100.0%   109.4%   118.75%   128.1%   137.5%  
      112.5%     0.0%     100.0%     112.5%     125.0%     137.5%     150.0%     162.5%     175.0%     187.5%     200.0%  
      109.4%     0.0%     87.5%     100.0%     112.5%     125.0%     137.5%     150.0%     162.5%     175.0%     187.5%  
      106.3%     0.0%     75.0%     87.5%     100.0%     112.5%     125.0%     137.5%     150.0%     162.5%     175.0%  
Bonus     103.1%     0.0%     62.5%     75.0%     87.5%     100.0%     112.5%     125.0%     137.5%     150.0%     162.5%  
                                               
EBITDA     100.0%     0.0%     50.0%     62.5%     75.0%     87.5%     100.0%     112.5%     125.0%     137.5%     150.0%  
                                               
vs. Target     96.9%     0.0%     37.5%     50.0%     62.5%     75.0%     87.5%     100.0%     112.5%     125.0%     137.5%  
      93.8%     0.0%     25.0%     37.5%     50.0%     62.5%     75.0%     87.5%     100.0%     112.5%     125.0%  
      90.6%     0.0%     12.5%     25.0%     37.5%     50.0%     62.5%     75.0%     87.5%     100.0%     112.5%  
      87.5%     0.0%     0.0%     12.5%     25.0%     37.5%     50.0%     62.5%     75.0%     87.5%     100.0%  
      < Minimum     0.0%     0.0%     0.0%     0.0%     0.0%     0.0%     0.0%     0.0%     0.0%     0.0%  

        Where actual performance falls in between the scenarios presented in the matrix above, the compensation committee uses the matrix as a guide in determining the appropriate percentage of the target bonus amounts to pay to our named executive officers. Therefore, for fiscal year 2010, where actual performance for Bonus EBITDA was approximately 101.1% of the target amount and actual performance for Bonus Cash Flow was approximately 122.9% of the target amount, the compensation committee determined that Messrs. Snyder, Hann, Weinstein and Lee were entitled to bonus payments in amounts equal to 135% of their target bonus amounts. In making its bonus determination for Mr. Murray, whose scope of responsibility primarily included our European operations, the compensation committee also considered the performance of these operations for fiscal year 2010. Because our business outside of North America underperformed relative to overall Company performance for fiscal year 2010, the compensation committee exercised its discretion under our annual bonus program to reduce the bonus payouts provided to our employees outside of North America, and, as a result, Mr. Murray did not receive a bonus at the same level as our other NEOs. Mr. Murray's cash bonus for fiscal year 2010 was reduced to 100% of his target bonus amount, which the compensation committee determined to be the appropriate level as a result of overall corporate level performance having exceeded the target amounts set forth above, and in order to promote a "one-Wesco" culture in relation to this success. The actual award amounts earned by our NEOs for 2010 are included in the "Non-Equity Incentive Plan Compensation" column of our Summary Compensation Table for 2010.

85


Table of Contents

Discretionary Long-Term Equity Incentive Awards

        We believe that providing a portion of our NEOs' total compensation in the form of equity-based awards encourages responsible and profitable growth, encourages executive retention, promotes a long-term focus and aligns executive and stockholder interests. Historically, rather than provide our NEOs with annual equity awards based upon short-term performance horizons, the compensation committee has determined to make larger, less frequent equity grants to our NEOs, generally with five year performance horizons, to better align the long-term interests of our NEOs with those of stockholders. None of our NEOs were granted equity-based awards during fiscal year 2010. Currently, with the exception of Mr. Hann, our NEOs hold equity incentive awards that consist of restricted stock and restricted stock units granted in September 2006 and/or stock options granted in May 2007. Mr. Hann holds stock options that we granted to him in February 2009 upon his commencement of employment with us. All of the stock options held by our NEOs have exercise prices that were equal to the fair market value of our common stock on the date of grant or, with respect to Mr. Hann, the date the stock option was amended.

        Generally, stock options granted under our equity incentive plan expire ten years from the date of the grant and have vesting provisions that are designed to encourage an optionee's continued employment and to reward an optionee for our performance. Twenty-five percent of each NEO's options are time vesting options that vest and become exercisable in five equal annual installments (three equal annual installments for Mr. Hann) beginning on the first September 30 following the date of grant, subject to the optionee's continued service with us through the applicable vesting date. The remaining 75% of the options for each NEO are eligible to vest in five annual installments (three annual installments for Mr. Hann), subject to the optionee's continued employment with us and attainment by us of financial performance targets as follows: one-half of each performance vesting installment is eligible to vest following the close of the applicable fiscal year if we attain a pre-determined Bonus EBITDA target for the year, and the remaining one-half of each performance vesting installment is eligible to vest following the close of the applicable fiscal year if we attain a pre-determined Cash Flow target for the year. If we do not attain the relevant Bonus EBITDA or Bonus Cash Flow targets for a given fiscal year, but we attain at least 90% of such targets, the applicable portion of the performance vesting options remains eligible to vest in future years if cumulative Bonus EBITDA and cumulative Bonus Cash Flow targets are attained in those years. The Bonus Cash Flow and Bonus EBITDA goals were established at the time the options were granted and were intended to be challenging but reasonably attainable. The Bonus EBITDA and Bonus Cash Flow targets for stock option vesting purposes differ from the Bonus EBITDA and Bonus Cash Flow targets levels that apply under our Management Annual Incentive Plan because the option vesting targets were generally set at the time of each grant with a five-year time horizon (three years for Mr. Hann) while the Management Annual Incentive Plan targets are short term goals set annually at the beginning of each applicable fiscal year.

        For 2010, the Bonus Cash Flow and Bonus EBITDA targets for the NEOs' performance vesting options were $82.4 million and $180.3 million, respectively, and actual results with respect to Bonus Cash Flow and Bonus EBITDA for the year were $97.7 million and $168.5 million, respectively. As a result, the Bonus Cash Flow portion of the NEOs' performance vesting options vested, effective as of September 30, 2010. In addition, although we did not attain the Bonus EBITDA target that was previously established for performance option vesting for 2010, the compensation committee determined that the failure to attain the Bonus EBITDA target did not result from a lack of performance by our management team, but rather from a change in overall market conditions that were beyond management's control, and that due to the near achievement of the target in light of such factors, and our outperformance as compared to the Bonus Cash Flow target for the year, the Bonus EBITDA portion of the 2010 performance options would become vested, effective as of September 30, 2010.

86


Table of Contents

        Early in fiscal year 2010, the compensation committee determined that we had not attained the 2009 Bonus Cash Flow target of $63.2 million that had previously been established for purposes of performance option vesting and that actual results with respect to 2009 Bonus Cash Flow were less than 90% of the target. As a result, the 2009 Bonus Cash Flow portion of the performance options did not become vested at that time. However, in order to provide additional incentives for management to achieve strong company-wide financial performance in fiscal years 2010 and 2011, the compensation committee determined to provide an additional opportunity for the 2009 Bonus Cash Flow portion of the performance options to vest as follows: one-half of the 2009 Bonus Cash Flow portion of the performance options would vest following the end of fiscal year 2010 if we attained a supplemental Bonus Cash Flow target of $98.9 million for 2010 and the remaining one-half of the 2009 Bonus Cash Flow portion of the performance options would vest following the end of fiscal year 2011 if we attain a supplemental Bonus Cash Flow target for 2011 that is in excess of the Bonus Cash Flow target that applies to the regular 2011 Bonus Cash Flow portion of the performance options and that the compensation committee believes is a challenging supplemental Bonus Cash Flow goal for fiscal year 2011. Following the close of fiscal year 2010, the compensation committee determined that although the supplemental Bonus Cash Flow target for 2010 was not fully attained, the applicable portion of the performance options described above would become vested and exercisable effective as of September 30, 2010 due to the near achievement of such supplemental Bonus Cash Flow target. In addition, in October 2009, the compensation committee determined to amend the stock option that we granted to Mr. Hann upon his commencement of employment by decreasing the exercise price of such stock options to the then-current fair market value of our common stock and revising the applicable Bonus EBITDA and Bonus Cash Flow targets, in each case, to motivate and encourage Mr. Hann's strong performance, in consideration of the fact that the value of our stock and our performance projections were at an all-time high when Mr. Hann's options were originally granted and to make the exercise price of Mr. Hann's stock options consistent with the fair market value of our stock at the time of the amendment (and the same as the exercise price of options granted to other employees at such time) and to conform the performance targets applicable to Mr. Hann's options with those applicable to our other NEOs and other employees.

        In addition, in connection with the Carlyle Acquisition in 2006, our NEOs, other than our CEO, who were with us at that time received awards of restricted stock and restricted stock units that relate to our common stock in recognition of their longstanding service to the company over a period of many years and as a means of seeking to retain these employees through the imposition of vesting requirements on the awards. All of these shares of restricted stock and restricted stock units have fully vested and the restricted stock units will be settled on the earlier of September 28, 2012 or the date we experience a change in control. Additional information regarding the restricted stock units held by our NEOs is set forth below in the non-qualified deferred compensation table that follows this Compensation Discussion and Analysis. In determining the allocation of the historical equity and equity-based awards for our NEOs between stock options on the one hand and restricted stock and restricted stock units on the other, the compensation committee considered the different goals intended to be achieved through these different types of awards as well as each NEO's service with and position within the company. The allocation of awards between restricted stock and restricted stock units for the NEOs who received these awards was determined based upon the different tax treatment applicable to these two types of awards.

Defined Contribution Plans

        We have a Section 401(k) Savings/Retirement Plan, or the 401(k) Plan, to cover our eligible employees. The 401(k) Plan permits eligible employees to defer a portion of their annual compensation, subject to certain limitations imposed by the Internal Revenue Code. The employees' elective deferrals are immediately vested and non-forfeitable upon contribution to the 401(k) Plan. We provide matching contributions to the 401(k) Plan in an amount equal to fifty cents for each dollar of

87


Table of Contents


participant contributions, up to a maximum matching contribution of three percent of the participant's annual salary and subject to certain other limits. After a full year of employment with us, plan participants vest in the amounts contributed by us pro rata over the following five years, subject to their continued employment with us. Employees are eligible to participate in the 401(k) Plan the first day of the first calendar quarter following their completion of six full calendar months of employment with us.

        The 401(k) Plan is offered on a nondiscriminatory basis to all of our employees, including NEOs, who meet the eligibility requirements. The compensation committee believes that matching and other contributions provided by us to assist us in attracting and retaining talented employees and executives. The 401(k) Plan provides an opportunity for participants to save money for retirement on a tax-qualified basis and to achieve financial security, thereby promoting retention.

Employment and Severance Arrangements

        The compensation committee considers the maintenance of a sound management team to be essential to protecting and enhancing our best interests. To that end, we recognize that the uncertainty that may exist among management with respect to their "at-will" employment with us may result in the departure or distraction of management personnel to our detriment. Accordingly, the compensation committee determined that severance arrangements are appropriate for certain of our NEOs to encourage the continued attention and dedication of these members of our management and to allow them to focus on the value to stockholders of strategic alternatives without concern for the impact on their continued employment. Mr. Snyder, Mr. Hann, Mr. Weinstein and Mr. Murray have each entered into an agreement with us providing for severance benefits upon termination of employment.

        Mr. Snyder's employment agreement with us, dated July 23, 2006 and amended December 31, 2008, has an original three-year term and is extended automatically for successive one-year periods thereafter unless either party delivers notice within specified notice periods to terminate the agreement. Upon termination of Mr. Snyder's employment either by us without "cause," by Mr. Snyder for "good reason" or due to the non-extension of the employment term by us, subject to his timely executing a general release of claims against us, Mr. Snyder is entitled to receive thirty-six months of his base salary, payable in installments in accordance with our regular payroll practices, a prorated portion of his annual performance bonus for the year in which termination occurs, the accelerated vesting of any outstanding unvested options we granted to Mr. Synder pursuant to his employment agreement that are subject to time-based vesting conditions and reimbursement for the premium costs of continued medical, dental and vision coverages under COBRA for a period of eighteen months. Mr. Snyder's employment agreement prohibits him from competing with certain of our businesses or from soliciting our employees, customers or suppliers to terminate their employment or arrangements with us during the term of his employment and for 36 months following his termination. "Cause" is defined in Mr. Snyder's agreement to mean Mr. Snyder's (i) material failure to comply with a reasonable directive of the board of directors, (ii) willful misconduct, gross negligence or breach of a fiduciary duty that results in material harm to us or our affiliates, (iii) willful and material breach of his employment agreement, (iv) conviction, plea of no contest or imposition of unadjudicated probation for any felony or crime involving moral turpitude, (v) unlawful use or possession of illegal drugs on Company premises or while performing his duties or responsibilities to us or (vi) commission of an act of fraud, embezzlement or misappropriation against us or our affiliates. "Good reason" is defined in Mr. Snyder's employment agreement to mean (a) a material reduction in duties or responsibilities, (b) a material reduction in base salary or annual target bonus opportunity, (c) a relocation of Mr. Snyder's principle place of employment by more than 25 miles, (d) our material breach of the agreement or (e) the failure of the Company, or any successor, following a change in control to reaffirm its obligations under the agreement or assume and comply with the agreement.

88


Table of Contents

        Pursuant to an agreement between Mr. Hann and us, dated January 22, 2009, which does not have a specified term, if we terminate Mr. Hann without "cause" or he resigns for "good reason," subject to his timely executing and not revoking a release of claims, Mr. Hann is entitled to payment of 12 months of his base salary, payable in installments in accordance with our regular payroll practices, and the right to continue his participation in one of our medical benefit plans for up to 12 months. For purposes of Mr. Hann's agreement, "cause" has substantially the same meaning as in Mr. Snyder's agreement, except that Mr. Hann's material breach of the agreement does not explicitly constitute cause. "Good reason" is defined in Mr. Hann's agreement to mean a material reduction in duties or responsibilities or a material reduction in his base salary.

        Mr. Weinstein's employment agreement with us, dated June 15, 2007 and amended December 31, 2008, has a perpetual term unless terminated by either party in accordance with the terms of the agreement. Upon termination of Mr. Weinstein's employment by us without "cause," subject to his timely executing a general release of claims against us, Mr. Weinstein is entitled to receive twelve months of his base salary, payable in installments in accordance with our regular payroll practices, and reimbursement for the premium costs of continued medical, dental and vision coverages under COBRA for a period of twelve months. Mr. Weinstein's employment agreement prohibits him from competing with certain of our businesses or from soliciting our employees, customers or suppliers to terminate their employment or arrangements with us during the term of his employment and for twelve months following his termination. "Cause" in Mr. Weinstein's agreement has the same meaning as in Mr. Snyder's agreement.

        Mr. Murray will enter into an employment agreement with a subsidiary of the Company located in the United Kingdom. For simplicity, this subsidiary and its board of directors are referred to in this paragraph, respectively, as the company and the board. Mr. Murray's employment agreement, dated                , has a perpetual term unless terminated by either party by giving not less than       months' written notice. The company may elect, however, to terminate Mr. Murray's employment without notice by paying Mr. Murray the amounts that would otherwise be paid to him during the notice period provided in his employment agreement. In addition, the company may terminate Mr. Murray's employment without notice or payment in the event that (i) the board reasonably believes Mr. Murray has committed a serious breach of his employment agreement, (ii) the board reasonably believes Mr. Murray has committed an act of gross or serious misconduct or willful neglect in the discharge of his duties, (iii) the board reasonably believes Mr. Murray has committed an act of fraud, dishonesty or other conduct tending to bring himself or the company into disrepute, (iv) Mr. Murray becomes prohibited by law from being or acting as a director of the company, (v) Mr. Murray is offered and refuses or fails to accept employment with the surviving entity following a merger or reorganization of the company on terms no less favorable than those in his employment agreement or (vi) Mr. Murray resigns as a director of the company other than at the request of the board. During his employment and for       months following his termination, Mr. Murray may not compete with certain businesses of the company or solicit certain employees, customers or potential customers of the company, in each case, without the company's consent, which may not be unreasonably withheld.

Other Elements of Compensation and Perquisites

        Our NEOs are eligible under the same plans as all other employees for medical, dental, vision and short-term disability insurance. In addition, we provide our NEOs with the personal use of Company automobiles and, for our U.S. based NEOs, dues related to golf club memberships which our NEOs use for both personal and professional purposes. We provide these benefits due to their relatively low cost and the high value they provide in attracting and retaining talented executives. Our NEOs do not receive any tax gross up in connection with our provision of these benefits.

89


Table of Contents

Summary Compensation Table for 2010

        The following table sets forth certain information with respect to the compensation paid to our NEOs for the year ended September 30, 2010.

Name and Principal Position
  Salary ($)   Non-Equity Incentive
Plan Compensation
($)(1)
  Option Awards
($)
  Bonus
($)
  All Other
Compensation ($)
  Total ($)  

Randy Snyder

    644,266     810,000               77,714 (4)   1,531,980  
 

Chief Executive Officer

                                     

Greg Hann

   
300,000
   
243,000
   
87,869

(2)
       
44,775

(5)
 
675,644
 
 

Executive Vice President and Chief Financial Officer

                                     

Hal Weinstein

   
322,133
   
243,000
         
20,000

(3)
 
51,793

(6)
 
636,926
 
 

Executive Vice President, Sales and Marketing

                                     

Tommy Lee

   
309,885
   
164,025
   
         
46,511

(7)
 
520,421
 
 

Executive Vice President

                                     

Alex Murray(8)

   
157,497
   
59,126
   
         
18,673

(9)
 
235,386
 
 

Vice President, Global Operations

                                     

(1)
Represents the bonus amounts earned under our annual bonus program for fiscal the year ended September 30, 2010. For a discussion of the determination of these amounts, see "—Annual Performance-Based Compensation for 2010" above.

(2)
Amount shown represents the incremental fair value attributable to an amendment to Mr. Hann's outstanding stock options, as described above in "—Discretionary Long-Term Equity Incentive Awards." This amount has been calculated in accordance with FASB ASC Topic 718 as of the date of such amendment. For information regarding the assumptions used when calculating this amount, refer to note 13 of our consolidated financial statements for the year ended September 30, 2010, which are included elsewhere in this prospectus.

(3)
Amount shown represents a discretionary bonus paid to Mr. Weinstein for his 2010 service, as determined by the compensation committee.

(4)
Includes $22,433 for country club membership dues and fees, $47,931 for use of Company automobile and $7,350 for 401(k) matching contribution. The cost for personal use of a company automoblile includes costs associated with the lease, gas, insurance and maintenance of such automobile.

(5)
Includes $16,910 for country club membership dues and fees, $20,515 for use of Company automobile and $7,350 for 401(k) matching contribution.

(6)
Includes $28,148 for country club membership dues and fees, $16,295 for use of Company automobile and $7,350 for 401(k) matching contribution.

(7)
Includes $20,864 for country club membership dues and fees, $18,297 for use of Company automobile and $7,350 for 401(k) matching contribution.

(8)
Amounts presented for Mr. Murray are based on an assumed conversion ratio of pounds to dollars of 1.5809, which was the exchange rate in effect on September 30, 2010.

(9)
Includes automobile allowance of $15,809 and $2,864 for supplemental medical benefits.

90


Table of Contents

Grants of Plan-Based Awards for 2010

 
   
  Estimated Possible
Payouts Under Non-Equity
Incentive Plan Awards(1)
 
Name
  Grant Date   Target ($)   Maximum ($)  

Randy Snyder

    10/1/2009     600,000     1,200,000  

Greg Hann

    10/1/2009     180,000     360,000  

Hal Weinstein

    10/1/2009     180,000     360,000  

Tommy Lee

    10/1/2009     121,500     243,000  

Alex Murray

    10/1/2009     59,126     118,252  

(1)
Amounts shown reflect the possible payment amounts to our NEOs under our Management Annual Incentive Plan for fiscal year 2010. There are no applicable threshold level performance metrics. Payments under the plan were made to the NEOs in December 2010. The amounts actually paid to each NEO are set forth under "Non-Equity Incentive Plan Compensation" in the "Summary Compensation Table for 2010" above.

Outstanding Equity Awards at Fiscal Year End

        The following table provides information regarding the stock options held by our NEOs as of September 30, 2010.

Name
  Number of
Securities
Underlying
Unexercised
Options—
Exercisable (#)
  Number of Securities
Underlying
Unexercised Options—
Unexercisable (#)
  Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
  Option Exercise
Price ($)
  Option Expiration
Date
 

Randy Snyder

    166,666     10,929 (1)   40,984 (2)   37.12     5/17/2017  

Greg Hann

    39,618     5,465 (1)   20,491 (2)   56.64     1/29/2019  

Hal Weinstein

    83,334     5,465 (1)   20,491 (2)   37.12     5/17/2017  

Tommy Lee

    25,000     1,640 (1)   6,147 (2)   37.12     5/17/2017  

Alex Murray

    33,333     2,186 (1)   8,197 (2)   37.12     5/17/2017  

(1)
These options will become exercisable on September 30, 2011, subject to the NEO's continued service with us on such date.

(2)
These options will become exercisable on September 30, 2011, subject to the NEO's continued service with us on such date and our attainment of EBITDA, Cash Flow and supplemental Cash Flow targets for such year, as described in more detail above under "Discretionary Long-Term Equity Incentive Awards."

Options Exercised and Stock Vested in 2010

        None of our NEOs exercised options or became vested in shares of our common stock during the year ended September 30, 2010.

Nonqualified Deferred Compensation

        The following table provides details with respect to the outstanding restricted stock units held by our NEOs. Mr. Weinstein holds 146,676.21 restricted stock units, Mr. Lee holds 90,972.21 restricted stock units and Mr. Murray holds 8,701.69 restricted stock units. The restricted stock units were

91


Table of Contents


granted to each of the NEOs in September 2006 and became fully vested on September 29, 2009. Each restricted stock unit represents the right to receive one share of our common stock, which will be distributed to the NEOs in the form of shares of our common stock on the first to occur of a change in control or September 28, 2012.

Name
  Plan Name   Executive
Contributions in
Last FY
($)
  Registrant
Contributions in
Last FY
($)
  Aggregate
Earnings in
Last FY
($)(1)
  Aggregate
Withdrawals/
Distributions
($)
  Aggregate
Balance at
Last FYE
($)(2)
 

Hal Weinstein

  Restricted Stock Units             1,959,594         10,267,334  

Tommy Lee

  Restricted Stock Units             1,215,389         6,368,055  

Alex Murray

  Restricted Stock Units             116,255         609,118  

(1)
Reflects the change in value of the shares underlying the restricted stock units during fiscal year 2010.

(2)
Reflects the aggregate value of the shares underlying the restricted stock units as of September 30, 2010, based on a per share value of $70.00 as of such date.

Potential Payments upon Termination or Change-in-Control

        Each of Messrs. Snyder, Hann, Weinstein and Murray has an agreement that provides for severance benefits upon a termination of employment. See "—Employment and Severance Arrangements" above for a description of the employment and severance agreements with our NEOs. Assuming a termination of employment effective as of September 30, 2010 (i) by us without cause, (ii) due to our nonextension of the executive's employment term or (iii) due to the executive's resignation for good reason, each of our NEOs would have received the following severance payments and benefits:

Name
  Payment Type   Termination Without
Cause ($)
  Resignation for Good
Reason ($)
  Termination due to Non-
Extension of Term ($)
 

Randy Snyder

  Salary     1,950,000     1,950,000     1,950,000  

  Bonus     877,500     877,500     877,500  

  Option vesting(1)     359,346     359,346     359,346  

  Benefit continuation(2)     56,186     56,186     56,186  
                   

  Total     3,243,032     3,243,032     3,243,032  

Greg Hann

 

Salary

   
325,000
   
325,000
   
 

Hal Weinstein

 

Salary

   
325,000
   
   
 

  Benefit continuation(2)     27,011          
                   

  Total     352,011          

Alex Murray

 

Salary(3)

         
   
 

(1)
Represents accelerated vesting of time vesting options granted pursuant to Mr. Snyder's employment agreement. Value has been determined by multiplying the number of options vesting by the difference between the exercise price of the option and $70.00, the fair market value of one share of our common stock as of September 30, 2010.

(2)
Consists of continuation of group health benefits. The value of the health benefits was calculated using an estimate of the cost to us of such health coverage based upon past experience.

(3)
Mr. Murray is entitled to receive the amounts that would otherwise be paid to him during the notice period provided in his employment agreement if we elect to terminate his employment without notice.

92


Table of Contents

        Pursuant to the stock option agreements covering each NEO's stock options, in the event of certain transactions, which could include a change in control of the Company, generally that result in Carlyle liquidating at least 70% of its equity investment in the Company, (i) the exercisability of all shares underlying the time vesting options would be accelerated and (ii) to the extent certain performance thresholds are achieved for the year in which the transaction occurs, the exercisability of all shares underlying the performance vesting options that have not previously become eligible to vest would be accelerated. Assuming such a transaction occurred on September 30, 2010, the following table sets forth the amounts the NEOs would have received from such accelerated vesting:

Name
  Option Type   Number of Securities (#)   Value ($)(1)  

Randy Snyder

  Time Vesting     10,929     359,346  

  Performance Vesting     40,984     1,347,554  

  Total     51,913     1,706,900  

Greg Hann

 

Time Vesting

   
5,465
   
73,012
 

  Performance Vesting     20,491     273,760  

  Total     25,956     346,772  

Hal Weinstein

 

Time Vesting

   
5,465
   
179,689
 

  Performance Vesting     20,491     673,744  

  Total     25,956     853,433  

Alex Murray

 

Time Vesting

   
2,186
   
71,876
 

  Performance Vesting     8,197     269,517  

  Total     10,383     341,393  

Tommy Lee

 

Time Vesting

   
1,639
   
53,890
 

  Performance Vesting     6,148     212,146  

  Total     7,787     256,036  

(1)
Value has been determined by multiplying the number of options vesting by the difference between the exercise price of the option and $70.00, the fair market value of one share of our common stock as of September 30, 2010.

Compensation Risk

        We have analyzed the potential risks arising from our compensation policies and practices, and have determined that there are no such risks that are reasonably likely to have a material adverse effect on us.

Director Compensation For 2010

        Directors who are our employees or employees of Carlyle (Messrs. Clare, Palmer, Snyder and Baird) receive no additional compensation for serving on our board of directors or its committees. For their services as an independent member of our board of directors, each of our "non-employee" directors (Messrs. Paulson, Squier, Jumper and Fulchino) receives an annual retainer of $50,000, which amount is payable in either cash or shares of our restricted common stock. For 2010 the compensation committee determined to pay the annual retainer 100% in shares of our common stock in order to more closely align the interests of our directors with those of our shareholders and to allow the directors to benefit from the potential for future appreciation in the value of common stock. The shares were fully vested upon grant and were granted to the non-employee directors after the completion of our 2010 fiscal year on December 15, 2010. The number of shares for the 2010 retainer was determined based on the fair market value of the shares at the start of the year, resulting in an award of 883 shares of our common stock as payment of the 2010 annual retainer. In addition, each of our non-employee directors received an option to purchase 725 shares of our common stock upon their

93


Table of Contents


commencement of service with us in fiscal year 2007 (2008, with respect to Mr. Fulchino). The options vest in five equal annual installments, with the first installment vesting on September 30, 2007 for Messrs. Paulson and Squier and September 30, 2008 for Messrs. Jumper and Fulchino.

        In 2010, we provided the following compensation to our independent directors:

Name
  Fees Earned or
Paid in Cash ($)
  Stock
Awards ($)(1)
  Total  

Robert D. Paulson

        61,810      

David L. Squier

        61,810      

John P. Jumper

        61,810      

Paul E. Fulchino

        61,810      

(1)
Stock awards intended as 2010 director compensation were granted to Messrs. Paulson, Squier, Jumper and Fulchino on December 15, 2010. As of September 30, 2010, Mr. Paulson held outstanding options to purchase 580 shares of our common stock and each of Messrs. Squier, Jumper and Fulchino held outstanding options to purchase 725 shares of our common stock. All such options were fully vested as of September 30, 2010, except for one installment of 145 options for Messrs. Paulson and Squier and two installments each of 145 options for Messrs. Jumper and Fulchino, which options will vest on September 30, 2011 and September 30, 2012, as applicable, subject to the non-employee director's continued service with us through the applicable date.

Executive Compensation Plans

        The following are summaries of the short-term and long-term incentive compensation plans for executive officers that our board of directors intends to adopt and, as applicable, submit to our stockholders for approval prior to the consummation of this offering. We are still in the process of implementing these plans, and, accordingly, the summaries below are subject to change prior to the effectiveness of the registration statement of which this prospectus is a part.

2011 Equity Incentive Award Plan

        Prior to the consummation of this offering, our board of directors intends to adopt and submit to our stockholders for approval a 2011 Equity Incentive Award Plan, or the 2011 Plan, which will be effective as of the day prior to the consummation of this offering. As of the effective date of the 2011 Plan, no new awards will be granted under our prior equity incentive plan, which we sometimes refer to as the Prior Plan, but our prior equity incentive plan will continue to govern our prior equity incentive awards, as described under "Compensation Discussion and Analysis—Discretionary Long-Term Equity Incentive Awards," outstanding as of such date.

        The principal purpose of the 2011 Plan is to attract, retain and engage selected employees, consultants and directors through the granting of stock-based compensation awards. The material terms of the 2011 Plan, as it is currently contemplated, are summarized below. We are still in the process of implementing the 2011 Plan, and, accordingly, the summary below is subject to change prior to the effectiveness of the registration statement of which this prospectus is a part.

        Eligibility and Administration.     Employees, consultants and directors of the Company and its subsidiaries will be eligible to receive awards under the 2011 Plan. Our compensation committee will administer the 2011 Plan unless our board of directors assumes authority for administration. The compensation committee may delegate its duties and responsibilities as plan administrator to subcommittees comprised of our directors and/or officers, subject to certain limitations. Our full board of directors will administer the 2011 Plan with respect to awards to non-employee directors.

94


Table of Contents

        Subject to the express terms and conditions of the 2011 Plan, the plan administrator has the authority to make all determinations and interpretations under the plan, prescribe all forms for use with the plan and adopt, amend and/or rescind rules for the administration of the plan. The plan administrator also sets the terms and conditions of all awards under the plan, including any vesting and vesting acceleration conditions.

        Limitation on Awards and Shares Available.     Initially, the aggregate number of shares of our common stock available for issuance pursuant to awards granted under the 2011 Plan will be                        . This number will be adjusted due to the following shares becoming eligible to be used or, as applicable, used again for grants under the 2011 Plan:

From and after the effective date of the 2011 Plan, we will no longer issue awards under the Prior Plan.

        Shares granted under the 2011 Plan may be treasury shares, authorized but unissued shares, or shares purchased in the open market. The payment of dividend equivalents in cash in conjunction with any outstanding awards will not be counted against the shares available for issuance under the 2011 Plan.

        Awards.     The 2011 Plan provides for the grant of stock options (including non-qualified stock options, or NQSOs, and incentive stock options, or ISOs), restricted stock, dividend equivalents, stock payments, restricted stock units, or RSUs, performance awards, stock appreciation rights, or SARs, and other equity-based awards, or any combination thereof. Awards under the 2011 Plan will generally be set forth in award agreements, which will detail the terms and conditions of the awards, including any applicable vesting and payment terms and post-termination exercise limitations. Awards will generally be settled in shares of our common stock, but the plan administrator may provide for cash settlement of any award. A brief description of each award type follows.

95


Table of Contents

        Certain Transactions.     The plan administrator has broad discretion to equitably adjust the provisions of the 2011 Plan and the terms and conditions of existing and future awards, including with respect to aggregate number and type of shares subject to the 2011 Plan and awards granted pursuant to the 2011 Plan, to prevent the dilution or enlargement of intended benefits and/or facilitate necessary or desirable changes in the event of certain transactions and events affecting our common stock, such as stock dividends, stock splits, mergers, acquisitions, consolidations and other corporate transactions. In the event of a change in control where the acquiror does not assume or replace awards granted

96


Table of Contents


under the 2011 Plan, such awards will be subject to accelerated vesting so that 100% of such awards will become vested and exercisable or payable, as applicable, prior to the consummation of the change in control transaction and, if not exercised or paid, will terminate upon consummation of the transaction. The administrator may also provide for the acceleration, cash-out, termination, assumption, substitution or conversion of awards in the event of a change in control or certain other unusual or nonrecurring events or transactions. A change in control is defined in the 2011 Plan to mean (i) the acquisition by a person or group of more than 50% of the total combined voting power of our outstanding securities, (ii) during any consecutive two-year period, the replacement of a majority of our incumbent directors with directors whose election was not supported by at least two-thirds of our incumbent directors, (iii) a merger, consolidation, reorganization or business combination or the sale of substantially all of our assets, in each case, other than a transaction that results in our voting securities before such transaction continuing to represent or being converted into a majority of the voting securities of the surviving entity and after which no person or group owns a majority of the combined voting power of the surviving entity or (iv) our stockholders approving a liquidation or dissolution of the Company.

        Transferability, Repricing and Participant Payments.     With limited exceptions for estate planning, domestic relations orders, certain beneficiary designations and the laws of descent and distribution, awards under the 2011 Plan are generally non-transferable prior to vesting and are exercisable only by the participant. The price per share of a stock option or SAR may not be decreased and an underwater stock option or SAR may not be replaced or cashed out without stockholder approval. With regard to tax withholding, exercise price and purchase price obligations arising in connection with awards under the 2011 Plan, the plan administrator may, in its discretion, accept cash or check, shares of our common stock that meet specified conditions, a "market sell order" or such other consideration as it deems suitable.

        Amendment and Termination.     Our board of directors may terminate, amend or modify the 2011 Plan at any time and from time to time. However, we must generally obtain stockholder approval to increase the number of shares available under the 2011 Plan (other than in connection with certain corporate events, as described above) or to the extent required by applicable law, rule or regulation (including any applicable stock exchange rule).

        Expiration Date.     The 2011 Plan will expire on, and no option or other award may be granted pursuant to the 2011 Plan after, the tenth anniversary of the date the 2011 Plan was approved by our board of directors in                                    , 2011. Any award that is outstanding on the expiration date of the 2011 Plan will remain in force according to the terms of the 2011 Plan and the applicable award agreement.

Incentive Plan

        Our board of directors intends to adopt an incentive plan, which we refer to as the Incentive Plan, under which we will provide cash incentives to our executive officers and other key employees following the consummation of this offering. The purpose of the Incentive Plan is to enable the Company and its subsidiaries to attract, retain, motivate and reward the best qualified executive officers and key employees by providing them with the opportunity to earn competitive compensation directly linked to the Company's performance. The material terms of the Incentive Plan, as it is currently contemplated, are summarized below. We are still in the process of implementing the Incentive Plan, and, accordingly, the summary below is subject to change prior to the effectiveness of the registration statement of which this prospectus is a part.

        Administration.     The Incentive Plan is administered by our compensation committee, which may delegate its authority under the Incentive Plan to any of its duly constituted subcommittees.

97


Table of Contents

        Performance Criteria.     The compensation committee may establish the performance objective or objectives that must be satisfied in order for a participant to receive an award under the Incentive Plan or may make discretionary payments from the plan. Performance objectives under the Incentive Plan may be based upon the relative or comparative achievement of performance criteria, whether in absolute terms or relative to the performance of one or more similarly situated companies or a published index covering the performance of a number of companies, as determined by the compensation committee for the applicable performance period, which performance criteria may include: earnings before interest, taxes, depreciation and amortization; operating earnings; net earnings; income; earnings before interest and taxes; total shareholder return; return on the Company's assets; increase in the Company's earnings or earnings per share; revenue; revenue growth; share price performance; return on invested capital; operating income; pre- or post-tax income; net income; economic value added; profit margins; cash flow; improvement in or attainment of expense or capital expenditure levels; improvement in or attainment of working capital levels; return on equity; debt reduction; gross profit; market share; cost reductions; workforce satisfaction and diversity goals; workplace health and safety goals; product quality goals; employee retention; customer satisfaction; customer retention; completion of key projects and strategic plan development and/or implementation; job profit or performance against a multiplier. Performance objectives may be established on a company-wide basis or with respect to one or more business units, divisions, subsidiaries or products, or with respect to an individual. The compensation committee may exclude any or all extraordinary, unusual or non-recurring items and the cumulative effects of accounting changes from performance objectives for a performance period and may also adjust performance objectives in its discretion.

        Payment.     Payment of awards will be made as soon as practicable after the compensation committee certifies that one or more of the applicable performance criteria have been attained or determines the payable amount of an award. The compensation committee will determine whether an award will be paid in cash, stock (including restricted stock or restricted stock units) or other awards under the 2011 Plan, or in a combination of cash, stock and other awards, and may impose whatever additional conditions on such shares or other awards as it deems appropriate, including conditioning the vesting of such shares or other awards on the performance of additional service.

        Maximum Award; Discretion.     The maximum award amount payable per fiscal year under the Incentive Plan is $          . The compensation committee may, in its discretion, increase, reduce or eliminate awards otherwise payable under the Incentive Plan for any reason.

        Termination of Employment.     Unless otherwise determined by the compensation committee in its discretion, any participant whose employment terminates will forfeit all rights to any and all unpaid awards under the Incentive Plan.

        Forfeiture; Disgorgement.     If we are required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws, and a participant knowingly or grossly negligently engaged in the misconduct or knowingly or grossly negligently failed to prevent the misconduct, or if the participant is one of the individuals subject to automatic forfeiture under section 304 of the Sarbanes-Oxley Act of 2002, then the participant must forfeit and disgorge any awards received during the twelve months following the filing of the financial document embodying such financial reporting requirement and any other awards earned based on the materially non-complying financial reporting. In addition, any award paid to a current or former executive officer during the three-year period preceding the date on which the restatement is required, based on erroneous data, must be forfeited and disgorged to us to the extent the award is in excess of what would have been paid to the officer under the restated data. Participants must also forfeit and disgorge any awards to the extent required by applicable law or regulations in effect on or after the effective date of the plan.

98


Table of Contents


CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Management Agreement

        On September 29, 2006, Wesco Aircraft entered into a management agreement, or the Management Agreement, with TC Group, L.L.C., or TC Group, an affiliate of Carlyle, to provide certain financial, strategic advisory and consultancy services. Under the Management Agreement, we are obligated to pay TC Group an annual management fee of $1.0 million and to pay or reimburse TC Group for certain out-of-pocket expenses. We incurred expenses of approximately $1.2 million, $1.0 million and $1.1 million for the years ending September 30, 2008, 2009 and 2010, respectively, related to the Management Agreement. The Management Agreement will terminate at such time as TC Group or one or more of its affiliates no longer collectively control, in the aggregate, at least 15% of Wesco Aircraft, or such earlier date as Wesco Aircraft and TC Group may mutually agree.

Amended and Restated Stockholders Agreement

        In connection with the Carlyle Acquisition, on September 29, 2006, we entered into a stockholders agreement with Falcon Aerospace Holdings, LLC, Randy Snyder, Susan Snyder, certain affiliates of the Snyder family and members of management who hold restricted shares of common stock or options to purchase common stock. We refer to Falcon Aerospace Holdings, LLC as the Carlyle Stockholders and Randy Snyder, Susan Snyder and the affiliates of the Snyder family collectively as the Wesco Stockholders. The stockholders agreement was amended on November 30, 2007 and further amended on April 17, 2008. Upon effectiveness of the registration statement of which this prospectus forms a part, the stockholders agreement will be amended and restated.

        Pursuant to the Amended and Restated Stockholders Agreement, our board of directors will consist of eight members, with the Carlyle Stockholders having the right to nominate six of the members of the board of directors, the Wesco Stockholders having the right to nominate one of the members of the board of directors and the board of directors having the right to nominate one of the members of the board of directors. The number of board members that the Carlyle Stockholders are entitled to nominate will be reduced (i) to four directors if the Carlyle Stockholders hold less than 40% of our common stock, (ii) to three directors if the Carlyle Stockholders hold less than 25% of our common stock, (iii) to two directors if the Carlyle Stockholders hold less than 15% of our common stock and (iv) to one director if the Carlyle Stockholders hold less than 10% of our common stock. The Carlyle Stockholders' rights under the board of directors nomination provisions of the Amended and Restated Stockholders Agreement will terminate at such time as they hold less than 5% of our common stock. The Wesco Stockholders' rights under the board of directors nominations provisions of the Amended and Restated Stockholders Agreement will also terminate at such time as the they hold less than 5% of our common stock. In addition, for so long as Randy Snyder remains involved with our business, Mr. Snyder must be the Wesco Stockholders' nominee. However, at such time as Mr. Snyder is no longer involved with our business, the Wesco Stockholders may nominate another director, provided that such nominee is deemed qualified to serve on the board of directors of a public company.

        The Amended and Restated Stockholders Agreement will contain restrictions on the transfer of our equity securities by the stockholders, as well as drag-along rights. In the event that we register any of our common stock following our initial public offering, these stockholders will also have the right to require us to use our best efforts to include the securities held by them, subject to certain limitations, including as determined by the underwriters, and will have the right to cause us to effect registrations of shares on their behalf. The Amended and Restated Stockholders Agreement will also require us to indemnify the stockholders in connection with any such registration of our securities.

        The Amended and Restated Stockholders Agreement will terminate upon a sale or change in control of the Company or the approval of the Company and its stockholders who are parties to the Amended and Restated Stockholders Agreement.

99


Table of Contents

Operating Leases

        We lease several office and warehouse facilities under operating lease agreements, or the Operating Lease Agreements, from entities affiliated with or controlled by Randy J. Snyder, who serves as our Chairman of the Board of Directors, President and Chief Executive Officer and is also a minority stockholder of Wesco Aircraft. Rent expense on these facilities was approximately $1.7 million, $1.7 million and $1.7 million for the years ended September 30, 2008, 2009 and 2010, respectively (see Note 4 to our condensed consolidated financial statements contained elsewhere in this prospectus). The Operating Lease Agreements expire by their terms between June 30, 2019 and December 31, 2020.

Purchase of Term Loan

        On June 30, 2008, Merrill Lynch Asset Management, or Merrill Lynch, on behalf of entities controlled by Randy J. Snyder, who serves as our Chairman of the Board of Directors, President and Chief Executive Officer and is also a minority stockholder of Wesco Aircraft, purchased approximately $50.0 million of our outstanding indebtedness. For the years ending September 30, 2008, 2009 and 2010, total interest paid to the entities controlled by Mr. Snyder related to the debt was approximately $0.6 million, $1.6 million and $1.2 million, respectively. Mr. Snyder sold the outstanding indebtedness he held as of January 2011 and no longer has an ownership interest in any of our outstanding indebtedness.

Related Party Transaction Policy

        Prior to the completion of this offering, we intend to adopt a written statement of policy for the evaluation of and the approval, disapproval and monitoring of transactions involving us and "related persons." For the purposes of the policy, "related persons" will include our executive officers, directors and director nominees or their immediate family members, or stockholders owning five percent or more of our outstanding common stock.

        Our related person transactions policy will require:

        In connection with the review and approval or ratification of a related person transaction:

100


Table of Contents

        In addition, the related person transaction policy provides that the audit committee, in connection with any approval or ratification of a related person transaction involving a non-employee director or director nominee, should consider whether such transaction would compromise the director or director nominee's status as an "independent," "outside," or "non-employee" director, as applicable, under the rules and regulations of the SEC, the applicable listing exchange and the Internal Revenue Code.

        All related party transactions described in this section occurred prior to adoption of this policy, and as such, these transactions were not subject to the approval and review procedures described above.

101


Table of Contents


PRINCIPAL AND SELLING STOCKHOLDERS

        We had 9,445,489 shares of common stock outstanding as of May 12, 2011, assuming a one-to-one conversion of shares of Class B common stock to common stock and prior to the    for    stock split described elsewhere in this prospectus, which were owned by 35 stockholders. As of May 12, 2011, certain affiliates of Carlyle own approximately 83.8% of our common stock.

        The following table sets forth information with respect to the beneficial ownership of our common stock as of May 12, 2011, and as adjusted to reflect the shares of our common stock offered hereby, by:

        The amounts and percentages of shares beneficially owned are reported on the basis of SEC regulations governing the determination of beneficial ownership of securities. Under SEC rules, a person is deemed to be a "beneficial" owner of a security if that person has or shares voting power or investment power, which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Securities that can be so acquired are not deemed to be outstanding for purposes of computing any other person's percentage. Under these rules, more than one person may be deemed to be a beneficial owner of securities as to which such person has no economic interest.

        The following table assumes a one-to-one conversion of shares of Class B common stock to common stock and does not give effect to the      for       stock split described elsewhere in this prospectus. Except as otherwise indicated in these footnotes, each of the beneficial owners listed has, to our knowledge, sole voting and investment power with respect to the shares of capital stock and the

102


Table of Contents


business address of each such beneficial owner is c/o Wesco Aircraft Holdings, Inc., 27727 Avenue Scott, Valencia, CA 91355.

 
   
   
   
  Shares Beneficially
Owned After this
Offering
 
 
  Shares Beneficially
Owned Prior to this
Offering
   
  Excluding
Exercise of
Overallotment
  Including
Exercise of
Overallotment
 
 
  Shares to be
Sold in this
Offering
 
Name of Beneficial Owner
  Number   Percent   Number   Percent   Number   Percent  

TCG Holdings, L.L.C.(1)

    7,914,983     83.8 %                 %           %

Randy J. Snyder(2)

    1,571,133     16.3 %                 %           %

Hal Weinstein(3)

    97,539     1.0                 *           *  

Tommy Lee(4)

    33,810     *                 *           *  

Gregory Hann(5)

    39,618     *                 *           *  

Alex Murray(6)

    34,175     *                 *           *  

Dayne A. Baird

        *                 *           *  

Peter J. Clare

        *                 *           *  

Paul E. Fulchino(7)

    9,575     *                 *           *  

John P. Jumper(8)

    5,688     *                 *           *  

Adam J. Palmer

        *                 *           *  

Robert D. Paulson(9)

    5,680     *                 *           *  

David L. Squier(10)

    5,680     *                 *           *  
 

All executive officers and directors as a group (12 persons)

    1,802,898     18.4 %                 %           %

*
Denotes less than 1.0% of beneficial ownership.

(1)
Falcon Aerospace Holdings, LLC is the record holder of 7,914,983 shares of our common stock. Carlyle Partners IV, L.P. is the managing member of Falcon Aerospace Holdings, LLC. TC Group IV, L.P. is the sole general partner of Carlyle Partners IV, L.P. TC Group IV Managing GP, L.L.C. is the sole general partner of TC Group IV, L.P. TC Group, L.L.C. is the sole managing member of TC Group IV Managing GP, L.L.C. TCG Holdings, L.L.C. is the managing member of TC Group, L.L.C. Accordingly, Carlyle Partners IV, L.P., TC Group IV, L.P., TC Group IV Managing GP, L.L.C., TC Group, L.L.C. and TCG Holdings, L.L.C. each may be deemed to share beneficial ownership of shares of our common stock owned of record by Falcon Aerospace Holdings, LLC. TCG Holdings, L.L.C. is managed by a three person managing board, and all board action relating to the voting or disposition of these shares requires approval of a majority of the board. William E. Conway, Jr., Daniel A. D'Aniello and David M. Rubenstein are managing members of TCG Holdings, L.L.C. and, in such capacity, may be deemed to share beneficial ownership of shares of our common stock beneficially owned by TCG Holdings, L.L.C. Such individuals expressly disclaim any such beneficial ownership. The principal address and principal offices of TCG Holdings, L.L.C. is c/o The Carlyle Group, 1001 Pennsylvania Avenue, N.W., Suite 220 South, Washington, D.C. 20004-2505.

(2)
Includes 1,404,467 shares of our common stock beneficially owned by Mr. Snyder and the right to acquire up to 166,666 additional shares.

(3)
Includes 14,205 shares of our common stock beneficially owned by Mr. Weinstein and the right to acquire up to 83,334 additional shares.

(4)
Includes 8,810 shares of our common stock beneficially owned by Mr. Lee and the right to acquire up to 25,000 additional shares.

(5)
Consists of the right to acquire up to 39,618 additional shares.

103


Table of Contents

(6)
Includes 842 shares of our common stock beneficially owned by Mr. Murray and the right to acquire up to 33,333 additional shares.

(7)
Includes 9,140 shares of our common stock beneficially owned by Mr. Fulchino and the right to acquire up to 435 additional shares.

(8)
Includes 5,253 shares of our common stock beneficially owned by Mr. Jumper and the right to acquire up to 435 additional shares.

(9)
Includes 5,245 shares of our common stock beneficially owned by Mr. Paulson and the right to acquire up to 435 additional shares.

(10)
Includes 5,100 shares of our common stock beneficially owned by Mr. Squier and the right to acquire up to 580 additional shares.

104


Table of Contents


DESCRIPTION OF CAPITAL STOCK

         The following is a description of our capital stock and the material provisions of our amended and restated certificate of incorporation and amended and restated bylaws, as each is anticipated to be in effect upon the closing of this offering, and other agreements to which we and our stockholders are parties. The following is only a summary and is qualified by applicable law and by the provisions of the amended and restated certificate of incorporation and amended and restated bylaws and other agreements, copies of which are available as set forth under the caption entitled "Where You Can Find More Information."

General

        Prior to the effectiveness of our amended and restated certificate of incorporation, our authorized capital stock includes the following: (i) 21,000,000 shares of common stock, par value $0.001 per share, which shares are divided into two classes, consisting of 19,000,000 shares of Class A common stock and 2,000,000 shares of Class B common stock, and (ii) 1,000,000 shares of preferred stock, par value $0.001 per share. Upon effectiveness of our amended and restated certificate of incorporation, our authorized capital stock will consist of the following: (i)           shares of common stock, par value $0.001 per share, and (ii)           shares of preferred stock, par value $0.001 per share. The rights and privileges of holders of our common stock are subject to any series of preferred stock that we may issue in the future.

        As of May 12, 2011, 9,445,489 shares of our common stock were issued and outstanding and were owned by 35 stockholders.

Common Stock

        Holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, including the election of directors. There will be no cumulative voting in the election of directors, which means that holders of a majority of the outstanding shares of common stock will be able to elect all of the directors, and holders of less than a majority of such shares will be unable to elect any director. Under the amended and restated certificate of incorporation, subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of common stock will be entitled to receive ratably such dividends, if any, as may be declared from time to time by our board of directors out of funds legally available for dividend payments. The new senior secured credit facilities impose restrictions on our ability to declare dividends on our common stock. All outstanding shares of common stock are fully paid and non-assessable, and the shares of common stock to be issued upon completion of this offering will be fully paid and non-assessable. The holders of common stock have no preferences or rights of conversion, exchange, pre-emption or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. In the event of any liquidation, dissolution or winding-up of our affairs, holders of common stock will be entitled to share ratably in our assets that are remaining after payment or provision for payment of all of our debts and obligations and after liquidation payments to holders of outstanding shares of preferred stock, if any.

Preferred Stock

        The preferred stock, if issued, would have priority over the common stock with respect to dividends and other distributions, including the distribution of our assets upon liquidation. Unless required by law or by any stock exchange on which our common stock may be listed, our board of directors will have the authority without further stockholder authorization to issue from time to time shares of preferred stock in one or more series and to determine the designations, rights, preferences, privileges, limitations or restrictions of each series. Although we have no present plans to issue any shares of preferred stock, the issuance of shares of preferred stock, or the issuance of rights to purchase such shares, could decrease the amount of earnings and assets available for distribution to the

105


Table of Contents


holders of common stock, could adversely affect the rights and powers, including voting rights, of the common stock, and could have the effect of delaying, deterring or preventing a change in control of us or an unsolicited acquisition proposal.

Amended and Restated Stockholders Agreement

        Pursuant to the Amended and Restated Stockholders Agreement, Carlyle will continue to have certain rights to appoint directors to our board of directors. See "Certain Relationships and Related Party Transactions."

Limitations on Directors' Liability

        We expect that our amended and restated certificate of incorporation and amended and restated bylaws will contain provisions indemnifying our directors and officers to the fullest extent permitted by law. Prior to the completion of this offering, we intend to enter into indemnification agreements with each of our directors that may, in some cases, be broader than the specific indemnification provisions contained under Delaware law.

        In addition, as permitted by Delaware law, we expect that our amended and restated certificate of incorporation will provide that no director will be liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director. The effect of this provision is to restrict our rights and the rights of our stockholders in derivative suits to recover monetary damages against a director for breach of fiduciary duty as a director, except that a director will be personally liable for:

        This provision does not affect a director's liability under the federal securities laws.

        To the extent that our directors, officers and controlling persons are indemnified under the provisions contained in our amended and restated certificate of incorporation, Delaware law or contractual arrangements against liabilities arising under the Securities Act, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Provisions of Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws that May Have an Anti-Takeover Effect

        Certain provisions that we expect will be contained our amended and restated certificate of incorporation and amended and restated bylaws that are summarized below may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might result in a premium being paid over the market price for the shares held by stockholders.

        Among other things, we expect that our amended and restated certificate of incorporation and amended and restated bylaws will:

106


Table of Contents

        The foregoing provisions of our amended and restated certificate of incorporation and amended and restated bylaws could discourage potential acquisition proposals and could delay or prevent a change in control. These provisions are intended to enhance the likelihood of continuity and stability in the composition of the board of directors and in the policies formulated by our board of directors and to discourage certain types of transactions that may involve an actual or threatened change of control. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal. The provisions also are intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our common stock that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in our management.

Delaware Takeover Statute

        Subject to certain exceptions, Section 203 prohibits a Delaware corporation from engaging in any "business combination" with any "interested stockholder" for a period of three years following the date that such stockholder became an interested stockholder, unless: (i) prior to such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) on consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (a) by persons who are directors and also officers and (b) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2 / 3 % of the outstanding voting stock that is not owned by the interested stockholder.

        In our amended and restated certificate of incorporation, we expect that we will elect not to be governed by Section 203 of the Delaware General Corporation Law, or DGCL, as permitted under and pursuant to subsection (b)(3) of Section 203.

Listing

        We will apply to list our common stock on                under the symbol "WAIR."

Transfer Agent and Registrar

        We have appointed                as the transfer agent and registrar for our common stock.

107


Table of Contents


SHARES ELIGIBLE FOR FUTURE SALE

        Upon the completion of this offering, we will have outstanding          shares of common stock, assuming the issuance of           shares of common stock offered by the selling stockholders in this offering and no exercise of outstanding options, and assuming that the underwriters have not exercised their overallotment option. Of these shares,            shares of common stock will be freely transferable without restriction or further registration under the Securities Act by persons other than "affiliates," as that term is defined in Rule 144 under the Securities Act. Generally, the balance of our outstanding common stock are "restricted securities" within the meaning of Rule 144 under the Securities Act, subject to the limitations and restrictions that are described below. common stock purchased by our affiliates will be "restricted securities" under Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144 or 701 promulgated under the Securities Act.

Lock-Up Agreements

        In connection with this offering, we, all of our directors and executive officers and certain holders of our common stock will agree with the underwriters to enter into lock-up agreements described in "Underwriting," pursuant to which          shares of our common stock outstanding after this offering will be restricted from immediate resale in accordance with the terms of such lock-up agreements.

Rule 144

        In general, under Rule 144 as in effect on the date of this prospectus, beginning 90 days after the consummation of this offering, a person (or persons whose common stock is required to be aggregated), who is an affiliate, and who has beneficially owned our common stock for at least six months is entitled to sell in any three-month period a number of shares that does not exceed the greater of:

        Sales by our affiliates under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. An "affiliate" is a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with an issuer.

        Under Rule 144, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least six months (including the holding period of any prior owner other than an affiliate), would be entitled to sell those shares subject only to availability of current public information about us, and after beneficially owning such shares for at least 12 months, would be entitled to sell an unlimited number of shares without restriction. To the extent that our affiliates sell their common stock, other than pursuant to Rule 144 or a registration statement, the purchaser's holding period for the purpose of effecting a sale under Rule 144 commences on the date of transfer from the affiliate.

Rule 701

        In general, under Rule 701 as in effect on the date of this prospectus, any of our employees, directors, officers, consultants or advisors who purchased shares from us in reliance on Rule 701 in connection with a compensatory stock or option plan or other written agreement before the effective

108


Table of Contents


date of this offering, or who purchased shares from us after that date upon the exercise of options granted before that date, are eligible to resell such shares 90 days after the effective date of this offering in reliance upon Rule 144. If such person is not an affiliate, such sale may be made subject only to the manner of sale provisions of Rule 144. If such a person is an affiliate, such sale may be made under Rule 144 without compliance with the holding period requirement, but subject to the other Rule 144 restrictions described above.

S-8 Registration Statement

        In conjunction with this offering, we are filing a registration statement on Form S-8 under the Securities Act, which will register up to            shares of common stock underlying stock options or restricted stock awards or reserved for issuance under our equity incentive plans. That registration statement will become effective upon filing, and          shares of common stock covered by such registration statement are eligible for sale in the public market immediately after the effective date of such registration statement, subject to the lock-up agreements described above.

Registration Rights

        Pursuant to the Amended and Restated Stockholders Agreement, we have granted the Carlyle Stockholders and the Wesco Stockholders the right to cause us, in certain instances, at our expense, to file registration statements under the Securities Act covering resales of our common stock held by them or to piggyback on such registration statements in certain circumstances. See "Certain Relationships and Related Party Transactions." These shares will represent approximately        % of our outstanding common stock after this offering, or        % if the underwriters exercise their overallotment option in full. These shares also may be sold under Rule 144 under the Securities Act, depending on their holding period and subject to restrictions in the case of shares held by persons deemed to be our affiliates.

109


Table of Contents


MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS OF OUR COMMON STOCK

        The following is a summary of the material U.S. federal income tax consequences applicable to non-U.S. holders (as defined below) with respect to the acquisition, ownership and disposition of our common stock issued pursuant to this offering. This discussion is not a complete analysis of all the potential U.S. federal income tax consequences relating thereto, nor does it address any tax consequences arising under any state, local or non-U.S. tax laws or any other U.S. federal tax laws, including U.S. federal estate and gift tax laws. This discussion is based on the Internal Revenue Code of 1986, as amended, or the Code, Treasury regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the Internal Revenue Service, or IRS, all as in effect as of the date of this offering. These authorities may change, or be subject to differing interpretations, possibly with retroactive effect, resulting in U.S. federal income tax consequences different from those discussed below. No ruling has been or will be sought from the IRS with respect to the matters discussed below, and there can be no assurance that the IRS will not take a contrary position regarding the tax consequences of the acquisition, ownership or disposition of our common stock, or that any such contrary position would not be sustained by a court.

        This summary is limited to non-U.S. holders that purchase our common stock issued pursuant to this offering and that hold our common stock as a "capital asset" within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences that may be relevant to a particular non-U.S. holder in light of that holder's particular circumstances. This discussion also does not consider any specific facts or circumstances that may be relevant to non-U.S. holders subject to special rules under the U.S. federal income tax laws, including, without limitation:

         THIS DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING AND DISPOSING OF OUR COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAX LAWS AND ANY OTHER U.S. FEDERAL TAX LAWS (INCLUDING THE U.S. FEDERAL ESTATE AND GIFT TAX LAWS).

110


Table of Contents

Definition of Non-U.S. Holder

        For purposes of this discussion, a non-U.S. holder is any beneficial owner of our common stock that is not a "U.S. person" or a partnership for U.S. federal income tax purposes. A U.S. person is any of the following:

        If a partnership or other entity treated as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner in the partnership or member in such other entity generally will depend on the status of the partner or member, upon the activities of the partnership or such other entity, and upon certain determinations made at the partner or member level. Accordingly, partnerships and such other entities that hold our common stock and the partners in such partnerships and the members in such other entities are urged to consult their tax advisors regarding the specific U.S. federal income tax consequences to them.

Distributions on our Common Stock

        As described in the section entitled "Dividend Policy," we have not paid a dividend on our common stock in the past and do not anticipate paying dividends on our common stock in the foreseeable future. If, however, we make cash or other property distributions on our common stock, such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and will first be applied against and reduce a holder's adjusted tax basis in the common stock, but not below zero. Any remaining amounts will be treated as gain realized on the sale or other disposition of the common stock and will be treated as described under the section entitled "—Dispositions of our Common Stock" below.

        Dividends paid to a non-U.S. holder of our common stock generally will be subject to U.S. federal withholding tax at a rate of 30% (or such lower rate specified by an applicable tax treaty) of the gross amount of the dividends. To receive the benefit of a reduced treaty rate, a non-U.S. holder must furnish a valid IRS Form W-8BEN (or applicable successor form) certifying such holder's qualification for the reduced rate. This certification must be provided to us or our paying agent prior to the payment of dividends and must be updated periodically. Non-U.S. holders that do not timely provide us or our paying agent the required certification, but that qualify for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. holders are urged to consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty.

        If a non-U.S. holder holds our common stock in connection with the conduct of a trade or business in the United States, and dividends paid on the common stock are effectively connected with such holder's U.S. trade or business (and, if required by an applicable tax treaty, are attributable to a permanent establishment maintained by the non-U.S. holder in the United States), the non-U.S. holder

111


Table of Contents


will generally be exempt from U.S. federal withholding tax. To claim the exemption, the non-U.S. holder must furnish a properly executed IRS Form W-8ECI (or applicable successor form) to us or our paying agent prior to the payment of such dividends.

        Any dividends paid on our common stock that are effectively connected with a non-U.S. holder's U.S. trade or business (and, if required by an applicable tax treaty, are attributable to a permanent establishment maintained by the non-U.S. holder in the United States) generally will be subject to U.S. federal income tax on a net income basis at the regular graduated U.S. federal income tax rates in the same manner as if such holder were a resident of the United States. A non-U.S. holder that is a corporation also may be subject to a branch profits tax equal to 30% (or such lower rate specified by an applicable tax treaty) of its effectively connected earnings and profits for the taxable year, as adjusted for certain items. Non-U.S. holders should consult any applicable income tax treaties that may provide for different rules.

Dispositions of our Common Stock

        Subject to the discussions below regarding backup withholding and foreign accounts, a non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of our common stock unless:

        Unless an applicable tax treaty provides otherwise, gain described in the first bullet point above will be subject to U.S. federal income tax on an net income basis at the regular graduated U.S. federal income tax rates in the same manner as if such holder were a resident of the United States. A non-U.S. holder that is a corporation also may be subject to a branch profits tax equal to 30% (or such lower rate specified by an applicable tax treaty) of its effectively connected earnings and profits for the taxable year, as adjusted for certain items. Non-U.S. holders should consult any applicable income tax treaties that may provide for different rules.

        Gain described in the second bullet point above will be subject to U.S. federal income tax at a flat 30% rate (or such lower rate specified by an applicable income tax treaty) but may be offset by U.S. source capital losses (even though the individual is not considered a resident of the U.S.), provided that the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.

        With respect to the third bullet point above, we believe we are not currently and do not anticipate becoming a USRPHC for United States federal income tax purposes. However, because the determination of whether we are a USRPHC depends on the fair market value of our United States real property interests relative to the fair market value of our other trade or business assets and our non-United States real property interests, there can be no assurance that we are not a USRPHC or will not become one in the future. Even if we are or were to become a USRPHC, gain arising from the sale or other taxable disposition by a non-U.S. holder of our common stock will not be subject to tax if such class of stock is "regularly traded," as defined by applicable Treasury Regulations, on an established securities market, and such non-U.S. holder owned, actually or constructively, five percent (5%) or less of such class of our stock throughout the shorter of the five-year period

112


Table of Contents

ending on the date of the sale or exchange or the non-U.S. holder's holding period for such stock. We expect our common stock to be "regularly traded" on an established securities market. If gain on the sale or other taxable disposition of our stock were subject to taxation under the third bullet point above, the non-U.S. holder would be subject to regular United States federal income tax with respect to such gain in generally the same manner as a United States person.

Information Reporting and Backup Withholding

        We must report annually to the IRS and to each non-U.S. holder the amount of dividends on our common stock paid to such holder, the name and address of the recipient, and the amount of any tax withheld with respect to those dividends. These information reporting requirements apply in certain circumstances even if no withholding was required, such as where the dividends were effectively connected with the holder's conduct of a U.S. trade or business or withholding was eliminated by an applicable tax treaty. This information also may be made available under a specific treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides or is established. Backup withholding, however, generally will not apply to payments of dividends to a non-U.S. holder of our common stock provided the non-U.S. holder furnishes the required certification as to its non-U.S. status, such as by providing a valid IRS Form W-8BEN or W-8ECI, or certain other requirements are met. Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the holder is a United States person that is not an exempt recipient.

        Unless a non-U.S. holder complies with certification procedures to establish that it is not a United States person, information returns may be filed with the IRS in connection with, and the non-U.S. holder may be subject to backup withholding on the proceeds from, a sale or other disposition of our common stock. The certification procedures described in the previous paragraph will satisfy these certification requirements as well.

        Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder's U.S. federal income tax liability, provided the required information is timely furnished to the IRS.

Additional Withholding Tax Relating to Foreign Accounts

        An additional withholding tax will apply to certain types of payments made after December 31, 2012 to "foreign financial institutions" (as specially defined under the applicable rules) and certain other non-U.S. entities. Specifically, a 30% withholding tax will be imposed on dividends on, or gross proceeds from the sale or other disposition of, our common stock paid to a foreign financial institution or to a foreign non-financial entity after such date, unless (i) the foreign financial institution undertakes certain diligence and reporting obligations or (ii) the foreign non-financial entity either certifies it does not have any substantial United States owners or furnishes identifying information regarding each substantial United States owner. If the payee is a foreign financial institution, it must enter into an agreement with the United States Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain United States persons or United States-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to account holders whose actions prevent it from complying with these reporting and other requirements. Prospective investors should consult their tax advisors regarding these rules.

113


Table of Contents


UNDERWRITING

        Barclays Capital Inc. and Morgan Stanley & Co. Incorporated are acting as representatives of the underwriters and joint book-running managers of this offering. Under the terms of an underwriting agreement, which will be filed as an exhibit to the registration statement, each of the underwriters named below has severally agreed to purchase from the selling stockholders the respective number of common stock shown opposite its name below:

Underwriter
  Number of Shares  

Barclays Capital Inc. 

       

Morgan Stanley & Co. Incorporated

       

J.P. Morgan Securities LLC

       

Merrill Lynch, Pierce, Fenner & Smith
                      Incorporated

       

William Blair & Company, L.L.C. 

       
       
 

Total

       
       

        The underwriting agreement provides that the underwriters' obligation to purchase shares of common stock depends on the satisfaction of the conditions contained in the underwriting agreement including:

Commissions and Expenses

        The following table summarizes the underwriting discounts and commissions the selling stockholders will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares. The underwriting fee is the difference between the initial price to the public and the amount the underwriters pay to the selling stockholders for the shares.

 
  No Exercise   Full Exercise  

Per share

  $     $    

Total

  $     $    

        The representatives of the underwriters have advised us that the underwriters propose to offer the shares of common stock directly to the public at the public offering price on the cover of this prospectus and to selected dealers, which may include the underwriters, at such offering price less a selling concession not in excess of $        per share. After the offering, the representatives may change the offering price and other selling terms. Sales of shares made outside of the United States may be made by affiliates of the underwriters.

        The expenses of the offering that are payable by us and the selling stockholders are estimated to be $        (excluding underwriting discounts and commissions). We have agreed to pay expenses

114


Table of Contents


incurred by the selling stockholders in connection with the offering, other than the underwriting discounts and commission.

Option to Purchase Additional Shares

        The selling stockholders have granted the underwriters an option exercisable for 30 days after the date of this prospectus to purchase, from time to time, in whole or in part, up to an aggregate of            shares at the public offering price less underwriting discounts and commissions. This option may be exercised if the underwriters sell more than            shares in connection with this offering. To the extent that this option is exercised, each underwriter will be obligated, subject to certain conditions, to purchase its pro rata portion of these additional shares based on the underwriter's underwriting commitment in the offering as indicated in the table at the beginning of this Underwriting Section.

Lock-Up Agreements

        We and all of our directors, executive officers and certain holders of our common stock have agreed that, subject to certain exceptions, without the prior written consent of                                    , we and they will not, (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock beneficially owned (including, without limitation, shares of common stock that may be deemed to be beneficially owned by us or them in accordance with the rules and regulations of the SEC and shares of common stock that may be issued upon exercise of any securities convertible into or exercisable or exchangeable for common stock) or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such other securities, in cash or otherwise during the period ending 180 days after the date of this prospectus. In addition, we have agreed not to file any registration statement with the SEC relating to the offering of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock during the 180-day restricted period.

        The 180-day restricted period described in the preceding paragraph will be extended if:

in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or occurrence of a material event, unless such extension is waived in writing by          .

                    , in its sole discretion, may release the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time with or without notice. When determining whether or not to release common stock and other securities from lock-up agreements,          will consider, among other factors, the holder's reasons for requesting the release, the number of shares of common stock and other securities for which the release is being requested and market conditions at the time.

115


Table of Contents

Offering Price Determination

        Prior to this offering, there has been no public market for our common stock. The initial public offering price will be negotiated between the representatives and us. In determining the initial public offering price of our common stock, the representatives will consider:

        An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price.

Indemnification

        We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make for these liabilities.

Stabilization, Short Positions and Penalty Bids

        The representatives may engage in stabilizing transactions, short sales and purchases to cover positions created by short sales, and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock, in accordance with Regulation M under the Securities Exchange Act of 1934:

    Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.

    A short position involves a sale by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase in the offering, which creates the syndicate short position. This short position may be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters in excess of the number of shares they are obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriters may close out any short position by either exercising their option to purchase additional shares and/or purchasing shares in the open market. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through their option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

    Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions.

116


Table of Contents

    Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

        These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of the common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on                or otherwise and, if commenced, may be discontinued at any time.

        Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither we nor any of the underwriters make representation that the representatives will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.

Electronic Distribution

        A prospectus in electronic format may be made available on the Internet sites or through other online services maintained by one or more of the underwriters and/or selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the representatives on the same basis as other allocations.

        Other than the prospectus in electronic format, the information on any underwriter's or selling group member's web site and any information contained in any other web site maintained by an underwriter or selling group member is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter or selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.

Exchange Listing

        We will apply to list our shares of common stock for quotation on the            under the symbol "WAIR."

Discretionary Sales

        The underwriters have informed us that they do not intend to confirm sales to discretionary accounts that exceed 5% of the total number of shares offered by them.

Stamp Taxes

        If you purchase shares of common stock offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus.

Relationships

        Certain of the underwriters and/or their affiliates have engaged, and may in the future engage, in commercial and investment banking transactions with us in the ordinary course of their business, including as our arrangers, lenders and agents under the old senior secured credit facilities and the new senior secured credit facilities for which they have received, and expect to receive, customary

117


Table of Contents


compensation and expense reimbursement. For example, affiliates of Barclays Capital Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC and Morgan Stanley & Co. Incorporated are acting as arrangers, lenders and, in the case of affiliates of Barclays Capital Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, agents, under the new senior secured credit facilities. In addition, affiliates of Barclays Capital Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated acted as lenders and, in the case of Barclays Capital Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, agents, under the old senior secured credit facilities. For a description of these facilities, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity of Capital Resources—Senior Secured Credit Facilities."

Selling Restrictions

    European Economic Area

        In relation to each Member State of the European Economic Area that has implemented the Prospectus Directive (each, referred to as a "Relevant Member State") an offer to the public of any shares of our common stock may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any shares of our common stock may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

    (a)
    to any legal entity that is a qualified investor as defined in the Prospectus Directive;

    (b)
    to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives for any such offer; or

    (c)
    in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of shares of our common stock shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.

        For the purposes of this provision, the expression an "offer to the public" in relation to any shares of our common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares of our common stock to be offered so as to enable an investor to decide to purchase any shares of our common stock, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression "Prospectus Directive" means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State, and the expression "2010 PD Amending Directive" means Directive 2010/73/EU.

    United Kingdom

        Each underwriter has represented and agreed that:

    (a)
    it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the shares of our common stock in circumstances in which Section 21(1) of the FSMA does not apply to us; and

118


Table of Contents

    (b)
    it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of our common stock in, from or otherwise involving the United Kingdom.

    Notice to Prospective Investors in Switzerland

        The shares of common stock may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX, or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares of common stock or the offering may be publicly distributed or otherwise made publicly available in Switzerland.

        Neither this document nor any other offering or marketing material relating to the offering, the issuer or the shares of common stock has been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of the shares of common stock will not be supervised by, the Swiss Financial Market Supervisory Authority, and the offer of shares of common stock has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares of common stock.

    Notice to Prospective Investors in the Dubai International Financial Centre

        This offering memorandum relates to an exempt offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority, or DFSA. This offering memorandum is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with exempt offers. The DFSA has not approved this offering memorandum nor taken steps to verify the information set forth herein and has no responsibility for the offering memorandum. The securities to which this offering memorandum relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities. If you do not understand the contents of this offering memorandum you should consult an authorized financial advisor.

Relationship with Solebury Capital LLC

        Pursuant to an engagement agreement, we retained Solebury Capital LLC, or Solebury, a FINRA member, to provide certain financial consulting services (which do not include underwriting services) in connection with this offering. We agreed to pay Solebury, only upon successful completion of this offering, a fee of $400,000 and, at our sole discretion, an additional potential incentive fee of $200,000. In determining whether we elect to award any or all of the incentive fee, we will consider the level of, and our satisfaction with, the services provided by Solebury throughout the initial public offering process. We also agreed to reimburse Solebury for reasonable and documented out-of-pocket expenses up to a maximum of $50,000 without our prior written consent and have provided indemnification of Solebury pursuant to the engagement agreement. Solebury's services include advice with respect to selection of underwriters for this offering, deal structuring, fee and economics recommendations, distribution strategy recommendations and preparation of presentation materials. Solebury is not acting as an underwriter and has no contact with any public or institutional investor on behalf of the Company or the underwriters. In addition, Solebury will not underwrite or purchase any of our common stock in this offering or otherwise participate in any such undertaking.

119


Table of Contents


VALIDITY OF COMMON STOCK

        The validity of the shares being sold in this offering will be passed upon for us by Latham & Watkins LLP, Washington, D.C. Certain legal matters relating to this offering will be passed upon for the underwriters by Davis Polk & Wardwell LLP, New York, New York.


EXPERTS

        The financial statements as of September 30, 2009 and 2010 and for each of the three years in the period ended September 30, 2010 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

        References to the independent research report prepared by Stax, Inc. in connection with this offering have been included in this prospectus in reliance on the report, given on the authority of Stax, Inc.


WHERE YOU CAN FIND MORE INFORMATION

        We have filed with the SEC a registration statement on Form S-1, including exhibits, schedules and amendments filed with the registration statement pursuant to the Securities Act, covering the common stock being offered hereby. This prospectus does not contain all the information set forth in the registration statement and the related exhibits and schedules, portions of which have been omitted as permitted by the rules and regulations of the SEC. For further information about us and the common stock we propose to sell in this offering, we refer you to the registration statement and the exhibits and schedules filed as a part of the registration statement. With respect to statements contained in this prospectus regarding the contents of any contract or any other document, reference is made to the copy of the contract or other document filed as an exhibit to the registration statement.

        You may inspect a copy of the registration statement and the exhibits and schedules to the registration statement without charge at the Public Reference Room of the SEC at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can receive copies of these documents upon payment of a duplicating fee by writing to the SEC. The SEC maintains a web site at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. You can also inspect our registration statement on this web site.

        Upon completion of this offering, we will become subject to the information and reporting requirements of the Exchange Act pursuant to Section 13 thereof. Our filings with the SEC (other than those exhibits specifically incorporated by reference into the registration statement of which this prospectus forms a part) are not incorporated by reference into this prospectus.

120


Table of Contents


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
  Page  

Audited Consolidated Financial Statements:

       
 

Report of Independent Registered Public Accounting Firm

    F-2  
 

Consolidated Balance Sheets

    F-3  
 

Consolidated Statements of Income

    F-4  
 

Consolidated Statements of Stockholders' Equity and Comprehensive Income

    F-5  
 

Consolidated Statements of Cash Flows

    F-6  
 

Notes to Audited Consolidated Financial Statements

    F-7  

Unaudited Consolidated Financial Statements:

       
 

Consolidated Balance Sheets

    F-34  
 

Consolidated Statements of Income

    F-35  
 

Consolidated Statements of Cash Flows

    F-36  
 

Notes to Unaudited Consolidated Financial Statements

    F-37  

F-1


Table of Contents


Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Wesco Aircraft Holdings, Inc. (formerly known as Wesco Holdings, Inc.)

        In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows present fairly, in all material respects, the financial position of Wesco Aircraft Holdings, Inc. (formerly known as Wesco Holdings, Inc.) and its subsidiaries (the "Company") at September 30, 2009 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2010 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
Los Angeles, California
December 22, 2010

F-2


Table of Contents


Wesco Aircraft Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

September 30, 2009 and 2010

(In thousands, except share and per share data)

 
  2009   2010  

Assets

             

Current assets

             
 

Cash and cash equivalents

  $ 11,406   $ 39,463  
 

Accounts receivable, net of allowance for doubtful accounts of $5,631 and $6,236 in 2009 and 2010

    83,200     89,427  
 

Inventories

    486,876     483,442  
 

Prepaid expenses and other current assets

    9,176     6,581  
 

Deferred income taxes

    23,558     33,138  
           
   

Total current assets

    614,216     652,051  

Property and equipment, net

   
20,561
   
20,173
 

Deferred financing costs, net

    15,144     10,329  

Goodwill

    506,066     504,841  

Intangible assets, net

    95,314     89,998  

Other assets

    3,511     1,620  
           
   

Total assets

  $ 1,254,812   $ 1,279,012  
           

Liabilities and Stockholders' Equity

             

Current liabilities

             
 

Line of credit

  $ 813   $  
 

Accounts payable

    61,033     59,183  
 

Accrued expenses and other current liabilities

    14,199     20,888  
 

Income taxes payable

    5,262     5,500  
 

Long-term debt—current portion

    5,528      
 

Capital lease obligations—current portion

    1,006     1,354  
           
   

Total current liabilities

    87,841     86,925  

Long-term debt

   
682,097
   
620,243
 

Capital lease obligations

    2,171     1,789  

Deferred income taxes

    7,605     23,927  

Other liabilities

    1,158     389  
           
   

Total liabilities

    780,872     733,273  

Commitments and contingencies

             

Stockholders' equity

             
 

Preferred stock, $0.001 par value per share: 1,000,000 shares authorized; no shares issued and outstanding

         
 

Common stock, class A, $0.001 par value per share: 19,000,000 shares authorized; 9,319,450 shares issued and outstanding

    9     9  
 

Class B convertible redeemable common stock, $0.001 par value per share:
2,000,000 shares authorized; 121,083 and 121,083 shares issued and outstanding at September 30, 2009 and 2010, respectively

    1     1  
 

Additional paid-in capital

    326,746     329,256  
 

Accumulated other comprehensive loss

    (2,903 )   (7,288 )
 

Retained earnings

    150,087     223,761  
           
   

Total stockholders' equity

    473,940     545,739  
           
   

Total liabilities and stockholders' equity

  $ 1,254,812   $ 1,279,012  
           

See the accompanying notes to the consolidated financial statements.

F-3


Table of Contents


Wesco Aircraft Holdings, Inc. and Subsidiaries

Consolidated Statements of Income

For the Years Ended September 30, 2008, 2009 and 2010

(In thousands, except share and per share data)

 
  2008   2009   2010  

Net sales

  $ 604,343   $ 612,687   $ 656,036  

Cost of sales

    347,735     374,400     401,806  
               
   

Gross profit

    256,608     238,287     254,230  

Selling, general and administrative expenses

    105,758     103,895     99,915  
               
   

Income from operations

    150,850     134,392     154,315  

Interest expense, net

    (48,743 )   (37,707 )   (36,270 )

Other income (expense), net

    746     (376 )   (458 )
               
   

Income before provision for income taxes

    102,853     96,309     117,587  
               

Provision for income taxes

    44,251     37,862     43,913  
               
     

Net income

  $ 58,602   $ 58,447   $ 73,674  
               

Net income per share:

                   
 

Basic

  $ 6.22   $ 6.19   $ 7.32  
               
 

Diluted

  $ 6.02   $ 5.87   $ 7.28  
               

Weighted average shares outstanding:

                   
 

Basic

    9,420,433     9,440,596     10,063,237  
 

Diluted

    9,740,158     9,964,748     10,118,648  

See the accompanying notes to the consolidated financial statements.

F-4


Table of Contents

Wesco Aircraft Holdings, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity and Comprehensive Income

For the Years Ended September 30, 2008, 2009 and 2010

(In thousands, except share and per share data)

 
   
   
  Class B
Convertible
Redeemable
Common Stock
   
   
   
   
   
 
 
  Class A
Common Stock
   
   
   
   
   
 
 
   
  Accumulated
Other
Comprehensive
Income (Loss)
   
   
   
 
 
  Additional
Paid-In
Capital
  Retained
Earnings
  Total
Stockholders'
Equity
  Comprehensive
Income
 
 
  Shares   Amount   Shares   Amount  

Balance, October 1, 2007

    9,319,450   $ 9     87,479   $ 1   $ 302,409   $ 325   $ 33,038   $ 335,782   $ 33,363  

Sale of common stock

            6,887         306             306        

Exercise of stock options

            17,656         655             655        

Stock-based compensation

            4,312         13,700             13,700        

Net income

                            58,602     58,602     58,602  

Other comprehensive income

                                                       
 

Foreign currency translation adjustment

                        728         728     728  
                                       

Total comprehensive income

                                                  $ 59,330  
                                                       

Balance, September 30, 2008

    9,319,450   $ 9     116,334   $ 1   $ 317,070   $ 1,053   $ 91,640   $ 409,773        

Exercise of stock options

            437         16             16        

Stock-based compensation

            4,312         10,389             10,389        

Redemption of vested stock options

                    (729 )           (729 )      

Net income

                            58,447     58,447     58,447  

Other comprehensive income

                                                       
 

Foreign currency translation adjustment, net of tax

                        (3,956 )       (3,956 )   (3,956 )
                                       

Total comprehensive income

                                                  $ 54,491  
                                                       

Balance, September 30, 2009

    9,319,450   $ 9     121,083   $ 1   $ 326,746   $ (2,903 ) $ 150,087   $ 473,940        

Stock-based compensation

                    2,510             2,510        

Net income

                            73,674     73,674     73,674  

Other comprehensive income

                                                       
 

Foreign currency translation adjustment, net of tax

                        (4,385 )       (4,385 )   (4,385 )
                                       

Total comprehensive income

                                                  $ 69,289  
                                                       

Balance, September 30, 2010

    9,319,450   $ 9     121,083   $ 1   $ 329,256   $ (7,288 ) $ 223,761   $ 545,739        
                                         

See the accompanying notes to the consolidated financial statements.

F-5


Table of Contents


Wesco Aircraft Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Years Ended September 30, 2008, 2009 and 2010

(In thousands)

 
  2008   2009   2010  

Cash flows from operating activities

                   

Net income

  $ 58,602   $ 58,447   $ 73,674  

Adjustments to reconcile net income to net cash provided by operating activities

                   
 

Amortization of intangible assets

    3,391     5,763     4,119  
 

Depreciation

    4,455     4,302     4,702  
 

Amortization of deferred financing costs

    3,379     3,703     4,814  
 

Bad debt and sales return reserve

    4,561     254     607  
 

Non-cash foreign currency exchange

    (600 )   364     242  
 

Non-cash stock-based compensation

    13,700     10,389     2,510  
 

Change in fair value of derivative

        4,102     2,558  
 

Deferred income tax provision

    3,836     14,024     6,741  
 

Changes in assets and liabilities

                   
   

Accounts receivable

    (11,162 )   4,429     (7,795 )
   

Income taxes receivable

    (63 )   7     (45 )
   

Inventories

    (58,749 )   (111,136 )   1,593  
   

Prepaid expenses and other assets

    (4,636 )   (959 )   4,448  
   

Accounts payable

    11,011     9,073     (1,099 )
   

Accrued expenses and other liabilities

    34     (3,446 )   3,423  
   

Income taxes payable

    (3,057 )   1,950     281  
               
     

Net cash provided by operating activities

    24,702     1,266     100,773  
               

Cash flows from investing activities

                   

Acquisition of business, net of cash acquired

    (109,029 )        

Purchases of property and equipment

    (6,769 )   (4,135 )   (3,077 )
               
     

Net cash used in investing activities

    (115,798 )   (4,135 )   (3,077 )
               

Cash flows from financing activities

                   

Net repayments under line of credit

    (2,394 )   (23 )   (796 )

Proceeds/(Repayments) of long-term debt

    100,000         (67,382 )

Financing fees

    (3,024 )        

Redemption of vested stock options

        (729 )    

Repayment of capital lease obligations

    (1,445 )   (984 )   (1,305 )

Proceeds from exercise of stock options

    977     16      
               
     

Net cash provided by (used in) financing activities

    94,114     (1,720 )   (69,483 )
               

Effect of foreign currency exchange rates on cash and cash equivalents

    118     (3 )   (156 )
               
     

Net increase (decrease) in cash and cash equivalents

    3,136     (4,592 )   28,057  

Cash and cash equivalents, beginning of period

    12,862     15,998     11,406  
               

Cash and cash equivalents, end of period

  $ 15,998   $ 11,406   $ 39,463  
               

      Supplemental disclosure of cash flow information (see Note 16)

See the accompanying notes to the consolidated financial statements.

F-6


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

(In thousands, except share and per share data)

Note 1. Organization and Business

        Wesco Aircraft Holdings, Inc. is a distributor and provider of comprehensive supply chain management services to the global aerospace industry. The Company's services range from traditional distribution to the management of supplier relationships, quality assurance, kitting, just-in-time, or JIT delivery, and point-of-use inventory management.

        In addition to the central stocking facilities, the Company uses a network of forward-stocking locations to service its customers in a JIT and/or ad hoc manner. There are over 15 stocking locations around the world with concentrations in North America and Europe. In addition to product fulfillment, the Company also provides comprehensive supply chain management services for selected customers. These services include procurement and just-in-time inventory management and delivery services.

        On September 29, 2006, 100% of the outstanding stock of Wesco Aircraft Hardware Corp., Wesco Aircraft Israel and the European entities of Flintbrook Ltd., Wesco Aircraft France and Wesco Aircraft Germany were acquired by the Company. The acquisition was completed in a leveraged transaction in which affiliates of The Carlyle Group invested approximately 85% of the total voting equity in the Company and the prior owner of the Company contributed the remaining 15% of the total voting equity invested. The prior owner's investment represented a contribution of ownership in the predecessor company to the newly formed holding company. In accordance with Accounting Standards Codification ("ASC") 805, Business Combinations , the acquired assets and liabilities have been recorded at fair value for the interests acquired by new investors and at carryover basis for the continuing investors.

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation

        The accompanying consolidated financial statements include the accounts of Wesco Aircraft Hardware Corp., Wesco Aircraft Europe Limited, Flintbrook Limited, Wesco Aircraft Germany GmbH, Wesco Aircraft France SAS, Wesco Aircraft Israel Ltd, and Wesco Aircraft Italy SRL. All intercompany accounts and transactions have been eliminated.

Use of Estimates in Preparation of Financial Statements

        The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. Estimates are used for, but not limited to, receivable valuations and sales returns, inventory valuations of excess and obsolete inventories, the useful lives of long-lived assets including property, equipment and intangible assets, annual goodwill impairment assessment, income taxes and contingencies. Actual results could differ from such estimates.

Cash and Cash Equivalents

        The Company considers all highly liquid investments with original maturities from date of purchase by the Company of three months or less to be cash equivalents.

F-7


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 2. Summary of Significant Accounting Policies (Continued)

Accounts Receivable

        Accounts receivable consist of amounts owed to the Company by customers. The Company performs periodic credit evaluations of the financial condition of its customers, monitors collections and payments from customers, and generally does not require collateral. Accounts receivable are generally due within 30 to 60 days. The Company provides for the possible inability to collect accounts receivable by recording an allowance for doubtful accounts. The Company reserves for an account when it is considered to be uncollectible. The Company estimates its allowance for doubtful accounts based on historical experience, aging of accounts receivable and information regarding the creditworthiness of its customers. To date, losses have been within the range of management's expectations. If the estimated allowance for doubtful accounts subsequently proves to be insufficient, additional allowances may be required.

        The Company's allowance for doubtful accounts activity consists of the following:

 
  Balance at
Beginning of Period
  Changes to
Cost and
Expense
  Write-offs   Balance at
End of Period
 

Allowance for doubtful accounts at September 30, 2008

  $ 3,333   $ 4,500   $   $ 7,833  

Allowance for doubtful accounts at September 30, 2009

    7,833     169     (2,371 )   5,631  

Allowance for doubtful accounts at September 30, 2010

    5,631     605         6,236  

Inventories

        The Company's inventory is comprised solely of finished goods. Inventories are stated at the lower of weighted-average cost or market. In-bound freight-related costs are included as part of the cost of inventory held for resale. The Company records provisions, as appropriate, to write-down excess and obsolete inventory to estimated net realizable value. The process for evaluating excess and obsolete inventory often requires the Company to make subjective judgments and estimates concerning future sales levels, quantities and prices at which such inventories will be able to be sold in the normal course of business.

        Incorrect estimates of future sales may cause the actual results to differ from the estimates at the time such inventories are disposed or sold.

        During the years ended September 30, 2009 and 2010, the Company maintained approximately 22% and 20%, respectively, of its inventory in parts that are primarily used in Boeing 787 aircraft. To date, Boeing has experienced a number of delays in completion of this aircraft. As such, there is a risk that the Company will not be able to realize some portion of this investment.

Property and Equipment

        Property and equipment are stated at cost, less accumulated amortization and depreciation, computed using the straight-line method over the estimated useful life of each asset. Leasehold improvements are amortized over the lesser of the remaining lease term or the estimated useful life of

F-8


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 2. Summary of Significant Accounting Policies (Continued)


the assets. Expenditures for repair and maintenance costs are expensed as incurred, and expenditures for major renewals and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the accounts and any gain or loss is reflected in the Company's consolidated statements of operations. The useful lives and lease terms for depreciable assets are as follows:

Leasehold improvements   3 - 15 years
Machinery and equipment   5 - 7 years
Furniture and fixtures   7 years
Vehicles   5 years
Computer & Software   3 - 5 years

Impairment of Long Lived Assets

        The Company assesses potential impairments of its long-lived assets in accordance with the provisions of ASC 360, Property, Plant, and Equipment . An impairment review is performed whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Factors considered by the Company include, but are not limited to: significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of use of the acquired assets or the strategy for the overall business; and significant negative industry or economic trends. The Company has determined that its asset group for impairment testing is comprised of the assets and liabilities of each of its reporting units as this is the lowest level of identifiable cash flows. The Company has identified customer relationships as the primary asset because it is the principle asset from which the reporting units derive their cash flow generating capacity and has the longest remaining useful life. The recoverability is assessed by comparing the carrying value of the assets group to the undiscounted cash flows expected to be generated by these assets. Impairment losses are measured as the amount by which the carrying values of the primary assets exceed their fair values. To date, the Company has not recognized an impairment charge related to the write-down of long-lived assets.

Deferred Financing Costs

        Deferred financing costs are amortized using the effective interest method over the term of the related credit arrangement and are included in interest expense in the consolidated statement of operations. Amortization of deferred financing costs was $3,379, $3,703 and $4,814, respectively, for the years ended September 30, 2008, 2009 and 2010. At September 30, 2009 and September 30, 2010, accumulated amortization of deferred financing cost amounted to $10,695 and $15,509, respectively.

Goodwill and Indefinite-Lived Intangible Assets

        Goodwill represents the excess of the purchase price of the acquired businesses over the fair value of the assets acquired and liabilities assumed resulting from the acquisition. In accordance with the provisions of ASC 350, Intangibles—Goodwill and Other , goodwill and indefinitely lived intangible assets acquired in a purchase business combination are not amortized, but instead tested for impairment at least annually or more frequently should an event occur or circumstances indicate that the carrying amount may be impaired. Such events or circumstances may be a significant change in business climate,

F-9


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 2. Summary of Significant Accounting Policies (Continued)


economic and industry trends, legal factors, negative operating performance indicators, significant competition, changes in strategy or disposition of a reporting unit or a portion there of. Goodwill impairment testing is performed at the reporting unit level on July 1 of each year.

        Goodwill impairment testing is a two-step test. The first step identifies potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value exceeds its carrying amount, goodwill is not considered impaired and the second step of the test is unnecessary. If the carrying amount of a reporting unit's goodwill exceeds its fair value, the second step measures the impairment loss, if any. The second step compares the implied fair value of goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

        Application of the goodwill impairment test requires judgment, including the identification of reporting units assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated using a combination of market earnings multiples and discounted cash flow methodologies. This requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth of the Company's business, the useful life over which cash flows will occur and determination of the Company's weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

        Intangible assets with indefinite useful lives are not amortized but tested annually on July 1 st for impairment or more often if events or circumstances change that would create a triggering event. The Company has one indefinite-lived intangible asset, its trademark. The valuation of the trademark was derived from an income approach by which the relief from royalty method was applied valuing the savings as cash flow. The relief from royalty method requires assumptions to be made concerning forecasted net sales, a discount rate, and a royalty rate. The underlying concept of the relief from a royalty method is that the value of the trademark can be estimated by determining the cost savings the Company achieves by not having to license the trademark. Changes in projections or estimates, a deterioration of operating results and the related cash flow effect or a significant increase in the discount rate or decrease is the royalty rate could decrease the estimated fair value and result in impairments.

        During the year ended September 30, 2009 and September 30, 2010, the decrease in goodwill was due to foreign currency translation effect of $1,178 and $1,225, respectively.

Lease Receivable

        Lease receivable comprises direct-financing lease and maintenance arrangements for tools leased to various customers. These agreements typically have terms of five years and are generally collateralized by a security interest in the underlying assets. The current portion of lease receivables is approximately $2,047 and $1,631 at September 30, 2009 and 2010, respectively, and recorded in prepaid expenses and other current assets. The non-current portion is approximately $3,076 and $1,187 at

F-10


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 2. Summary of Significant Accounting Policies (Continued)


September 30, 2009 and 2010, respectively, and is recorded in other assets in the consolidated balance sheets.

Fair Value of Financial Instruments

        The Company's financial instruments consist of cash and cash equivalents, accounts receivable and payable, accrued and other current liabilities and line of credit. The carrying amounts of these instruments approximate fair value because of their short-term maturities. The fair value of the long-term debt instruments are determined using current applicable rates for similar instruments as of the balance sheet date. The carrying amounts and fair value of the debt instruments as of September 30, 2010 were as follows:

 
  Carrying Value   Fair Value  

$550,000 term loan

  $ 477,243   $ 467,064  

$150,000 term loan

  $ 143,000   $ 139,924  

Comprehensive Income

        ASC 220, Comprehensive Income , establishes guidelines for the reporting and display of comprehensive income and its components in financial statements. Comprehensive income generally represents all changes in stockholders' equity, except those resulting from investments by or distributions to stockholders. The Company's comprehensive income includes foreign currency translation adjustments and is included in the consolidated statements of stockholders' equity and comprehensive income.

Revenue Recognition

        The Company recognizes hardware and service revenue when (i) persuasive evidence of an arrangement exists, (ii) title transfers to the customer, (iii) the sales price charged is fixed or determinable and (iv) collection is reasonably assured.

        In connection with the sales of its products, the Company often provides certain supply chain management programs. These services are provided exclusively in connection with the sales of products, and as such, the price of such services is generally included in the price of the products delivered to the customer. The Company does not account for these services as a separate element, as the services do not have stand-alone value and cannot be separated from the product element of the arrangement. Additionally, the Company does not present service revenues apart from product revenues, as the service fees represent less than 5% of the Company's consolidated net sales. There are no significant post-delivery obligations associated with these services.

        The Company also enters into sales rebates and profit sharing arrangements. Such customer incentives are accounted for as a reduction to gross sales and recorded based upon estimates at the time products are sold. These estimates are based upon historical experience for similar programs and products. The Company reviews such rebates and profit sharing arrangements on an ongoing basis and accruals are adjusted, if necessary, as additional information becomes available.

F-11


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 2. Summary of Significant Accounting Policies (Continued)

        Management provides allowances for credit losses and returns based on historic experience and adjusts such allowances as considered necessary. To date, such allowances have been within the range of management's expectations.

        In connection with the Company's JIT supply chain management programs, the Company at times assumes customer inventory on a consignment basis. This consigned inventory remains the property of the customer but is managed and distributed by the Company. The Company earns a fixed fee per unit on each shipment of the consigned inventory; such amounts represent less than 1% of consolidated revenues.

        The Company leases certain equipment under its tool leasing program. Such arrangements represent direct-financing leases under which the Company recognizes revenue over the lease term using consistent rates of return. Since the revenue earned under these leasing arrangements represents less than 1% of the Company's consolidated revenues, the sales earned from such arrangements are included in net sales within the consolidated statements of income and are not presented separately as financing income.

Shipping and Handling Costs

        The Company records revenue for shipping and handling billed to its customers. Shipping and handling revenues were approximately $2,080, $1,418 and $1,031 for the years ended September 30, 2008, 2009 and 2010, respectively.

        Shipping and handling costs are included in cost of sales. Total shipping and handling costs were approximately $3,752, $4,033 and $4,009 for the years ended September 30, 2008, 2009 and 2010, respectively.

Income Taxes

        The Company accounts for income taxes in accordance with ASC 740, Income Taxes . ASC 740 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established, when necessary, to reduce net deferred tax assets to the amount expected to be realized. The Company's foreign subsidiaries are taxed in local jurisdictions at local statutory rates. The Company intends to reinvest all earnings of foreign subsidiaries.

Concentration of Credit Risk and Significant Vendors

        The Company maintains its cash and cash equivalents in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk from cash and cash equivalents.

F-12


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 2. Summary of Significant Accounting Policies (Continued)

        The Company purchases its products on credit terms from vendors located throughout North America and Europe. For the years ended September 30, 2008, 2009 and 2010, the Company made approximately 12%, 13% and 22%, respectively, of its purchases from Precision Castparts Corporation and the amounts payable to this vendor was approximately 10% and 17% of accounts payable at September 30, 2009 and 2010, respectively. Additionally, for the years ended September 30, 2008, 2009 and 2010, the Company made approximately 18%, 19% and 20% respectively, of its purchases from Alcoa Fastening Systems and the amounts payable to this vendor were approximately 12% and 18% of amounts payable at September 30, 2009 and 2010, respectively. The majority of the products the Company sells are available through multiple channels and, therefore, the Company does not consider that its risk related to any vendor relationship is material.

        For the years ending September 30, 2008, 2009 and 2010, the Company derived approximately 10%, 11% and 15%, respectively, of its recorded sales from The Boeing Company and the accounts receivable balance associated with this customer was approximately 6% and 11% at September 30, 2009 and 2010, respectively.

Foreign Currency Translation

        The financial statements of the foreign subsidiaries are translated into U.S. Dollars in accordance with ASC 830, Foreign Currency Matters . The financial statements of foreign subsidiaries and affiliates where the local currency is the functional currency are translated into U.S. Dollars using exchange rates in effect at the year-end for assets and liabilities and average exchange rates during the year for results of operations. The adjustment resulting from translating the financial statements of such foreign subsidiaries is reflected as a separate component of stockholders' equity. Foreign currency transaction gains and losses are reported as other income (expense), net in the consolidated statements of income. For the years ended September 30, 2008, 2009 and 2010, foreign currency transaction gains and (losses) were approximately $610, $(486) and $(651), respectively.

Stock-Based Compensation

        The Company accounts for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation . ASC 718 requires all stock-based awards to employees and directors to be recognized as stock-based compensation expense based upon their fair values on the date of grant. In March 2005, the Securities Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 107, Share-Based Payment , which provides guidance regarding the interaction of ASC 718 and certain SEC rules and regulations. The Company has applied the provision of SAB No. 107 in its adoption of ASC 718.

        ASC 718 requires companies to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense during the requisite service periods. The Company has estimated the fair value for each award as of the date of grant using the Black-Scholes option pricing model. The Black-Scholes model considers, among other factors, the expected life of the award and the expected volatility of the Company's stock price. The Company recognizes the stock-based compensation expense using the graded vesting method over the requisite service periods, which is generally a vesting term of 5 years. Stock options typically have a term of 10 years. The stock options

F-13


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 2. Summary of Significant Accounting Policies (Continued)


granted had an exercise price equal to the estimated fair value of the Company's common stock on the grant date.

Net Income Per Share

        Basic net income per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. At September 30, 2008, 2009 and 2010, 412,394, 595,051 and 219,107 shares, respectively, of restricted stock and stock options issued to employees were unvested and, therefore, excluded from the calculation of basic earnings per share for each of the fiscal years ended on those dates. Diluted net income per share includes the dilutive effect of both outstanding stock options and restricted shares, calculated using the treasury stock method. Assumed proceeds from the in-the-money options include the windfall tax benefits, net of shortfalls, calculated under the "as-if" method as prescribed by ASC 718.

 
  September 30,  
 
  2008   2009   2010  
 
  (In thousands, except share and
per share data)

 

Net income

  $ 58,602   $ 58,447   $ 73,674  
               

Basic weighted average shares outstanding

    9,420,433     9,440,596     10,063,237  

Dilutive effect of stock options and restricted stock awards/units

    319,725     524,152     55,411  
               

Diluted weighted average shares outstanding

    9,740,158     9,964,748     10,118,648  
               

Basic net income per share

  $ 6.22   $ 6.19   $ 7.32  
               

Diluted net income per share

  $ 6.02   $ 5.87   $ 7.28  
               

        Shares of common stock equivalents of 18,489, 76,188 and 61,325 for fiscal 2008, 2009 and 2010, respectively, were excluded from the diluted calculation due to their anti-dilutive effect.

Note 3. Recent Accounting Pronouncements

        Changes to accounting principles generally accepted in the United States of America ("U.S. GAAP") are established by the Financial Accounting Standards Board ("FASB") in the form of Accounting Standards Updates ("ASUs") to the FASB's ASC.

        The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company's consolidated financial position and results of operations.

        In October 2009, the FASB issued guidance on revenue arrangements with multiple deliverables effective for the Company's 2012 fiscal year, although early adoption is permitted. The guidance revises the criteria for separating, measuring and allocating arrangement consideration to each deliverable in a multiple element arrangement. The guidance requires companies to allocate revenue using the relative selling price of each deliverable, which must be estimated if the Company does not have a history of

F-14


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 3. Recent Accounting Pronouncements (Continued)


selling the deliverable on a stand-alone basis or third-party evidence of selling price. The Company does not believe that the adoption of this guidance will significantly change the timing in which revenue is recorded as the pricing of its service components are included in the per unit price of the products delivered to the customer that is solely contingent on the number of units sold. As a result, the revenue earned on the service element does not become fixed or determinable until delivery of the product has taken place.

        In June 2009, the FASB issued guidance to revise the approach to determine when a variable interest entity ("VIE") should be consolidated. The new consolidation model for VIEs considers whether the Company has the power to direct the activities that most significantly impact the VIE's economic performance and shares in the significant risks and rewards of the entity. The guidance on VIEs requires companies to continually reassess VIEs to determine if consolidation is appropriate and provide additional disclosures. The guidance is effective for the Company's 2011 fiscal year. The Company is assessing the potential effect of this guidance will have on its financial statements.

        In January 2010, the FASB issued guidance that revised two disclosure requirements concerning fair value measurements and clarifies two others. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers. It will also require the presentation of purchases, sales, issuances and settlements within Level 3 on a gross basis rather than a net basis. The guidance also clarifies that disclosures should be disaggregated by class of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and non-recurring fair value measurements. These new disclosure requirements will become effective for the Company's financial statements for the period ended September 30, 2011, except for the requirement concerning gross presentation of Level 3 activity, which will become effective for fiscal years beginning after December 15, 2010. Since this guidance is only related to financial statement disclosures, there will be no impact to the Company's financial results as a result of the adoption of this guidance.

Note 4. Related Party Transactions

        The Company entered into a management agreement with The Carlyle Group to provide certain financial, strategic advisory and consultancy services. Under this management agreement, the Company is obligated to pay The Carlyle Group, or a designee thereof, an annual management fee of $1,000 plus fees and expenses associated with company-related meetings. The Company incurred expense of approximately $1,202, $1,008 and $1,070 for the years ended September 30, 2008, 2009 and 2010, respectively, related to this management agreement. These amounts were paid to The Carlyle Group during the years ended September 30, 2008, 2009 and 2010.

        The Company leases several office and warehouse facilities under operating lease agreements from entities controlled by the Company's CEO. Rent expense on these facilities was approximately $1,688, $1,689 and $1,709 for the years ended September 30, 2008, 2009 and 2010, respectively (see Note 14).

        On June 30, 2008, the Company's CEO purchased $50,000 of the total debt outstanding. For the years ended September 30, 2008, 2009 and 2010, total interest paid to the minority stockholder related to the debt was approximately $647, $1,635 and $1,222, respectively.

F-15


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 5. Property and Equipment, net

        Property and equipment, net, consist of the following:

 
  2009   2010  

Leasehold improvements

  $ 9,516   $ 9,775  

Machinery and equipment

    9,148     11,403  

Vehicles

    695     713  

Computer and software

    7,528     9,485  

Furniture and fixtures

    2,782     2,453  

Construction in progress

    175      
           

    29,844     33,829  

Less: accumulated depreciation and amortization

    (9,283 )   (13,656 )
           
 

Property and equipment, net

  $ 20,561   $ 20,173  
           

        At September 30, 2009 and 2010, property and equipment included assets of approximately $3,927 and $5,196, respectively, acquired under capital lease arrangements. Accumulated amortization of assets acquired under capital leases was approximately $1,080 and $2,237 as of September 30, 2009 and 2010, respectively.

        Depreciation and amortization expense for property and equipment was approximately $4,455, $4,302 and $4,702 during the years ended September 30, 2008, 2009 and 2010, respectively (including amortization expense of approximately $1,337, $2,158 and $1,157 on assets acquired under capital leases for 2008, 2009 and 2010, respectively).

Note 6. Intangible Assets, net

        As of September 30, 2009 and 2010, the gross amounts and accumulated amortization of intangible assets is as follows:

 
  2009   2010  
 
  Gross
Amount
  Accumulated
Amortization
  Gross
Amount
  Accumulated
Amortization
 

Customer relationships (12 to 20 year life)

  $ 65,962   $ (9,599 ) $ 64,560   $ (12,832 )

Trademarks (5 years to indefinite life)

    39,332     (1,500 )   39,332     (1,500 )

Backlog (2 year life)

    1,150     (719 )   1,150     (1,150 )

Non-compete agreements (4 year life)

    1,000     (312 )   1,000     (562 )
                   
 

Total intangible assets

  $ 107,444   $ (12,130 ) $ 106,042   $ (16,044 )
                   

F-16


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 6. Intangible Assets, net (Continued)

        Estimated future amortization expense at September 30, 2010 is as follows:

2011

  $ 3,763  

2012

    3,701  

2013

    3,513  

2014

    3,513  

2015

    3,513  

Thereafter

    35,285  
       

  $ 53,288  
       

        In addition to its amortizing intangibles, the Company assigned an indefinite life to the Wesco Aircraft trademark. As of September 30, 2010, the trademark had a carrying value of $37,832. Amortization expense included in the accompanying statements of operations for the years ended September 30, 2008, 2009 and 2010 was $3,391, $5,763 and $4,119, respectively.

Note 7. Accrued Expenses and Other Current Liabilities

        Accrued expenses and other current liabilities consist of the following:

 
  2009   2010  

Accrued compensation and related expenses

  $ 4,610   $ 8,392  

Accrual for commissions

    933     956  

Accrued professional fees

    626     778  

Fair value of the interest rate swap

    4,102     6,660  

Unearned revenue

    867     633  

Accrued customer rebates

    1,631     2,146  

Accrued taxes (property, sales and use)

    582     954  

Accrued interest

    216     76  

Other accruals

    632     293  
           
 

Accrued expenses and other current liabilities

  $ 14,199   $ 20,888  
           

Note 8. Derivative Financial Instruments

        The Company entered into an interest rate swap arrangement in order to manage its net exposure to interest rate changes on the Company's long-term debt. Interest rate swap contracts involve the exchange of floating rate interest payment obligations for fixed interest rate payments without the exchange of the underlying principal amounts. The Company accounts for this arrangement pursuant to the provisions of ASC 815, Derivatives and Hedging . ASC 815 establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at fair value and that any changes in fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company's interest rate swap arrangement is not designated as a hedge pursuant to ASC 815 and, accordingly, the Company reflects the change in fair value of the interest rate swap in the consolidated statements of operations as part of interest expense.

F-17


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 8. Derivative Financial Instruments (Continued)

        These arrangements also contain an element of risk in that the counterparties may be unable to meet the terms of such arrangements. In the event the parties required to deliver commitments are unable to fulfill their obligations, the Company could potentially incur significant additional costs by replacing the positions at then current market rates. The Company manages its risk of exposure by limiting counterparties to those banks and institutions deemed appropriate by management. The Company considers its own risk of non-performance to be limited. Upon the maturity of its previous interest rate swaps, the Company entered into two interest rate swaps arrangements, which expire in February and June 2012. Each interest rate swap converts the interest rate on approximately $200,000 (notional amount) of its outstanding debt from variable rates to a fixed interest rate. The swap agreements have fixed the LIBOR component of the term debt to interest rates of 1.77% and 1.96%.

        The following table includes the notional amounts and fair value of derivative financial instruments as of September 30, 2009 and September 30, 2010:

 
  September 30, 2009   September 30, 2010  
 
  Notional
Amount
  Fair Value   Notional
Amount
  Fair Value  

Swap contracts

  $ 400,000   $ (4,102 ) $ 400,000   $ (6,660 )

        During the years ended September 30, 2008, 2009 and 2010, the Company recorded losses in the amount of $0, $4,102 and $2,558, respectively, as a result of changes in fair value of derivative financial instruments. These losses are recorded as a component of interest expense.

Note 9. Fair Value of Financial Instruments

        Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine fair value, the Company primarily utilizes reported market transactions and discounted cash flow analyses. On October 1, 2008, the Company adopted the FASB's new fair value model that establishes a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs to valuation techniques into three broad levels whereby the highest priority is given to Level 1 inputs and the lowest to Level 3 inputs. The three broad categories are:

Level 1:   Quoted prices in active markets for identical assets or liabilities.

Level 2:

 

Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.

Level 3:

 

Unobservable inputs for the asset or liability.

        The Company makes use of observable market-based inputs to calculate fair value, in which case the measurements are classified within Level 2. If quoted or observable market prices are not available,

F-18


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 9. Fair Value of Financial Instruments (Continued)


fair value is based upon internally developed models that use, where possible, current market-based parameters such as interest rates, yield curves and currency rates. These measurements are classified within Level 3.

        Fair value measurements are classified according to the lowest level input or value-driver that is significant to the valuation. A measurement may therefore be classified within Level 3 even though there may be significant inputs that are readily observable.

        The guidance on fair value measurements expanded the definition of fair value to include the consideration of nonperformance risk. Nonperformance risk refers to the risk that an obligation (either by a counterparty or us) will not be fulfilled. For financial assets traded in an active market (Level 1), the nonperformance risk is included in the market price. For certain other financial assets and liabilities (Level 2 and 3), the Company's fair value calculations have been adjusted accordingly.

        Where available, the Company utilizes quoted market prices or observable inputs rather than unobservable inputs to determine fair value.

        The valuation techniques used and key assumptions made to estimate the fair value of financial instruments measured at fair value are:

Derivative Financial Instruments

        Exchange-traded derivative financial instruments are valued based on quoted market prices and classified within Level 1 of the valuation hierarchy. Derivative financial instruments that are traded on an index are valued based on direct or indirect prices and classified within Level 2 of the valuation hierarchy. If quoted market prices or other observable inputs are not available, fair value is based on unobservable inputs and classified within Level 3 of the fair value hierarchy.

        The following tables set forth assets and liabilities measured at fair value as of September 30, 2009 and 2010, categorized by input level within the fair value hierarchy:

 
  Fair Value Measurements Using  
 
  Quoted Prices
in Active
Markets
  Significant
Other
Observable
Inputs
  Significant
Unobservable
Inputs
 
 
  Level 1   Level 2   Level 3  

September 30, 2009

                   

Financial instruments measured at fair value on a recurring basis

                   
 

Derivative financial instruments

      $ (4,102 )    

 

 
  Level 1   Level 2   Level 3  

September 30, 2010

                   

Financial instruments measured at fair value on a recurring basis

                   
 

Derivative financial instruments

      $ (6,660 )    

F-19


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 9. Fair Value of Financial Instruments (Continued)

        The fair value of our derivative financial instruments was estimated using the net present value of a series of cash flows on both the cap and floor components of the interest rate collars. These cash flows were based on yield curves that take into account the contractual terms of the derivatives, including the period to maturity and market-based parameters such as interest rates and volatility. The Company incorporates nonperformance risk by adjusting the present value of each liability position utilizing an estimation of its credit risk.

Note 10. Long-Term Debt

        Long-term debt consists of the following at:

 
  September 30,  
 
  2009   2010  

$550,000 term loan, bearing interest based on Alternate Base Rate ("ABR") (defined as Prime Rate plus the applicable margin rate of 1.25%) or Eurodollar (defined as London Inter-Bank Offer Rate ("LIBOR") rates plus the applicable margin rate of 2.25%), at the option of the Company. The term loan is payable quarterly equal to 0.25% of the principal amount of $550,000 with the final payment due on September 29, 2013. Interest rate was 2.51% at September 30, 2010. 

  $ 537,625   $ 477,243  

$150,000 term loan, bearing interest based on ABR (defined as Prime Rate plus the applicable margin rate of 4.75%) or Eurodollar rate (defined as LIBOR rates plus an applicable margin rate of 5.75%), at the option of the Company. The entire balance is due on March 28, 2014. Interest rate was 6.01% at September 30, 2010. 

   
150,000
   
143,000
 
           

    687,625     620,243  

Less: current portion

    (5,528 )    
           
 

Long-term debt

  $ 682,097   $ 620,243  
           

        Aggregate maturities of long-term debt as of September 30, 2010 are as follows:

Years Ended September 30,

       

2011

  $  

2012

     

2013

    477,243  

2014

    143,000  
       

  $ 620,243  
       

        During year ended September 30, 2010, the Company made prepayments totaling approximately $61,854, exclusive of contractually scheduled payments, on its $550,000 and $150,000 term loans. In accordance with the loan agreement, $61,854 was applied to the Company's regular quarterly payments of $1,382 in 2011, 2012 and 2013, with the excess applied to the Company's balloon payment. As of September 30, 2010, the Company had prepaid all required quarterly payments.

F-20


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 10. Long-Term Debt (Continued)

        As part of the loan agreement, the Company had a $75,000 revolving line of credit that expires on September 28, 2012. The applicable margin for the revolving facility is determined based on the ratio of the Company's EBITDA, as defined in the loan agreement, for the most recently ended four fiscal quarters and ranges between 0.75% and 1.50% for the ABR Loans and range between 1.75% and 2.50% for the Eurodollar Loans. There was no outstanding borrowing under this line of credit as of September 30, 2010 or at any point during fiscal year 2010. Annual commitment fees for this line of credit approximate $281.

        In October 2008, the administrative and collateral agent under the Company's revolving line of credit, Lehman Commercial Paper Inc. ("LCPI"), filed for bankruptcy. LCPI is a lender under the Company's revolving credit facility with a commitment of approximately $20,000. As a result of LCPI's actions, the Company's availability to access these funds is at risk. The Company does not expect that LCPI's potential inability to fund this commitment would have a material adverse impact on its liquidity.

        The Company's subsidiary, Wesco Aircraft Europe Limited, has available a £10,000 ($15,800 based on the September 30, 2010 exchange rate) line of credit that automatically renews annually on October 1. The line of credit bears interest based on the base rate plus an applicable margin of 1.15%. The net outstanding borrowing under this line of credit was £511 ($813) and zero as of September 30, 2009 and 2010, respectively.

        Under the terms and definitions of the credit agreements, the Company is required to maintain a net debt-to-EBITDA ratio not to exceed 4.5, an EBITDA-to-net interest expense ratio greater than 2.25, and capital expenditures not to exceed $10,000 per year. The credit agreement also restricts the Company from incurring certain additional indebtedness, payment of dividends and sale of substantial assets, and limits certain investments. The Company was in compliance with these covenants at September 30, 2010.

        Borrowings under these credit facilities are collateralized by all of the assets of the Company.

Note 11. Income Taxes

        Income before provision for income taxes for the years ended September 30, 2008, 2009 and 2010 included the following:

 
  2008   2009   2010  

U.S. income

  $ 88,978   $ 81,446   $ 108,846  

Foreign income

    13,875     14,863     8,741  
               
 

Total

  $ 102,853   $ 96,309   $ 117,587  
               

F-21


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 11. Income Taxes (Continued)

        The components of the Company's income tax provision for the years ended September 30, 2008, 2009 and 2010 are as follows:

 
  2008   2009   2010  

Current provision

                   

Federal

  $ 27,262   $ 12,228   $ 28,692  

State and local

    5,440     4,808     4,724  

Foreign

    7,700     6,789     3,755  
               
   

Subtotal

    40,402     23,825     37,171  
               

Deferred provision (benefit)

                   

Federal

    3,177     12,313     5,415  

State and local

    670     1,776     1,336  

Foreign

    2     (52 )   (9 )
               
   

Subtotal

    3,849     14,037     6,742  
               
 

Provision for income taxes

  $ 44,251   $ 37,862   $ 43,913  
               

        Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

        The Company's deferred income tax assets consist of the following at September 30, 2009 and 2010:

 
  2009   2010  

Deferred tax assets

             

Inventories

  $ 9,759   $ 17,701  

Reserves and other accruals

    3,876     4,654  

Compensation accruals

    9,923     10,783  
           
 

Total deferred tax assets

    23,558     33,138  

Deferred tax liabilities, net

             

Property and equipment

    (2,704 )   (3,442 )

Goodwill and intangible assets

    (9,637 )   (26,230 )

Stock options

    4,460     5,219  

Deferred financing costs

    276     526  
           
 

Total deferred tax liabilities, net

    (7,605 )   (23,927 )
           
 

Net deferred tax assets

  $ 15,953   $ 9,211  
           

F-22


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 11. Income Taxes (Continued)

        The following deferred tax balances are included in the consolidated balance sheets as of September 30, 2009 and 2010:

 
  2009   2010  

Current deferred tax assets

  $ 23,558   $ 33,138  

Non-current deferred tax liabilities

    (7,605 )   (23,927 )
           
 

Net deferred tax assets

  $ 15,953   $ 9,211  
           

        The Company believes its net deferred tax assets are more likely than not to be realized based on historical and projected taxable income levels.

        The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and various non-U.S. jurisdictions. The earliest tax year still subject to examination by a significant taxing jurisdiction is September 30, 2006.

        The undistributed earnings of the Company's foreign subsidiaries, which amount to $29,384, are considered to be indefinitely reinvested. Accordingly, no provision for federal or state and local taxes or foreign withholding taxes has been provided on such undistributed earnings.

        The Company adopted the provision of Accounting for Uncertainty in Income Taxes during the year ended September 30, 2008. As a result of adoption, the Company did not identify any material positions that would not meet the more likely than not recognition threshold. As of September 30, 2009 and September 30, 2010, there are no uncertain tax positions.

        A reconciliation of the Company's provision for income taxes from applying the domestic federal statutory tax rate of 35% to actual income tax expense is as follows for the years ended September 30, 2008, 2009 and 2010:

 
  2008   2009   2010  

Provision for income taxes using the domestic federal statutory rate

  $ 36,043     35.00 % $ 33,543     35.00 % $ 41,155     35.00 %

State taxes, net of tax benefit

    3,972     3.90     4,279     4.47     3,989     3.39  

Nondeductible items

    1,218     1.20     1,365     1.42     1,309     1.11  

Other

    3,563     3.50     26     0.03     (704 )   (0.60 )

Foreign income tax not taxed at the Federal rate

    1,455     1.40     1,405     1.47     572     0.45  

Foreign tax credit

    (2,000 )   (1.90 )   (2,756 )   (2.88 )   (2,408 )   (2.05 )
                           

Actual provision for income taxes

  $ 44,251     43.10 % $ 37,862     39.51 % $ 43,913     37.30 %
                           

Note 12. Stockholders' Equity

        The various classes of stock differ primarily with respect to the voting and conversion rights. Only common stock—Class A shares have voting rights. Class B convertible redeemable common stock automatically converts to Class A common stock on a one-for-one basis immediately prior to a merger or consolidation of the Company in which the holders of the Class A common stock cease to hold

F-23


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 12. Stockholders' Equity (Continued)


more than 50% of the voting securities of the Company outstanding immediately prior to such transaction or upon the sale of substantially all the assets of the Company.

Note 13. Stock-Based and Other Compensation Arrangements

        The Company's Equity Incentive Plan (the "Plan") provides for the issuance of stock options, restricted stock awards, and restricted stock units to certain employees, directors, and consultants to purchase shares of the Company's Class B convertible redeemable common stock. These awards are subject to call rights by the Company upon the occurrence of certain events, including employee separation. Awards that are called by the Company are valued at fair market value, as determined by the Company's Board of Directors. The aggregate number of shares that can be issued under this plan is 1,700,000 shares.

        Additionally, the Company adopted a Stock Purchase Plan that provides an opportunity for key employees, directors and consultants to purchase shares of Class B convertible redeemable common stock. The aggregate number of shares that can be issued under this plan is 150,000 shares. Shares purchased under the plan are purchased at fair value on the date of purchase. As of September 30, 2010, 33,827 shares have been issued.

Stock Options

        The Company's stock options typically vest over 5 years on the basis of continuous employment and financial performance of the Company, as further defined below. Of the total options granted, 25% are time-based options and 75% represent performance-based options. Vested shares are exercisable at any time until the earlier of a change in control or approximately 10 years from the date of the option grant. Certain vesting restrictions may apply in the year of change of control. The stock options granted had an exercise price equal to the estimated fair value of the Company's common stock on the grant date.

Continuous Employment Conditions

        At September 30, 2010, the Company has outstanding 212,158 time-based stock options under the Plan, which will vest on the basis of continuous employment with the Company. Most of the time-based options vest in 20% increments over a period of 5 years. In case of a liquidity event, all the time-vesting options shall become fully vested and exercisable prior to the effective date of the first liquidity event. A liquidity event includes a sale, transfer or disposition of the equity securities of the Company held by all of the principal stockholders such that following such a transaction the total number of equity shares held by all of the principal stockholders is less than 30% of the total number of shares held at the effective date of acquisition of the Company, or a sale, transfer or other disposition of substantially all of the assets of the Company.

Performance Conditions

        At September 30, 2010, the Company had outstanding 628,209 performance-based stock options (the "performance options") under the Plan to employees and directors. Most performance options vest in 20% increments over 5 years and become exercisable on the last day of each fiscal year, or

F-24


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 13. Stock-Based and Other Compensation Arrangements (Continued)


within 120 days after, if the following conditions are met: (i) if Bonus EBITDA for the applicable year equals or exceeds the financial results target for the applicable year, then 10% of the performance options shall become vested and exercisable; and (ii) if Bonus Cash Flow for the applicable year equals or exceeds the Bonus Cash Flow target for the applicable year, then the remaining 10% of the performance options shall become vested and exercisable.

        If the Bonus EBITDA for the applicable year is less than the target set for the year but at least 90% of the Bonus EBITDA target through the end of such applicable year, then that portion of the performance options shall become exercisable on the last day of the fiscal year following the missed target year (the "Bonus EBITDA cumulative catch up year") or within 120 days thereafter if: (i) Bonus EBITDA equals or exceeds the Bonus EBITDA target for the cumulative catch up year and (ii) the cumulative Bonus EBITDA equals or exceeds the cumulative Bonus EBITDA target for the cumulative catch up year.

        If the Bonus Cash Flow for the applicable year is less than the Bonus Cash Flow target for the year but at least 90% of the Bonus Cash Flow target through the end of such applicable year, then that portion of the performance options shall become exercisable on the last day of the fiscal year following the Bonus Cash Flow missed year (the "Bonus Cash Flow cumulative catch up year") or within 120 days thereafter if: (i) Bonus Cash Flow equals or exceeds the Bonus Cash Flow target for the Bonus Cash Flow cumulative catch up year and (ii) the cumulative Bonus Cash Flow equals or exceeds the cumulative Cash Flow target for the Bonus Cash Flow cumulative catch up year.

        In case of a liquidity event, the following shall automatically become vested and exercisable in full prior to the effective date of such liquidity event: performance options that have not yet, as of such liquidity event, become eligible for yearly performance-based vesting, if and only if the cumulative Bonus EBITDA and the cumulative Bonus Cash Flow for the fiscal year in which liquidity event occurs equals or exceeds the cumulative Bonus EBITDA target and cumulative Bonus Cash Flow target for the fiscal year in which such liquidity event occurs.

        The Board of Directors of the Company has the sole discretion to accelerate the vesting of any portion of the time or performance-based options, which otherwise does not vest pursuant to the Plan provisions.

        During the year ended September 30, 2009, the Company's Bonus Cash Flows did not meet the performance condition targets necessary to entitle such awards to vest. The Bonus cash flow performance target was not waived by the Board of Directors which precluded the remaining performance based options to vest during fiscal year 2009. These unvested awards are subject to cumulative catch up provisions that will enable such awards to vest if the Company's cash flows during fiscal years 2010 and 2011 meet defined thresholds. The Company has determined that it is probable that this performance condition will be achieved and has not reduced the compensation expense recorded in the current year even though the vesting requirement was not met. During fiscal year 2010 the Company was deemed to have met the cumulative catch up provisions, which allowed such awards to vest.

F-25


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 13. Stock-Based and Other Compensation Arrangements (Continued)

        During the year ended September 30, 2010, the Company did not meet the 2010 EBITDA target that was established for performance option vesting; however, the compensation committee determined that the failure to achieve the EBITDA target did not result from a lack of performance but rather from a change in overall market conditions that were beyond the control of the Company. Accordingly, the compensation committee allowed the EBITDA portion of the 2010 performance options to vest, effective as of September 30, 2010. The Company determined that this change constituted a stock option modification; however, since the awards were probable of vesting prior to the modification and did not affect any other terms of the awards other than accelerating vesting, no additional compensation expense was incurred.

        The following table sets forth the summary of options activity under the plan for:

 
  Outstanding Options  
 
  Number of
Shares
  Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Contractual
Life
(in years)
  Aggregate
Intrinsic
Value(1)
 

September 30, 2008

    904,523   $ 37.52     8.1   $ 7,756,985  
                   

Granted

    65,574   $ 64.96              

Exercised

    (437 )   37.12              

Forfeited options

    (116,386 )   37.20              
                       

September 30, 2009

    853,274   $ 39.77     7.3   $ 3,665,100  
                   

Granted

    7,557   $ 56.64              

Forfeited options

    (20,464 )   43.92              
                       

September 30, 2010

    840,367   $ 39.41     6.3   $ 13,229,671  
                   

(1)
Aggregate intrinsic value is calculated on the difference between our closing stock price at year end and the exercise price, multiplied by the number of in-the-money options and represents the pre-tax amount that would have been received by the option holders, had they all exercised all their options on the fiscal year end date.

        For the years ended September 30, 2008, 2009 and 2010, the Company recorded $5,795 and $2,404 and $2,310, respectively, of stock-based compensation expense related to these options that is included within selling, general and administrative expenses. At September 30, 2010, the unrecognized stock-based compensation related to these options was approximately $1,182 and is expected to be recognized through September 30, 2014.

Restricted Stock Awards and Units

        During the year ending September 30, 2006, the Company issued, 57,845 Restricted Stock Awards ("RSAs") with a total fair value of $2,147 that were granted to certain key employees. RSAs represent a share of Class B convertible redeemable common stock. At September 30, 2007, these RSAs were fully vested.

F-26


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 13. Stock-Based and Other Compensation Arrangements (Continued)

        Concurrent with Carlyle's acquisition of Wesco, 622,704 Restricted Stock Units ("RSUs") with a total fair value of $23,115 were granted to certain employees. RSUs represent the right to receive a share of restricted Class B convertible redeemable common stock. RSUs are subject to a 3-year continuous employment vesting starting September 30, 2006 through September 30, 2009. All 622,704 RSUs vested on September 30, 2009. During the years ended September 30, 2008, 2009 and 2010, the Company recorded $7,705, $7,705 and $0, respectively, of stock-based compensation expense related to the vested portion of these RSUs. As of September 30, 2010, the shares of common stock underlying the RSUs have not been issued to the employees; such shares will be issued on the earlier of September 28, 2012 or the occurrence of a change in control. Accordingly, the underlying 622,704 shares of common stock have not been included in the Consolidated Statements of Stockholders' Equity and Comprehensive Income or Consolidated Balance Sheets as issued and outstanding. Such shares have been included in the basic weighted average shares outstanding as of September 30, 2009 based on their vesting.

        During the years ended September 30, 2008, 2009 and 2010, the Company granted 4,312, 4,312 and 3,532, respectively, of Class B convertible redeemable shares to its directors and recorded stock-based compensation expense of approximately $200, $280 and $200 respectively. The RSAs and RSUs do not contain any redemption provisions that are not within the Company's control. Accordingly, these equity awards have been classified within stockholders' equity.

Stock-Based Compensation

        The Company accounts for stock-based compensation in accordance with ASC 718. The Company currently uses the Black-Scholes option pricing model to determine the fair value of the stock options. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by the Company's stock price as well as assumptions regarding complex and subjective variables. These variables include the expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends.

        The Company estimated expected volatility based on historical data of comparable public companies. The expected term, which represents the period of time that options granted are expected to be outstanding, is estimated based on guidelines provided in SAB No. 110 and represents the average of the vesting tranches and contractual terms. The risk-free rate assumed in valuing the options is based on the U.S. Treasury rate in effect at the time of grant for the expected term of the option. The Company does not anticipate paying any cash dividends in the foreseeable future and, therefore, used an expected dividend yield of zero in the option pricing model. Compensation expense is recognized only for those options expected to vest with forfeitures estimated based on the Company's historical experience and future expectations. Stock-based compensation awards are amortized on a graded vesting method over the requisite service periods of the awards, which are generally the vesting periods.

F-27


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 13. Stock-Based and Other Compensation Arrangements (Continued)

        The weighted average assumptions used to value the option grants are as follows:

 
  2008   2009   2010  

Expected life (in years)

    6.48     5.83     6.46  

Volatility

    50.81 %   52.65 %   50.17 %

Risk free interest rate

    3.51 %   2.04 %   3.17 %

Dividend yield

             

        The weighted average fair value per option at the grant date for options issued during fiscal 2008, 2009 and 2010 was $22.45, $15.97 and $13.37, respectively.

Note 14. Commitments and Contingencies

Operating Leases

        The Company leases office and warehouse facilities (certain of which are from related parties), and warehouse equipment under various non-cancelable operating leases that expire at various dates through December 31, 2020. Certain leases contain escalation clauses based on the Consumer Price Index. The Company is also committed under the terms of certain of these operating lease agreements to pay property taxes, insurance, utilities and maintenance costs.

        Future minimum rental payments as of September 30, 2010 are as follows:

 
  Third
Party
  Related
Party
  Total  

Year Ending September 30,

                   

2011

  $ 1,920   $ 1,709   $ 3,629  

2012

    1,630     1,709     3,339  

2013

    1,266     1,709     2,975  

2014

    664     1,709     2,373  

2015

    313     1,709     2,022  

Thereafter

    14     7,152     7,166  
               

  $ 5,807   $ 15,697   $ 21,504  
               

        Total rent expense for the years ended September 30, 2008, 2009 and 2010 was $3,201, $3,891 and $3,863, respectively.

Capital Lease Commitments

        The Company leases certain equipment under capital lease agreements that require minimum monthly payments that expire at various dates through November 2012.

F-28


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 14. Commitments and Contingencies (Continued)

        Future minimum lease payments as of September 30, 2010 are as follows:

2011

  $ 1,577  

2012

    1,401  

2013

    275  

2014

    79  

2015

    20  
       

    3,352  

Less: interest

    (209 )
       
 

Total

  $ 3,143  
       

Purchase Orders

        As of September 30, 2010, the Company has open inventory purchase orders in the amount of $196,371.

Litigation

        The Company is involved in various legal matters that arise in the normal course of its business. Management, after consulting with outside legal counsel, believes that the ultimate outcome of such matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows. There can be no assurance, however, that such actions will not be material or adversely affect the Company's business, financial position, and results of operations or cash flows.

Note 15. Employee Benefit Plan

        The Company maintains a 401(k) defined contribution plan and a retirement saving plan for the benefit of its eligible employees. All full-time employees who have completed at least six months of service and are at least 21 years of age are eligible to participate in the plans. Eligible employees may elect to contribute up to 60% of their eligible compensation. Contributions by the Company were $637, $687 and $725 during the years ending September 30, 2008, 2009 and 2010, respectively.

F-29


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 16. Supplemental Cash Flow Information

 
  2008   2009   2010  

Cash payments for:

                   

Interest paid

  $ 43,359   $ 28,371   $ 23,350  
               

Income taxes paid

  $ 43,469   $ 22,028   $ 38,335  
               

Schedule of non-cash investing and financing activities:

                   

Property and equipment acquired pursuant to capital leases

  $ 310   $ 3,624   $ 1,270  
               

Property and equipment disposed of pursuant to termination of capital leases

  $   $ (1,266 ) $  
               

Liabilities assumed in connection with acquisition

  $ 9,513   $   $  
               

Note 17. Quarterly Financial Data (unaudited)

        Summarized unaudited quarterly financial data for quarters ended December 31, 2008 through September 30, 2010 is as follows:

Quarter Ended:
  December 31, 2008   March 31, 2009   June 30, 2009   September 30, 2009  

Net sales

  $ 153,386   $ 157,906   $ 150,715   $ 150,680  

Gross profit

    62,696     64,955     56,878     53,758  

Income from operations

    35,811     37,928     32,799     27,854  

Net income

    15,237     18,365     13,624     11,221  

Basic net income per share(1)

  $ 1.61   $ 1.95   $ 1.44   $ 1.19  

Diluted net income per share(1)

  $ 1.54   $ 1.85   $ 1.37   $ 1.12  

 

Quarter Ended:
  December 31, 2009   March 31, 2010   June 30, 2010   September 30, 2010  

Net sales

  $ 146,806   $ 164,105   $ 171,116   $ 174,009  

Gross profit

    54,643     63,197     68,240     68,150  

Income from operations

    29,885     38,629     43,272     42,529  

Net income

    14,071     18,114     21,457     20,032  

Basic net income per share(1)

  $ 1.40   $ 1.80   $ 2.13   $ 1.99  

Diluted net income per share(1)

  $ 1.40   $ 1.80   $ 2.13   $ 1.95  

(1)
Net income per share calculations for each quarter are based on the weighted average diluted shares outstanding for that quarter and may not total to the full year amount.

Note 18. Segment Reporting

        The Company is organized based on geographical location. The Company's reportable segments are comprised of North America and the Rest of the World.

        The Company evaluates segment performance based on segment operating earnings or loss. Each segment reports its results of operations and makes requests for capital expenditures and acquisition funding to the Company's chief operating decision-maker ("CODM"). The Company's Chief Executive

F-30


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 18. Segment Reporting (Continued)


Officer ("CEO") serves as CODM. Each operating segment has separate management teams and infrastructures dedicated to providing a full range of products and services to their customers.

        The following table presents net sales and other financial information by business segment:

 
  Fiscal Year Ended September 30, 2008  
 
  North
America
  Rest of the
World
  Intercompany
Elimination
  Consolidated  

Net sales

  $ 551,135   $ 112,623   $ (59,415 ) $ 604,343  

Gross profit

    221,898     42,143     (7,433 )   256,608  

Income from operations

    137,091     15,429     (1,670 )   150,850  

Interest expense, net

    (48,118 )   (625 )   (— )   (48,743 )

Provision for income taxes

    39,273     4,978         44,251  

Total assets

    1,106,850     87,963     (21,193 )   1,173,620  

Goodwill

    498,200     7,866         506,066  

Capital expenditures

    5,785     984         6,769  

Depreciation and amortization

    6,284     1,562         7,846  

 

 
  Fiscal Year Ended September 30, 2009  
 
  North
America
  Rest of
the World
  Intercompany
Elimination
  Consolidated  

Net sales

  $ 557,874   $ 102,796   $ (47,983 ) $ 612,687  

Gross profit

    204,296     39,733     (5,742 )   238,287  

Income from operations

    118,289     15,762     341     134,392  

Interest expense, net

    (37,328 )   (379 )   (— )   (37,707 )

Provision for income taxes

    33,179     4,683         37,862  

Total assets

    1,178,558     92,645     (16,391 )   1,254,812  

Goodwill

    498,199     7,867         506,066  

Capital expenditures

    3,701     434         4,135  

Depreciation and amortization

    8,948     1,117         10,065  

 

 
  Fiscal Year Ended September 30, 2010  
 
  North
America
  Rest of
the World
  Intercompany
Elimination
  Consolidated  

Net sales

  $ 603,809   $ 95,342   $ (43,115 ) $ 656,036  

Gross profit

    226,497     34,167     (6,434 )   254,230  

Income from operations

    144,823     10,002     (510 )   154,315  

Interest expense, net

    (35,505 )   (765 )   (— )   (36,270 )

Provision for income taxes

    41,314     2,599         43,913  

Total assets

    1,225,195     97,624     (43,807 )   1,279,012  

Goodwill

    498,199     6,642         504,841  

Capital expenditures

    2,867     210         3,077  

Depreciation and amortization

    7,861     960         8,821  

F-31


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 18. Segment Reporting (Continued)

Geographic Information

        The Company operated principally in three geographic areas, North America, Europe and emerging markets, such as Asia, Pacific Rim and the Middle East.

        Net sales by geographic area, for the fiscal years ended September 30, 2008, 2009 and 2010 were as follows:

 
  Fiscal Year Ended September 30,  
 
  2008   2009   2010  
 
  Sales   % of
Sales
  Sales   % of
Sales
  Sales   % of
Sales
 

North America

  $ 499,873     82.7 % $ 519,840     84.8 % $ 569,099     86.7 %

Europe

    103,435     17.1     92,211     15.1     86,376     13.2  

Asia, Pacific Rim, Middle East and other

    1,035     0.2     636     0.1     561     0.1  
                           

  $ 604,343     100.0 % $ 612,687     100.0 % $ 656,036     100.0 %
                           

        The Company determines the geographic area based on where the sale was originated from. Export sales from North America to customers in foreign countries amounted to $93, $103 and $84 for the years ended September 30, 2008, 2009 and 2010, respectively.

        Long-lived assets by geographic area, for the fiscal years ended September 30, 2008, 2009 and 2010 were as follows:

 
  Fiscal Year Ended September 30,  
 
  2008   2009   2010  

North America

  $ 15,900   $ 18,315   $ 18,338  

Europe

    2,800     2,246     1,835  

Asia, Pacific Rim, Middle East and other

             
               

  $ 18,700   $ 20,561   $ 20,173  
               

Note 19. Subsequent Events (unaudited)

        The Company has performed an evaluation of subsequent events through May 12, 2011, which is the date the financial statements were available to be issued.

        During January 2011, the Company's CEO sold $44,384 of the Company's total outstanding debt. Subsequent to the sale, the Company's CEO has no ownership interest in the Company's debt.

        On April 7, 2011, the Company completed a refinancing of its existing debt facilities for the purpose of extending the maturity dates under the term loans, increasing its borrowing capacity under the revolver and paying related fees and expenses. The Company did not increase their outstanding indebtedness as a result of the refinancing. The new senior secured credit facilities consist of a (i) $150,000 revolving credit facility, (ii) $265,000 term loan A facility and (iii) $350,000 in term loan B facility.

F-32


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

Note 19. Subsequent Events (unaudited) (Continued)

        Borrowings under the new revolving facility and new term loan A bear interest at the Eurocurrency rate plus the applicable margin or the ABR plus the applicable margin. Borrowings under the new term loan B facility bear interest at a rate equal to (A) the greater of (x) the Eurocurrency rate and (y) 1.25% or (B) the greater of (x) the ABR and (y) 1.25% plus, in each case, the applicable margin.

        The new revolving facility and new term loan A facility each mature on April 7, 2016 and the new term loan B facility matures on April 7, 2017. The new senior secured credit facilities require maintenance of a net debt-to-EBITDA ratio and an EBITDA-to-net interest expense ratio.

        As a result of the refinancing, the Company will be recording a loss on extinguishment of debt in the amount of $7,129, consisting of write-offs of unamortized debt issuance costs and third party fees of $6,542 and $587, respectively. The loss on extinguishment will be recorded as a component of interest expense, net in the consolidated statement of income during the nine months ended June 30, 2011. Additionally, $1,864 of unamortized debt issuance costs will remain capitalized and new creditor fees associated with the April 7, 2011 refinancing in the amount of $12,546 will be capitalized. These fees will be amortized over the term of the debt using the effective interest rate method.

F-33


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

 
  September 30,
2010
  March 31,
2011
 

Assets

             

Current assets

             
 

Cash and cash equivalents

  $ 39,463   $ 45,670  
 

Accounts receivable, net of allowance for doubtful accounts of $6,236 at September 30, 2010 and $3,977 at March 31, 2011

    89,427     104,626  
 

Inventories

    483,442     485,935  
 

Prepaid expenses and other current assets

    6,581     9,521  
 

Deferred income taxes

    33,138     30,810  
           
   

Total current assets

    652,051     676,562  

Property and equipment, net

   
20,173
   
21,723
 

Deferred financing costs, net

    10,329     8,404  

Goodwill

    504,841     504,935  

Intangible assets, net

    89,998     88,235  

Other assets

    1,620     427  
           
   

Total assets

  $ 1,279,012   $ 1,300,286  
           

Liabilities and Stockholders' Equity

             

Current liabilities

             
 

Accounts payable

  $ 59,183   $ 54,734  
 

Accrued expenses and other current liabilities

    20,888     17,532  
 

Income taxes payable

    5,500     1,539  
 

Capital lease obligations—current portion

    1,354     2,078  
           
   

Total current liabilities

    86,925     75,883  

Long-term debt

   
620,243
   
606,243
 

Capital lease obligations

    1,789     1,725  

Deferred income taxes

    23,927     25,845  

Other liabilities

    389      
           
   

Total liabilities

    733,273     709,696  

Commitments and contingencies

             

Stockholders' equity

             
 

Preferred stock, $0.001 par value per share: 1,000,000 shares authorized; no shares issued and outstanding

         
 

Common stock, class A, $0.001 par value per share: 19,000,000 shares authorized; 9,319,450 shares issued and outstanding as of September 30, 2010 and March 31, 2011

    9     9  
 

Class B convertible redeemable common stock, $0.001 par value per share: 2,000,000 shares authorized; 121,083 and 126,039 shares issued and outstanding as of September 30, 2010 and March 31, 2011, respectively

    1     1  
 

Additional paid-in captial

    329,256     330,166  
 

Accumulated other comprehensive loss

    (7,288 )   (6,955 )
 

Retained earnings

    223,761     267,369  
           
   

Total stockholders' equity

    545,739     590,590  
           
   

Total liabilities and stockholders' equity

  $ 1,279,012   $ 1,300,286  
           

See the accompanying notes to the consolidated financial statements.

F-34


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Consolidated Statements of Income

(In thousands, except share and per share data)

(Unaudited)

 
  Six Months Ended  
 
  March 31,
2010
  March 31,
2011
 

Net sales

  $ 310,911   $ 349,543  

Cost of sales

    193,072     215,418  
           
   

Gross profit

    117,839     134,125  

Selling, general and administrative expenses

    49,325     49,881  
           
   

Income from operations

    68,514     84,244  

Interest expense, net

    (18,214 )   (12,586 )

Other income (expense), net

    1,056     (177 )
           
   

Income before provision for income taxes

    51,356     71,481  

Provision for income taxes

    19,171     27,873  
           
     

Net income

  $ 32,185   $ 43,608  
           

Net income per share:

             
 

Basic

  $ 3.20   $ 4.33  
           
 

Diluted

  $ 3.20   $ 4.24  
           

Weighted average shares outstanding:

             
 

Basic

    10,063,237     10,065,678  
 

Diluted

    10,063,473     10,292,912  

See the accompanying notes to the consolidated financial statements.

F-35


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 
  Six Months Ended  
 
  March 31,
2010
  March 31,
2011
 

Cash flows from operating activities

             

Net income

  $ 32,185   $ 43,608  

Adjustments to reconcile net income to net cash provided by operating activities

             
 

Amortization of intangible assets

    2,136     1,848  
 

Depreciation

    2,325     2,781  
 

Amortization of deferred financing costs

    1,852     1,925  
 

Bad debt and sales returns reserve

    562     (40 )
 

Non-cash foreign currency exchange

    (634 )   14  
 

Non-cash stock-based compensation

    1,281     910  
 

Change in fair value of derivative

    1,738     (2,887 )
 

Deferred income tax provision

    2,930     4,249  
 

Changes in assets and liabilities

             
   

Accounts receivable

    30     (14,803 )
   

Income taxes receivable

    (14 )   (1,671 )
   

Inventories

    350     (2,597 )
   

Prepaid expenses and other current assets

    2,355     (166 )
   

Accounts payable

    (18,917 )   (4,728 )
   

Accrued expenses and other liabilities

    1,033     (924 )
   

Income taxes payable

    1,905     (3,862 )
           
     

Net cash provided by operating activities

    31,117     23,657  
           

Cash flows from investing activities

             

Purchases of property and equipment

    (1,325 )   (2,761 )
           
     

Net cash used in investing activities

    (1,325 )   (2,761 )
           

Cash flows from financing activities

             

Net repayments under line of credit

    (816 )    

Repayments of long-term debt

    (15,382 )   (14,000 )

Repayment of capital lease obligations

    (273 )   (875 )
           
     

Net cash used in financing activities

    (16,471 )   (14,875 )
           

Effect of foreign currency exchange rates on cash and cash equivalents

    (671 )   186  
           
     

Net increase in cash and cash equivalents

    12,650     6,207  

Cash and cash equivalents, beginning of period

    11,406     39,463  
           

Cash and cash equivalents, end of period

  $ 24,056   $ 45,670  
           

See the accompanying notes to the consolidated financial statements.

F-36


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

Note 1. Basis of Presentation and Significant Accounting Policies

        The accompanying consolidated financial statements include the accounts of Wesco Aircraft Holdings, Inc. (referred to herein as the "Company" or in the first person notations "we," "us" and "our") and its wholly owned subsidiaries prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The financial statements presented herein have not been audited by an independent registered public accounting firm, but include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for fair statement of the financial condition, results of operations and cash flows for the period. However, these results are not necessarily indicative of results for any other interim period or for the full fiscal year. The preparation of financial statements in conformity with GAAP requires us to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. Actual amounts could differ from these estimates.

        Certain information and footnote disclosures normally included in financial statements in accordance with GAAP have been omitted pursuant to the rules of the Securities and Exchange Commission ("SEC"). The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in this offering.

Note 2. Recent Accounting Pronouncements

        Changes to accounting principles generally accepted in the United States of America ("U.S. GAAP") are established by the Financial Accounting Standards Board ("FASB") in the form of Accounting Standards Updates ("ASUs") to the FASB's Accounting Standards Codification ("ASC").

        The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position and results of operations.

        In October 2009, the FASB issued guidance on revenue arrangements with multiple deliverables effective for the Company's 2012 fiscal year, although early adoption is permitted. The guidance revises the criteria for separating, measuring, and allocating arrangement consideration to each deliverable in a multiple element arrangement. The guidance requires companies to allocate revenue using the relative selling price of each deliverable, which must be estimated if the Company does not have a history of selling the deliverable on a stand-alone basis or third-party evidence of selling price. The Company does not believe that the adoption of this guidance will significantly change the timing in which revenue is recorded as the pricing of its service components are included in the per unit price of the products delivered to the customer, which is solely contingent on the number of units sold. As a result, the revenue earned on the service element does not become fixed or determinable until delivery of the product has taken place.

        In June 2009, the FASB issued guidance to revise the approach to determine when a variable interest entity ("VIE") should be consolidated. The new consolidation model for VIEs considers, whether the Company has the power to direct the activities that most significantly impact the VIEs' economic performance and shares in the significant risks and rewards of the entity. The guidance on

F-37


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

(Unaudited)

Note 2. Recent Accounting Pronouncements (Continued)


VIEs requires companies to continually reassess VIEs to determine if consolidation is appropriate and provide additional disclosures. The Company adopted the provisions of this VIE guidance at the beginning of fiscal year 2011, and the adoption did not have a material impact on the Company's financial statements.

        In January 2010, the FASB issued guidance revised two disclosure requirements concerning fair value measurements and clarifies two others. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers. It will also require the presentation of purchases, sales, issuances and settlements within Level 3 on a gross basis rather than a net basis. The guidance also clarifies that disclosures should be disaggregated by class of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and non-recurring fair value measurements. These new disclosure requirements will become effective for the Company's financial statements for the period ended September 30, 2011, except for the requirement concerning gross presentation of Level 3 activity, which will become effective for fiscal years beginning after December 15, 2010. Since the Company doesn't currently have any Level 3 fair value measurements, the adoption of this standard did not have an impact on the consolidated financial statements.

Note 3. Fair Value of Financial Instruments

        The Company's financial instruments consist of cash and cash equivalents, accounts receivable and payable, accrued and other current liabilities, and line of credit. The carrying amounts of these instruments approximate fair value because of their short-term maturities. The fair value of the long-term debt instruments are determined using current applicable rates for similar instruments as of the balance sheet date. The carrying amounts and fair value of the debt instruments as of March 31, 2011 were as follows:

 
  Carrying Value   Fair Value  

$550,000 term loan

  $ 477,243   $ 477,241  

$150,000 term loan

  $ 129,000   $ 129,000  

Note 4. Derivative Financial Instruments

        The Company enters into an interest rate swap arrangement in order to manage its net exposure to interest rate changes on the Company's long-term debt. Interest rate swap contracts involve the exchange of floating rate interest payment obligations for fixed interest rate payments without the exchange of the underlying principle amounts. The Company accounts for this arrangement pursuant to the provisions of ASC 815, Derivatives and Hedging . ASC 815 establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at fair value and that any changes in fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company's interest rate swap arrangement is not designated as a hedge pursuant to ASC 815 and, accordingly, the Company reflects the change in fair value of the interest rate swap in the consolidated statements of operations as part of interest expense.

F-38


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

(Unaudited)

Note 4. Derivative Financial Instruments (Continued)

        These arrangements also contain an element of risk in that the counterparties may be unable to meet the terms of such arrangements. In the event the parties to deliver commitments are unable to fulfill their obligations, the Company could potentially incur significant additional costs by replacing the positions at then current market rates. The Company manages its risk of exposure by limiting counterparties to those banks and institutions deemed appropriate by management. Upon the maturity of its previous interest rate swaps, the Company entered into two interest rate swaps arrangements that expire in February and June 2012. Each interest rate swap converts the interest rate on approximately $200,000 (notional amount) of its outstanding debt from variable rates to a fixed interest rate. The swap agreements have fixed the LIBOR component of the term debt to 1.77% and 1.96%.

        Exchange-traded derivative financial instruments are valued based on quoted market prices and classified within Level 1 of the valuation hierarchy. Derivative financial instruments that are traded on an index are valued based on direct or indirect prices and classified within Level 2 of the valuation hierarchy. If quoted market prices or other observable inputs are not available, fair value is based on unobservable inputs, including assumptions of market activity and general market conditions, and classified within Level 3 of the valuation hierarchy.

        The following table includes the notional amounts and fair value of derivative financial instruments as of September 30, 2010 and March 31, 2011:

 
   
  September 30, 2010   March 31, 2011  
 
  Balance Sheet
Location
  Notional
Amount
  Fair
Value
  Notional
Amount
  Fair
Value
 

Swap Contracts

  Accrued Expenses   $ 400,000   $ (6,660 ) $ 400,000   $ (3,773 )

        During the six months ended March 31, 2010, the Company recorded losses in the amount of $1,738 as a result of changes in fair value of derivative financial instruments. During the six months ended March 31, 2011, the Company recorded earnings in the amount of $2,887 as a result of changes in fair value of derivative financial instruments. These changes are recorded as a component of interest expense.

        The Company classifies assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth assets and liabilities

F-39


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

(Unaudited)

Note 4. Derivative Financial Instruments (Continued)


measured at fair value as of September 30, 2010 and March 31, 2011, categorized by input level within the fair value hierarchy:

 
  Fair Value Measurements Using  
 
  Quoted Prices
in Active
Markets
  Significant
Other
Observable
Inputs
  Significant
Unobservable
Inputs
 
 
  Level 1   Level 2   Level 3  

September 30, 2010

                   

Financial instruments measured at fair value on a recurring basis

                   
 

Derivative financial instruments

      $ (6,660 )    

 

 
  Level 1   Level 2   Level 3  

March 31, 2011

                   

Financial instruments measured at fair value on a recurring basis

                   
 

Derivative financial instruments

      $ (3,773 )    

        The fair value of our derivative financial instruments is estimated using the net present value of a series of cash flows on both the cap and floor components of the interest rate collars. These cash flows are based on yield curves that take into account the contractual terms of the derivatives, including the period to maturity and market-based parameters such as interest rates and volatility. We incorporated nonperformance risk by adjusting the present value of each liability position utilizing an estimation of our credit risk.

F-40


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

(Unaudited)

Note 5. Long-Term Debt

        Long-term debt consists of the following at:

 
  September 30,
2010
  March 31,
2011
 

$550,000 term loan, bearing interest based on Alternate Base Rate ("ABR") (defined as Prime Rate plus the applicable margin rate of 1.25%) or Eurodollar (defined as London Inter-Bank Offer Rate ("LIBOR") rates plus the applicable margin rate of 2.25%), at the option of the Company. The term loan is payable quarterly equal to 0.25% of the principal amount of $550,000 with the final payment due on September 29, 2013. Interest rate was 2.50% at March 31, 2011. 

  $ 477,243   $ 477,243  

$150,000 term loan, bearing interest based on ABR (defined as Prime Rate plus the applicable margin rate of 4.75%) or Eurodollar (defined as London Inter-Bank Offer Rate ("LIBOR") rates plus the applicable margin rate of 5.75%), at the option of the Company. The entire balance is due March 28, 2014. Interest rate was 6.00% at March 31, 2011. 

   
143,000
   
129,000
 
           

    620,243     606,243  
 

Less: current portion

         
           
   

Long-term debt

  $ 620,243   $ 606,243  
           

        During the six months ended March 31, 2011, the Company made prepayments totaling approximately $14,000 on its $150,000 term loan. In accordance with the loan agreement, $14,000 was applied to the Company's balloon payment. As of March 31, 2011, the Company has prepaid all required quarterly payments.

        As part of the loan agreement, the Company had a $75,000 revolving line of credit that expires on September 28, 2012. The applicable margin for the revolving facility is determined based on the ratio of the Company's EBITDA, as defined in the loan agreement, for the most recently ended four fiscal quarters and ranges between 0.75% and 1.50% for the ABR Loans and range between 1.75% and 2.50% for the Eurodollar Loans. There was no outstanding borrowing under this line of credit as of March 31, 2011 or at any point during fiscal 2011. Annual commitment fees for this line of credit approximate $281.

        In October 2008, the administrative and collateral agent under the Company's revolving line of credit, Lehman Commercial Paper Inc. ("LCPI"), filed for bankruptcy. LCPI is a lender under the Company's revolving credit facility with a commitment of approximately $20,000. As a result of LCPI's actions, the Company's availability to access these funds is at risk. The Company does not expect that LCPI's potential inability to fund this commitment would have a material adverse impact on its liquidity.

F-41


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

(Unaudited)

Note 5. Long-Term Debt (Continued)

        The Company's subsidiary, Wesco Aircraft Europe Limited, has available a £10,000 ($16,000 based on the March 31, 2011 exchange rate) line of credit, subject to certain cash balance requirements as defined in the line of credit agreement, that automatically renews annually on October 1. The line of credit bears interest based on the bank based rate plus an applicable margin of 1.15%. The net outstanding borrowing under this line of credit was £0 ($0) as of September 30, 2010 and March 31, 2011.

        Under the terms and definitions of the First Lien Credit Agreement as of March 31, 2011, the Company is required to maintain a net debt-to-EBITDA ratio not to exceed 4.0, an EBITDA-to-net interest expense ratio greater than 2.50, and capital expenditures not to exceed $10,000 per year. The credit agreement also restricts the Company from incurring certain additional indebtedness, payment of dividends, sale of substantial assets, and limits certain investments. The Company was in compliance with these covenants at March 31, 2011.

        Borrowings under these credit facilities are collateralized by substantially all of the assets of the Company.

Note 6. Comprehensive Income

        Comprehensive income consists of the following:

 
  Six Months Ended
March 31,
 
 
  2010   2011  

Net income

  $ 32,185   $ 43,608  

Foreign exchange translation adjustment

    (4,990 )   333  
           

Total comprehensive income

  $ 27,195   $ 43,941  
           

Note 7. Net Income Per Share

        Basic net income per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per share includes the dilutive effect of both outstanding stock options and restricted shares, calculated using the treasury stock method. Assumed proceeds from in-the-money options include windfall tax

F-42


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

(Unaudited)

Note 7. Net Income Per Share (Continued)


benefits, net of shortfalls, calculated under the "as-if" method as prescribed by ASC 718, Compensation—Stock Option Compensation .

 
  Six Months Ended
March 31, 2010
  Six Months Ended
March 31, 2011
 
 
  (In thousands, except share and
per share data)

 

Net income

  $ 32,185   $ 43,608  
           

Basic weighted average shares outstanding

    10,063,237     10,065,678  

Dilutive effect of stock options and restricted stock awards/units

    236     227,234  
           

Dilutive weighted average shares outstanding

    10,063,473     10,292,912  
           

Basic net income per share

  $ 3.20   $ 4.33  
           

Diluted net income per share

  $ 3.20   $ 4.24  
           

        There were no shares of common stock equivalents for the six months ended March 31, 2010 and March 31, 2011, respectively, which were not included in the diluted calculation due to their anti-dilutive effect.

Note 8. Segment Reporting

        The Company is organized based on the geographical location. The Company's reportable segments are comprised of the North America and Rest of the World.

        The Company evaluates segment performance based on segment operating earnings or loss. Each segment reports its results of operations and makes requests for capital expenditures and acquisition funding to the Company's chief operating decision-maker ("CODM"). The Company's Chief Executive Officer ("CEO") serves as CODM. Each operating segment has separate management teams and infrastructures dedicated to providing a full range of products and services to their customers.

F-43


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

(Unaudited)

Note 8. Segment Reporting (Continued)

        The following table presents net sales and operating income by business segment:

 
  Six Months Ended March 31, 2010  
 
  North
America
  Rest of
the World
  Intercompany
Elimination
  Consolidated  

Net sales

  $ 283,285   $ 47,259   $ (19,633 ) $ 310,911  

Gross profit

    103,788     17,265     (3,214 )   117,839  

Income from operations

    63,648     5,133     (267 )   68,514  

Interest expense, net

    (17,788 )   (426 )   (— )   (18,214 )

Provision for income taxes

    17,652     1,519         19,171  

Total assets

    1,216,082     93,852     (43,844 )   1,266,090  

Goodwill

    498,200     6,332         504,532  

Capital expenditures

    1,295     30         1,325  

Depreciation and amortization

    3,945     516         4,461  

 

 
  Six Months Ended March 31, 2011  
 
  North
America
  Rest of
the World
  Intercompany
Elimination
  Consolidated  

Net sales

  $ 318,808   $ 57,527   $ (26,792 ) $ 349,543  

Gross profit

    117,725     19,523     (3,123 )   134,125  

Income from operations

    78,133     5,805     306     84,244  

Interest expense, net

    (12,216 )   (370 )   (— )   (12,586 )

Provision for income taxes

    26,276     1,597         27,873  

Total assets

    1,240,977     107,472     (48,163 )   1,300,286  

Goodwill

    498,200     6,735         504,935  

Capital expenditures

    2,547     214         2,761  

Depreciation and amortization

    4,141     488         4,629  

Geographic Information

        The Company operated principally in three geographic areas, the North America, Europe and emerging markets, such as Asia, Pacific Rim and the Middle East.

F-44


Table of Contents


Wesco Aircraft Holdings, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

(Unaudited)

Note 8. Segment Reporting (Continued)

        Net sales by geographic area, for the six months ended March 31, 2010 and March 31, 2011 were as follows:

 
  Six Months Ended March 31,  
 
  2010   2011  
 
  Sales   % of
Sales
  Sales   % of
Sales
 

North America

  $ 267,831     86.1 % $ 296,754     84.9 %

Europe

    42,805     13.8     52,452     15.0  

Asia, Pacific Rim, Middle East and other

    275     0.1     337     0.1  
                   
 

Total net sales

  $ 310,911     100.0 % $ 349,543     100.0 %
                   

        The Company determines the geographic area based on where the sale was originated from. Export sales from North America to customers in foreign countries amounted to $38 and $49 for the six months ended March 31, 2010 and 2011, respectively.

Note 9. Subsequent Events

        The Company has performed an evaluation of subsequent events through May 12, 2011, which is the date the financial statements were available to be issued.

        On April 7, 2011, the Company completed a refinancing of its existing debt facilities for the purpose of extending the maturity dates under the term loans, increasing its borrowing capacity under the revolver and paying related fees and expenses. The new senior secured credit facilities consist of a (i) $150,000 revolving credit facility, (ii) $265,000 term loan A facility and (iii) $350,000 term loan B facility.

        Borrowings under the new revolving facility and new term loan A bear interest at the Eurocurrency rate plus the applicable margin or the ABR plus the applicable margin. Borrowings under the new term loan B facility bear interest at a rate equal to (A) the greater of (x) the Eurocurrency rate and (y) 1.25% or (B) the greater of (x) the ABR and (y) 1.25% plus, in each case, the applicable margin.

        The new revolving facility and new term loan A facility each mature on April 7, 2016 and the new term loan B facility matures on April 7, 2017. The new senior secured credit facilities require maintenance of a net debt-to-EBITDA ratio and an EBITDA-to-net interest expense ratio.

        As a result of the refinancing, the Company will be recording a loss on extinguishment of debt in the amount of $7,129, consisting of write-offs of unamortized debt issuance costs and third party fees of $6,542 and $587, respectively. The loss on extinguishment will be recorded as a component of interest expense, net in the consolidated statement of income during the nine months ended June 30, 2011. Additionally, $1,864 of unamortized debt issuance costs will remain capitalized and new creditor fees associated with the April 7, 2011 refinancing in the amount of $12,546 will be capitalized. These fees will be amortized over the term of the debt using the effective interest rate method.

F-45


Table of Contents

         Through and including                        , 2011 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

                    Shares

LOGO

Wesco Aircraft Holdings, Inc.

Common Stock



PROSPECTUS



Barclays Capital   Morgan Stanley
BofA Merrill Lynch   J.P. Morgan   William Blair & Company

                        , 2011


Table of Contents


PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.    Other Expenses of Issuance and Distribution.

        The actual and estimated expenses in connection with this offering, all of which will be borne by us, are as follows:

SEC Registration Fee

  $ 34,830  

FINRA Filing Fee

    30,500  

Printing Expense

    *  

Legal Fees

    *  

Accounting Fees

    *  

Blue Sky Fees

    *  

Stock Exchange Listing Fees

    *  

Transfer Agent Fee

    *  

Miscellaneous

    *  
       

Total

  $    
       

*
To be filed by amendment.

Item 14.    Indemnification of Directors and Officers

        Reference is made to Section 102(b)(7) of the Delaware General Corporation Law, or the DGCL, which enables a corporation in its original certificate of incorporation or an amendment thereto to eliminate or limit the personal liability of a director for violations of the director's fiduciary duty, except (1) for any breach of the director's duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) pursuant to Section 174 of the DGCL, which provides for liability of directors for unlawful payments of dividends of unlawful stock purchase or redemptions or (4) for any transaction from which a director derived an improper personal benefit.

        Reference is also made to Section 145 of the DGCL, which provides that a corporation may indemnify any person, including an officer or director, who was or is, or is threatened to be made, party to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of such corporation, by reason of the fact that such person is or was an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such officer, director, employee or agent acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the Company's best interest and, for criminal proceedings, had no reasonable cause to believe that his conduct was unlawful. A Delaware corporation may indemnify any officer or director in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses that such officer or director actually and reasonably incurred in connection therewith.

        We expect that our amended and restated certificate of incorporation to be filed as Exhibit 3.1 to this registration statement will provide that our directors will not be personally liable to the Company

II-1


Table of Contents


or its stockholders for monetary damages resulting from breach of their fiduciary duties. However, nothing contained in such provision will eliminate or limit the liability of directors (1) for any breach of the director's duty of loyalty to us or our stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (3) under Section 174 of the DGCL or (4) for any transaction from which the director derived an improper personal benefit.

        Our amended and restated bylaws provides for indemnification of the officers and directors to the full extent permitted by applicable law.

        In addition, we intend to enter into agreements to indemnify our directors and executive officers containing provisions, which are in some respects broader than the specific indemnification provisions contained in the DGCL. The indemnification agreements may require us, among other things, to indemnify our directors against certain liabilities that may arise by reason of their status or service as directors and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified.

        The proposed form of Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement provides for indemnification by the underwriters of the registrant and its officers and directors for certain liabilities arising under the Securities Act, or otherwise.

Item 15.    Recent Sales of Unregistered Securities.

        Since March 31, 2008, we have granted to our directors, officers and employees options to purchase an aggregate of 171,547 shares of our common stock with per share exercise prices ranging from $46.40 to $70.00 under our amended and restated equity incentive plan, which we refer to as the existing equity incentive plan.

        Since March 31, 2008, we have issued to our directors, officers and employees an aggregate of 17,948 shares of our common stock at an exercise price of $37.12 pursuant to exercises of options granted under our existing equity incentive plan.

        Since March 31, 2008, we have issued to certain of our officers an aggregate of 5,387 shares of our common stock for aggregate consideration of $249,956.80 pursuant to our stock purchase plan.

        Since March 31, 2008, we have issued to certain of our directors an aggregate of 15,012 restricted stock awards in lieu of payment of an aggregate of $927,344.30 in fees for their service as directors pursuant to our existing equity incentive plan.

        Unless otherwise stated, the sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Acts as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of securities in each of these transactions represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates and instruments issued in such transactions.

II-2


Table of Contents

Item 16.    Exhibits and Financial Statement Schedules.

    (a)
    Exhibits

EXHIBIT
NO.
  DESCRIPTION OF EXHIBIT
  1.1 * Form of Underwriting Agreement.

 

3.1

*

Form of Amended and Restated Certificate of Incorporation of Wesco Aircraft Holdings, Inc.

 

3.2

*

Form of Amended and Restated Bylaws of Wesco Aircraft Holdings, Inc.

 

4.1

*

Form of Stock Certificate.

 

5.1

 

Opinion of Latham & Watkins LLP.

 

10.1

 

Credit Agreement, by and among Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.), Wesco Aircraft Hardware Corp., Barclays Bank PLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation, Royal Bank of Canada, Bank of America, N.A. and the lenders party thereto, dated as of April 7, 2011.

 

10.2

 

Guarantee and Collateral Agreement, by and among Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.), Wesco Aircraft Hardware Corp., Barclays Bank PLC and the subsidiary guarantors party thereto, dated as of April 7, 2011.

 

10.3

**

Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.)

 

10.4

**

Management Annual Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.)

 

10.5

**

Employment Agreement between Wesco Aircraft Hardware Corp. and Randy Snyder, dated as of July 23, 2006.

 

10.6

**

Amendment to the Employment Agreement between Wesco Aircraft Hardware Corp. and Randy Snyder, dated as of December 31, 2008.

 

10.7

**

Employment Agreement between Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) and Gregory Hann, dated as of January 22, 2009.

 

10.8

**

Employment Agreement between Wesco Aircraft Hardware Corp. and Hal Weinstein, dated as of June 15, 2007.

 

10.9

**

Amendment to the Employment Agreement between Wesco Aircraft Hardware Corp. and Hal Weinstein, dated as of December 31, 2008.

 

10.10

 

Form of Incentive Stock Option Agreement under Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.)

 

10.11

 

Form of Non-qualified Stock Option Agreement for Independent Directors under Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.)

 

10.12

 

Form of Amended and Restated Restricted Stock Unit Agreement under Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.)

II-3


Table of Contents

EXHIBIT
NO.
  DESCRIPTION OF EXHIBIT
  10.13   Form of Restricted Stock Agreement for Independent Directors under Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.)

 

10.14

 

Management Agreement between Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) and TC Group, L.L.C, dated as of September 29, 2006.

 

10.15

 

Lease Agreement between Wesco Aircraft France, SAS and WAFR, LLC, dated as of August 1, 2005.

 

10.16

 

Lease Agreement between Wesco Aircraft Hardware Corp. and Avenue Scott, LLC, dated as of October 1, 2004.

 

10.17

 

Lease Agreement between Wesco Aircraft Hardware Corp. and WATX Properties, LLC, dated as of January 1, 2004.

 

10.18

 

Lease Agreement between Wesco Aircraft Europe Ltd. and Snyder Family Living Trust, dated as of January 1, 2006.

 

10.19

 

Engagement Agreement by and between Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) and Solebury Capital LLC, dated as of January 20, 2011.

 

10.20

*

Amended and Restated Stockholders Agreement.

 

10.21

 

Service Agreement between Wesco Aircraft Europe, Ltd and Alexander Murray, dated as of March 24, 2011.

 

10.22

*

Wesco Aircraft Holdings, Inc. Incentive Plan.

 

10.23

*

Wesco Aircraft Holdings, Inc. 2011 Equity Incentive Award Plan.

 

10.24

*

Form of 2011 Equity Incentive Award Plan Restricted Stock Agreement.

 

10.25

*

Form of 2011 Equity Incentive Award Plan Restricted Stock Unit Agreement.

 

10.26

*

Form of 2011 Equity Incentive Award Plan Stock Option Agreement.

 

21.1

**

List of Subsidiaries.

 

23.1

 

Consent of Latham & Watkins LLP (included in Exhibit 5.1).

 

23.2

 

Consent of Independent Registered Public Accounting Firm.

 

23.3

 

Consent of Stax Inc.

 

24.1

**

Powers of Attorney (included in the signature pages).

*
To be filed by amendment.

**
Previously filed with the Registration Statement on Form S-1 by the Registrant with the Securities and Exchange Commission on April 8, 2011.
    (b)
    Financial Statement Schedules

        Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements or notes thereto.

II-4


Table of Contents


Item 17.    Undertakings

        The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

        Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers, and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC 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 us of expenses incurred or paid by a director, officer, or controlling person of us 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, we will, unless in the opinion of counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

        We hereby undertake that:

    (i)
    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.

    (ii)
    for purposes 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.

II-5


Table of Contents


SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Valencia, state of California, on May 12, 2011.

    WESCO AIRCRAFT HOLDINGS, INC.

 

 

By:

 

/s/ RANDY J. SNYDER

Randy J. Snyder
Chairman of the Board of Directors, President
and Chief Executive Officer

        Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities and as of the dates indicated.

SIGNATURE
 
TITLE
 
DATE

 

 

 

 

 
/s/ RANDY J. SNYDER

  Randy J. Snyder
Chairman of the Board of Directors,
President and Chief Executive Officer
  May 12, 2011

/s/ GREGORY A. HANN


 

Gregory A. Hann
Executive Vice President and Chief
Financial Officer

 

May 12, 2011

II-6


Table of Contents


EXHIBIT INDEX

EXHIBIT
NO.
  DESCRIPTION OF EXHIBIT
  1.1 * Form of Underwriting Agreement.

 

3.1

*

Form of Amended and Restated Certificate of Incorporation of Wesco Aircraft Holdings, Inc.

 

3.2

*

Form of Amended and Restated Bylaws of Wesco Aircraft Holdings, Inc.

 

4.1

*

Form of Stock Certificate.

 

5.1

 

Opinion of Latham & Watkins LLP.

 

10.1

 

Credit Agreement, by and among Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.), Wesco Aircraft Hardware Corp., Barclays Bank PLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation, Royal Bank of Canada, Bank of America, N.A. and the lenders party thereto, dated as of April 7, 2011.

 

10.2

 

Guarantee and Collateral Agreement, by and among Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.), Wesco Aircraft Hardware Corp., Barclays Bank PLC and the subsidiary guarantors party thereto, dated as of April 7, 2011.

 

10.3

**

Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.)

 

10.4

**

Management Annual Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.)

 

10.5

**

Employment Agreement between Wesco Aircraft Hardware Corp. and Randy Snyder, dated as of July 23, 2006.

 

10.6

**

Amendment to the Employment Agreement between Wesco Aircraft Hardware Corp. and Randy Snyder, dated as of December 31, 2008.

 

10.7

**

Employment Agreement between Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) and Gregory Hann, dated as of January 22, 2009.

 

10.8

**

Employment Agreement between Wesco Aircraft Hardware Corp. and Hal Weinstein, dated as of June 15, 2007.

 

10.9

**

Amendment to the Employment Agreement between Wesco Aircraft Hardware Corp. and Hal Weinstein, dated as of December 31, 2008.

 

10.10

 

Form of Incentive Stock Option Agreement under Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.)

 

10.11

 

Form of Non-qualified Stock Option Agreement for Independent Directors under Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.)

 

10.12

 

Form of Amended and Restated Restricted Stock Unit Agreement under Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.)

 

10.13

 

Form of Restricted Stock Agreement for Independent Directors under Amended and Restated Equity Incentive Plan of Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.)

 

10.14

 

Management Agreement between Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) and TC Group, L.L.C, dated as of September 29, 2006.

Table of Contents

EXHIBIT
NO.
  DESCRIPTION OF EXHIBIT
  10.15   Lease Agreement between Wesco Aircraft France, SAS and WAFR, LLC, dated as of August 1, 2005.

 

10.16

 

Lease Agreement between Wesco Aircraft Hardware Corp. and Avenue Scott, LLC, dated as of October 1, 2004.

 

10.17

 

Lease Agreement between Wesco Aircraft Hardware Corp. and WATX Properties, LLC, dated as of January 1, 2004.

 

10.18

 

Lease Agreement between Wesco Aircraft Europe Ltd. and Snyder Family Living Trust, dated as of January 1, 2006.

 

10.19

 

Engagement Agreement by and between Wesco Aircraft Holdings, Inc. (formerly Wesco Holdings, Inc.) and Solebury Capital LLC, dated as of January 20, 2011.

 

10.20

*

Amended and Restated Stockholders Agreement.

 

10.21

 

Service Agreement between Wesco Aircraft Europe, Ltd and Alexander Murray, dated as of March 24, 2011.

 

10.22

*

Wesco Aircraft Holdings, Inc. Incentive Plan.

 

10.23

*

Wesco Aircraft Holdings, Inc. 2011 Equity Incentive Award Plan.

 

10.24

*

Form of 2011 Equity Incentive Award Plan Restricted Stock Agreement.

 

10.25

*

Form of 2011 Equity Incentive Award Plan Restricted Stock Unit Agreement.

 

10.26

*

Form of 2011 Equity Incentive Award Plan Stock Option Agreement.

 

21.1

**

List of Subsidiaries.

 

23.1

 

Consent of Latham & Watkins LLP (included in Exhibit 5.1).

 

23.2

 

Consent of Independent Registered Public Accounting Firm.

 

23.3

 

Consent of Stax Inc.

 

24.1

**

Powers of Attorney (included in the signature pages).

*
To be filed by amendment.

**
Previously filed with the Registration Statement on Form S-1 by the Registrant with the Securities and Exchange Commission on April 8, 2011.



Exhibit 5.1

 

 

555 Eleventh Street, N.W., Suite 1000

 

Washington, D.C. 20004-1304

[FORM OF OPINION]

Tel: +1.202.637.2200 Fax: +1.202.637.2201

 

www.lw.com

 

 

FIRM / AFFILIATE OFFICES

 

Abu Dhabi

Moscow

 

Barcelona

Munich

 

Beijing

New Jersey

 

Boston

New York

                              , 2011

Brussels

Orange County

 

Chicago

Paris

 

Doha

Riyadh

 

Dubai

Rome

 

Frankfurt

San Diego

 

Hamburg

San Francisco

 

Hong Kong

Shanghai

 

Houston

Silicon Valley

 

London

Singapore

 

Los Angeles

Tokyo

 

Madrid

Washington, D.C.

 

Milan

 

 

Wesco Aircraft Holdings, Inc.

27727 Avenue Scott

Valencia, CA 91355

 

Re:                                                                                Registration Statement No. 333-173381;                   shares of Common Stock, par value $0.001 per share, of Wesco Aircraft Holdings, Inc.

 

Ladies and Gentlemen:

 

We have acted as special counsel to Wesco Aircraft Holdings, Inc., a Delaware corporation (the “ Company ”), in connection with the proposed issuance of up to              shares of common stock, $0.001 par value per share (the “ Shares ”), by certain stockholders of the Company. The Shares are included in a registration statement on Form S—1 under the Securities Act of 1933, as amended (the “ Act ”) filed with the Securities and Exchange Commission (the “ Commission ”) on April 8, 2011 (Registration No. 333—173381) (as amended, the “ Registration Statement ”). The term “Shares” shall include any additional shares of common stock registered by the Company pursuant to Rule 462(b) under the Act in connection with the offering contemplated by the Registration Statement. This opinion is being furnished in connection with the requirements of Item 601(b)(5) of Regulation S-K under the Act, and no opinion is expressed herein as to any matter pertaining to the contents of the Registration Statement or related Prospectus other than as expressly stated herein with respect to the issue of the Shares.

 

As such counsel, we have examined such matters of fact and questions of law as we have considered appropriate for purposes of this letter.  With your consent, we have relied upon certificates and other assurances of officers of the Company and others as to factual matters without having independently verified such factual matters.  We are opining herein as to General Corporation Law of the State of Delaware and we express no opinion with respect to any other laws.

 

Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof, the Shares have been duly authorized by all necessary corporate action of the Company, and are validly issued, fully paid and non-assessable.

 



 

This opinion is for your benefit in connection with the Registration Statement and may be relied upon by you and by persons entitled to rely upon it pursuant to the applicable provisions of the Act.  We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm in the Prospectus under the heading “Validity of Common Stock.” We further consent to the incorporation by reference of this letter and consent into any registration statement filed pursuant to Rule 462(b) with respect to the Shares. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission thereunder.

 

 

Very truly yours,

 

 

2




Exhibit 10.1

 

EXECUTION VERSION

 

$765,000,000

 

CREDIT AGREEMENT

 

among

 

WESCO HOLDINGS, INC.,

as Holdings,

 

WESCO AIRCRAFT HARDWARE CORP.,

as Borrower,

 

The Several Lenders from Time to Time Parties Hereto,

 

BARCLAYS BANK PLC,
as Administrative Agent, Collateral Agent, Issuing Lender and Swingline Lender,

 

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,

KEY BANK, N.A.,

 

and

BARCLAYS CAPITAL,

as Joint Lead Arrangers,

 

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,

BARCLAYS CAPITAL,

J.P. MORGAN SECURITIES LLC,

MORGAN STANLEY SENIOR FUNDING, INC.,

SUMITOMO MITSUI BANKING CORPORATION,

 

and

 

ROYAL BANK OF CANADA,

as Joint Bookrunners,

 

BANK OF AMERICA, N.A.,

as Syndication Agent

 

and

 

BARCLAYS BANK PLC,

as Documentation Agent

 

Dated as of April 7, 2011

 



 

TABLE OF CONTENTS

 

 

 

 

Page

SECTION 1.

DEFINITIONS

1

 

 

 

 

 

1.1

Defined Terms

1

 

1.2

Other Definitional Provisions

35

 

1.3

Accounting Terms

36

 

1.4

Currencies; Currency Equivalents; Euro

36

 

1.5

Calculation of Baskets

37

 

1.6

Pro Forma Calculations

37

 

 

 

 

SECTION 2.

AMOUNT AND TERMS OF COMMITMENTS

38

 

 

 

 

 

2.1

Term Loan Commitments

38

 

2.2

Procedure for Term Loan Borrowing

38

 

2.3

Repayment of Term Loans

38

 

2.4

Revolving Commitments

39

 

2.5

Procedure for Revolving Loan Borrowing

39

 

2.6

Swingline Commitment

40

 

2.7

Procedure for Swingline Borrowing; Refunding of Swingline Loans

41

 

2.8

Repayment of Loans

43

 

2.9

Commitment Fees, etc.

43

 

2.10

Termination or Reduction of Revolving Commitments

44

 

2.11

Optional Prepayments

44

 

2.12

Mandatory Prepayments

44

 

2.13

Conversion and Continuation Options

46

 

2.14

Minimum Amounts and Maximum Number of Eurocurrency Tranches

47

 

2.15

Interest Rates and Payment Dates

47

 

2.16

Computation of Interest and Fees

48

 

2.17

Inability to Determine Interest Rate

48

 

2.18

Pro Rata Treatment and Payments

49

 

2.19

Requirements of Law

50

 

2.20

Taxes

52

 

2.21

Indemnity

54

 

2.22

Illegality

54

 

2.23

Change of Lending Office

55

 

2.24

Replacement of Lenders

55

 

2.25

Incremental Loans

56

 

2.26

Defaulting Lenders

57

 

 

 

 

SECTION 3.

LETTERS OF CREDIT

59

 

 

 

 

 

3.1

L/C Commitment

59

 

3.2

Procedure for Issuance of Letter of Credit

59

 

3.3

Fees and Other Charges

59

 

3.4

L/C Participations

60

 

3.5

Reimbursement Obligation of the Borrower

61

 

3.6

Obligations Absolute

62

 

3.7

Letter of Credit Payments

62

 



 

 

3.8

Applications

62

 

 

 

 

SECTION 4.

REPRESENTATIONS AND WARRANTIES

62

 

 

 

 

 

4.1

Financial Condition

63

 

4.2

No Change

63

 

4.3

Existence; Compliance with Law

63

 

4.4

Corporate Power; Authorization; Enforceable Obligations

63

 

4.5

No Legal Bar

65

 

4.6

No Material Litigation

64

 

4.7

No Default

64

 

4.8

Ownership of Property; Liens

64

 

4.9

Intellectual Property

64

 

4.10

Taxes

64

 

4.11

Federal Regulations

65

 

4.12

ERISA

65

 

4.13

Investment Company Act

65

 

4.14

Subsidiaries

65

 

4.15

Environmental Matters

65

 

4.16

Accuracy of Information, etc.

66

 

4.17

Security Documents

66

 

4.18

Solvency

66

 

 

 

 

SECTION 5.

CONDITIONS PRECEDENT

67

 

 

 

 

 

5.1

Conditions to Initial Extension of Credit

67

 

5.2

Conditions to Each Extension of Credit

68

 

 

 

 

SECTION 6.

AFFIRMATIVE COVENANTS

69

 

 

 

 

 

6.1

Financial Statements

69

 

6.2

Certificates; Other Information

70

 

6.3

Payment of Obligations

71

 

6.4

Conduct of Business and Maintenance of Existence, etc.; Compliance

71

 

6.5

Maintenance of Property; Insurance

71

 

6.6

Inspection of Property; Books and Records; Discussions

72

 

6.7

Notices

72

 

6.8

Additional Collateral, etc.

73

 

6.9

Further Assurances

75

 

6.10

Use of Proceeds

75

 

6.11

Changes in Jurisdictions of Organization; Name

75

 

 

 

 

SECTION 7.

NEGATIVE COVENANTS

75

 

 

 

 

 

7.1

Financial Condition Covenants

76

 

7.2

Indebtedness

76

 

7.3

Liens

79

 

7.4

Fundamental Changes

81

 

7.5

Dispositions of Property

82

 

7.6

Restricted Payments

84

 

7.7

[Reserved.]

86

 

iii



 

 

7.8

Investments

86

 

7.9

Optional Payments and Modifications of Certain Debt Instruments

89

 

7.10

Transactions with Affiliates

89

 

7.11

Sales and Leasebacks

89

 

7.12

Changes in Fiscal Periods

90

 

7.13

Negative Pledge Clauses

90

 

7.14

Clauses Restricting Subsidiary Distributions

90

 

7.15

Lines of Business

91

 

7.16

Limitation on Hedge Agreements

91

 

 

 

 

SECTION 8.

EVENTS OF DEFAULT

91

 

 

 

 

SECTION 9.

THE AGENTS

94

 

 

 

 

 

9.1

Appointment

94

 

9.2

Delegation of Duties

94

 

9.3

Exculpatory Provisions

94

 

9.4

Reliance by the Agents

95

 

9.5

Notice of Default

95

 

9.6

Non-Reliance on Agents and Other Lenders

95

 

9.7

Indemnification

96

 

9.8

Agent in Its Individual Capacity

96

 

9.9

Successor Agents

96

 

9.10

Authorization to Release Liens and Guarantees

97

 

9.11

Joint Lead Arrangers, Joint Bookrunners, Documentation Agent and Syndication Agent

97

 

9.12

Administrative Agent May File Proof of Claims

97

 

 

 

 

SECTION 10.

MISCELLANEOUS

98

 

 

 

 

 

10.1

Amendments and Waivers

98

 

10.2

Notices

101

 

10.3

No Waiver; Cumulative Remedies

102

 

10.4

Survival of Representations and Warranties

103

 

10.5

Payment of Expenses; Indemnification

103

 

10.6

Successors and Assigns; Participations and Assignments

104

 

10.7

Adjustments; Set-off

108

 

10.8

Counterparts

108

 

10.9

Severability

109

 

10.10

Integration

109

 

10.11

GOVERNING LAW

109

 

10.12

Submission To Jurisdiction; Waivers

109

 

10.13

Judgment Currency

109

 

10.14

Acknowledgments

110

 

10.15

Confidentiality

110

 

10.16

Release of Collateral and Guarantee Obligations; Subordination of Liens

111

 

10.17

Accounting Changes

112

 

10.18

WAIVERS OF JURY TRIAL

112

 

10.19

USA PATRIOT ACT

112

 

10.20

Delivery of Lender Addenda

112

 

iv



 

SCHEDULES :

 

 

1

Revolving Commitments, Tranche A Term Loan Commitments and Tranche B Term Loan Commitments

1.1A

Excluded Subsidiaries

4.4

Consents, Authorizations, Filings and Notices

4.8A

Excepted Property

4.8B

Owned or Leased Real Property

4.14

Subsidiaries

4.17

UCC Filing Jurisdictions

7.2(d)

Existing Indebtedness

7.3(f)

Existing Liens

7.8

Existing Investments

7.13

Restrictions on Restricted Subsidiaries

 

 

EXHIBITS :

 

 

A

Form of Guarantee and Collateral Agreement

B

Form of Compliance Certificate

C

Form of Closing Certificate

D

Form of Assignment and Assumption

E

Form of Legal Opinion of Latham & Watkins LLP

F

Form of Exemption Certificate

G

Form of Solvency Certificate

H

Form of Joinder Agreement

I

Form of Lender Addendum

J

Auction Procedures

K-1

Form of Notice of Term Loan Borrowing

K-2

Form of Notice Revolving Loan Borrowing

L

Form of Prepayment Option Notice

M

Form of Notice of Continuation/Conversion

 

v



 

CREDIT AGREEMENT, dated as of April 7, 2011, among WESCO HOLDINGS, INC., a Delaware corporation (“ Holdings ”), WESCO AIRCRAFT HARDWARE CORP., a California corporation (the “ Borrower ”), the several banks and other financial institutions or entities from time to time parties to this Agreement (the “ Lenders ”), BARCLAYS BANK PLC, as Administrative Agent, Collateral Agent, Issuing Lender and Swingline Lender, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, KEY BANK, N.A. and BARCLAYS CAPITAL, the investment banking division of Barclays Bank PLC, as joint lead arrangers, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, BARCLAYS CAPITAL, the investment banking division of Barclays Bank PLC, J.P MORGAN SECURITIES LLC, MORGAN STANLEY SENIOR FUNDING, INC., SUMITOMO MITSUI BANKING CORPORATION and ROYAL BANK OF CANADA, as joint bookrunners, BANK OF AMERICA, N.A., as syndication agent, and BARCLAYS BANK PLC, as documentation agent.

 

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.

 

ABR ”:  for any day, a rate per annum rounded upwards, if necessary, to the next 1/100 of 1% equal to the highest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus ½ of 1% and (c) the Eurocurrency Rate for a Eurocurrency Loan denominated in Dollars for a three-month interest period beginning on such day (or if such day is not a Business Day, on the immediately preceding Business Day) plus  1%; provided that, for the avoidance of doubt, the Eurocurrency Rate for any day shall be based on the rate appearing on the Screen for Dollars on such day at approximately 11 A.M., London time, as the Eurocurrency Rate for deposits denominated in Dollars and having a three-month interest period.  For purposes hereof:  “ Prime Rate ” means the prime commercial lending rate of the Administrative Agent as established from time to time in its principal U.S. office, as in effect from time to time.  Any change in the ABR due to a change in the Eurocurrency Rate, the Prime 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 Eurocurrency Rate, the Prime Rate or the Federal Funds Effective Rate, respectively.

 

ABR Loans ”:  Loans denominated in Dollars the rate of interest applicable to which is based upon the ABR.

 

Accepting Lenders ”:  as defined in Section 10.1.

 

Accounting Changes ”:  as defined in Section 10.17.

 

Acquisition ”:  as defined in the definition of “Permitted Acquisition”.

 

Administrative Agent ”:  Barclays Bank PLC, as the administrative agent for the Lenders under this Agreement and the other Loan Documents, together with any of its successors and permitted assigns.

 

Affiliate ”:  as to any Person, any other Person that, 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 to direct or cause the direction of the management and policies of such Person, in either case whether by contract or otherwise.

 



 

Affiliate Assignment Agreement ”:  an Assignment and Assumption Agreement substantially in the form of Exhibit 1 to Exhibit D hereto, with such amendments or modifications as may be approved by the Administrative Agent.

 

Affiliate Lenders ”:  collectively, Holdings and its Subsidiaries and Other Affiliates.

 

Agents ”:  the collective reference to the Collateral Agent and the Administrative Agent.

 

Aggregate Exposure ”:  with respect to any Lender at any time, an amount equal to (a) until the Closing Date, the aggregate amount of such Lender’s Commitments at such time and (b) thereafter, the sum of (i) the aggregate then unpaid principal amount of such Lender’s Tranche A Term Loans and Tranche B Term Loans, (ii) the aggregate amount of such Lender’s Revolving Dollar Exposure or Revolving Multicurrency Exposure, or if the Revolving Commitments of any Class have been terminated, the amount of such Lender’s Revolving Extensions of Credit then outstanding of such Class and (iii) the aggregate amount of such Lender’s New Term Loan Commitments then in effect, or if such New Term Loan Commitments have been terminated, the amount of such Lender’s New Term Loans.

 

Aggregate Exposure Percentage ”:  with respect to any Lender at any time, the ratio (expressed as a percentage) of such Lender’s Aggregate Exposure at such time to the total Aggregate Exposures of all Lenders at such time.

 

Agreed Foreign Currency ”:  at any time, Pounds Sterling or euro.

 

Agreed Foreign Currency Equivalent ”:  with respect to any amount in Dollars, the amount of any Agreed Foreign Currency that could be purchased with such amount of Dollars using the reciprocal of the foreign exchange rate(s) specified in the definition of the term “Dollar Equivalent”, as determined by the Administrative Agent.

 

Agreed Purposes ”:  as defined in Section 10.15.

 

Agreement ”:  this Credit Agreement, as amended, restated, amended and restated, waived, supplemented or otherwise modified from time to time.

 

Applicable Class ”:  as defined in Section 2.12(f).

 

Applicable Margin ” or “ Applicable Commitment Fee Rate ”:  for any day, with respect to Revolving Loans (including any Swingline Loans), Tranche A Term Loans, Tranche B Term Loans and the commitment fee payable hereunder, the applicable rate per annum determined pursuant to the Pricing Grid; provided that (a) from the Closing Date until the six-month anniversary of the Closing Date, the Applicable Margin with respect to Revolving Loans and Tranche A Term Loans and the Applicable Commitment Fee Rate shall be determined by reference to Level IV of the Pricing Grid, and thereafter the Applicable Margin with respect to Revolving Loans and Tranche A Term Loans and the Applicable Commitment Fee Rate shall be determined in accordance with the Pricing Grid based on the most recently delivered financial statements delivered pursuant to Section 6.1 and (b) from the Closing Date until June 30, 2012, the Applicable Margin with respect to Tranche B Term Loans shall be determined by reference to Level IV of the Pricing Grid, and thereafter the Applicable Margin with respect to Tranche B Term Loans shall be determined in accordance with the Pricing Grid based on the most recently delivered financial statements delivered pursuant to Section 6.1.

 

2



 

Application ”:  an application, in such form as the relevant Issuing Lender may specify from time to time, requesting such Issuing Lender to open a Letter of Credit.

 

Approved Fund ”:  as defined in Section 10.6(b).

 

Asset Sale ”:  any Disposition of Property or series of related Dispositions of Property by any Loan Party (a) not in the ordinary course of business under Section 7.5(e) or (v) or (b) not otherwise permitted under Section 7.5, in each case, which yields Net Cash Proceeds to any Loan Party (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 $7,500,000.

 

Assignee ”:  as defined in Section 10.6(b).

 

Assignment and Assumption ”:  an Assignment and Assumption, substantially in the form of Exhibit D.

 

Auction ”:  as defined in Section 10.6(g).

 

Auction Manager ”:  (a) any of the Administrative Agent or the Joint Lead Arrangers, as determined by the Borrower or (b) any other financial institution or advisor agreed by the Borrower and the Administrative Agent (whether or not an Affiliate of the Administrative Agent) to act as an arranger in connection with any repurchases pursuant to Section 10.6(g).

 

Available Amount ”:  as at any date, the sum of, without duplication and, in the case of clauses (c) through (g) below, to the extent not otherwise included in Excess Cash Flow:

 

(a)                                   $25,000,000;

 

(b)                                  the Available Excess Cash Flow Amount;

 

(c)                                   the Net Cash Proceeds received from any Equity Issuance by, or capital contribution to, Holdings or the Borrower made after the Closing Date (other than Specified Equity Contributions and Equity Issuances of Disqualified Capital Stock) which, in the case of any such Equity Issuance by, or capital contribution to, Holdings, have been contributed in cash as common equity to the Borrower;

 

(d)                                  the aggregate amount of proceeds received by the Loan Parties after the Closing Date that (i) would have constituted Net Cash Proceeds pursuant to clause (a) of the definition of “Net Cash Proceeds” except for the operation of any of (A) the Dollar threshold set forth in the definition of “Asset Sale”, and (B) the Dollar threshold set forth in the definition of “Recovery Event” or (ii) constitutes proceeds declined for prepayment that are returned to the Borrower pursuant to Section 2.12;

 

(e)                                   the aggregate principal amount of any Indebtedness of Holdings or any Restricted Subsidiary issued after the Closing Date (other than Indebtedness issued to a Restricted Subsidiary), which has been extinguished after being converted into or exchanged for Capital Stock in Holdings or any parent company;

 

(f)                                     the amount received by Holdings or any Restricted Subsidiary in cash (and the fair market value (as determined in good faith by Holdings) of Property other than cash received

 

3



 

by Holdings or any Restricted Subsidiary) after the Closing Date from any dividend or other distribution by an Unrestricted Subsidiary;

 

(g)                                  in the event any Unrestricted Subsidiary has been redesignated as a Restricted Subsidiary and becomes a Subsidiary Guarantor or has been merged, consolidated or amalgamated with or into, or transfers or conveys its assets to, or is liquidated into, Holdings, the Borrower or any Subsidiary Guarantor, the fair market value (as determined in good faith by the Borrower) of the Investments of Holdings or any Restricted Subsidiary in such Unrestricted Subsidiary at the time of such redesignation, combination or transfer (or of the assets transferred or conveyed, as applicable) to the extent the Investment in such Unrestricted Subsidiary was made by Holdings or any of its Restricted Subsidiaries with the Available Amount;

 

(h)                                  an amount equal to any returns (including dividends, interest, distributions, returns of principal, profits on sale, repayments, income and similar amounts) actually received in cash or Cash Equivalents by the Borrower or any Restricted Subsidiary in respect of any Permitted Acquisition or Investments made after the Closing Date pursuant to Sections 7.8(f), 7.8(n) and 7.8(o) using the Available Amount; and

 

(i)                                      the aggregate amount actually received in cash or Cash Equivalents by the Borrower or any Restricted Subsidiary in connection with the sale, transfer or other disposition of its ownership interest in any joint venture that is not a Subsidiary or in any Unrestricted Subsidiary, in each case, to the extent of the Investment in such joint venture or Unrestricted Subsidiary;

 

minus , the sum of

 

(a)                                   the amount of Indebtedness incurred after the Closing Date pursuant to Section 7.2(h) using the Available Amount;

 

(b)                                  the amount of Restricted Payments made after the Closing Date pursuant to Section 7.6(e) using the Available Amount; and

 

(c)                                   the amount of any Investments made after the Closing Date in respect of any Permitted Acquisition or Investments made after the Closing Date pursuant to Sections 7.8(f) and 7.8(o) using the Available Amount.

 

Available Excess Cash Flow Amount ”:  the aggregate cumulative amount, not less than zero, of Excess Cash Flow for all fiscal years ending on or after September 30, 2012 that is not required pursuant to the provisions of Section 2.12(c) to be applied to the prepayment of Term Loans.

 

Available Revolving Commitment ”:  as to any Revolving Lender of any Class at any time, an amount equal to the excess, if any, of (a) such Lender’s Revolving Commitment of such Class then in effect over (b) such Lender’s Revolving Extensions of Credit of such Class then outstanding; provided that in calculating any Revolving Lender’s Revolving Extensions of Credit of Dollar Revolving Commitments for the purpose of determining such Revolving Lender’s Available Revolving Commitments of such Class pursuant to Section 2.9(a), the aggregate principal amount of Swingline Loans then outstanding shall be deemed to be zero.

 

Below Threshold Asset Disposition Proceeds ”:  the aggregate cumulative amount of Net Cash Proceeds received by the Loan Parties after the Closing Date that would have constituted Net Cash Proceeds of an Asset Sale except for the operation of clause (a) of the definition thereof.

 

4



 

Benefitted Lender ”:  as defined in Section 10.7(a).

 

Board ”:  the Board of Governors of the Federal Reserve System of the United States (or any successor).

 

Borrower ”:  as defined in the preamble hereto.

 

Borrowing Date ”:  any Business Day specified by the Borrower as a date on which the Borrower requests the relevant Lenders to make Loans hereunder.

 

Business ”:  the provision of inventory management services and the purchase, sale and distribution of parts, machined parts, electronic products, bearings, other C-class parts, fastener installation tooling and other parts used by the Borrower’s customers and various services relating, incidental or ancillary thereto.

 

Business Day ”:  a day (a) other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close, (b) with respect to notices and determinations in connection with, and payments of principal and interest on, Eurocurrency Loans, such day is also a day for trading by and between banks in deposits in the relevant Currency in the interbank eurocurrency market, (c) with respect to notices and determinations in connection with, and payments of principal and interest on, Eurocurrency Loans denominated in Pounds Sterling, such day is also a day on which commercial banks and the London foreign exchange market settle payments in the Principal Financial Center for such Foreign Currency and (d) with respect to notices and determinations in connection with, and payments of principal and interest on, Eurocurrency Loans denominated in euro, such day is also a day on which the Trans-European Automated Real-time Gross Settlement Express Transfer payment system (or any successor settlement system as determined by the Administrative Agent) is open for the settlement of payments in euro.

 

Capital Expenditures ”:  for any period, with respect to any Person, the aggregate of all cash expenditures by such Person for the acquisition or leasing (pursuant to a capital lease but excluding any amount representing capitalized interest) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) which are required to be capitalized under GAAP on a balance sheet of such Person; provided that in any event the term “Capital Expenditures” shall exclude:  (i) any Permitted Acquisition and any other Investment permitted hereunder; (ii) any expenditures to the extent financed with any Reinvestment Deferred Amount; (iii) expenditures for leasehold improvements for which such Person is reimbursed or receives a credit; and (iv) expenditures to the extent they are made with the proceeds of equity contributions (other than Specified Equity Contributions and in respect of Disqualified Capital Stock) made to Holdings or the Restricted Subsidiaries after the Closing Date.

 

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, and any and all equivalent ownership interests in a Person (other than a corporation).

 

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 one year or less from the date of acquisition issued by any Lender or by any commercial bank organized under the laws of the United States 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 S&P or P-2 by 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 one year 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 one year 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; and (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of any of clauses (a) through (f) of this definition; or (h) money market funds that (i) purport to comply generally with the criteria set forth in SEC Rule 2a-7 under the Investment Company Act of 1940, as amended, (ii) are rated AAA by S&P or Aaa by Moody’s or carrying an equivalent rating by a nationally recognized rating agency, and (iii) have portfolio assets of at least $5,000,000,000.

 

Certificated Security ”:  as defined in the Guarantee and Collateral Agreement.

 

Chattel Paper ”:  as defined in the Guarantee and Collateral Agreement.

 

Class ”:  (a) when used in reference to any Loan or borrowing, refers to whether such Loan, or the Loans constituting such borrowing, are Dollar Revolving Loans, Multicurrency Revolving Loans, Tranche A Term Loans, Tranche B Term Loans or, if applicable, a Tranche of New Term Loans; (b) when used in reference to any Swingline Loan, refers to whether such Swingline Loans are Dollar Swingline Loans or Multicurrency Swingline Loans; (c) when used in reference to any Lender, refers to whether such Lender is a Dollar Revolving Lender, a Multicurrency Revolving Lender, a Tranche A Term Lender, a Tranche B Term Lender or a New Term Lender under a Tranche of New Term Loans; (d) when used in reference to any Commitment, refers to whether such Commitment is a Dollar Revolving Commitment, Multicurrency Revolving Commitment, Tranche A Term Loan Commitment, Tranche B Term Loan Commitment or Tranche of New Term Loan Commitment; and (e) when used in reference to a Letter of Credit refers, refers to whether such Letter of Credit is a Dollar Letter of Credit or a Multicurrency Letter of Credit.

 

Closing Date ”:  the date on which the conditions precedent set forth in Section 5.1 shall have been satisfied and the initial Loans hereunder shall have been funded, which date is April 7, 2011.

 

Code ”:  the Internal Revenue Code of 1986, as amended from time to time.

 

Co-Investors ”:  any co-investors designated by the Sponsor who may own, directly or indirectly, no more than 15%, in the aggregate, of the Capital Stock of Holdings.

 

6



 

Collateral ”:  the meaning assigned to such term in the Guarantee and Collateral Agreement.

 

Collateral Agent ”:  Barclays Bank PLC, in its capacity as collateral agent for the Secured Parties under the Security Documents and any of its successors and permitted assigns.

 

Commitment ”:  as to any Lender, the sum of the Revolving Commitments, the Tranche A Term Loan Commitments, the Tranche B Term Loan Commitments and the New Term Loan Commitments (if any) of such Lender.

 

Committed Reinvestment Amount ”:  as defined in the definition of “Reinvestment Prepayment Amount”.

 

Commonly Controlled Entity ”:  an entity, whether or not incorporated, that is under common control with Holdings within the meaning of Section 4001 of ERISA or is part of a group that includes Holdings and that is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code.

 

Commonly Controlled Plan ”:  as defined in Section 4.12(b).

 

Compliance Certificate ”:  a certificate duly executed by a Responsible Officer substantially in the form of Exhibit B.

 

Confidential Information ”:  as defined in Section 10.15.

 

Consolidated Current Assets ”:  at any date, all amounts (other than cash, Cash Equivalents and Foreign Cash Equivalents) that would, in conformity with GAAP, be set forth opposite the caption “total current assets” (or any like caption) on a consolidated balance sheet of Holdings and its Restricted Subsidiaries at such date.

 

Consolidated Current Liabilities ”:  at any date, all amounts that would, in conformity with GAAP, be set forth opposite the caption “total current liabilities” (or any like caption) on a consolidated balance sheet of Holdings and its Restricted Subsidiaries at such date, but excluding (a) the current portion of any Indebtedness of Holdings and its Restricted Subsidiaries and (b) without duplication, all Indebtedness consisting of Revolving Loans or Swingline Loans, to the extent otherwise included therein.

 

Consolidated EBITDA ”:  of any Person for any period, Consolidated Net Income of such Person and its Subsidiaries (or, in the case of Holdings, its Restricted Subsidiaries) 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) income tax (or any alternative tax in lieu thereof) expense (including state, local, franchise, excise, foreign withholding and similar taxes), (b) Consolidated Net Interest Expense of such Person and its Subsidiaries (or, in the case of Holdings, its Restricted Subsidiaries), amortization or writeoff of debt discount, debt issuance costs and commissions, premiums, discounts and other fees and charges associated with Indebtedness (including commitment and administrative fees and charges with respect to the Facilities), (c) depreciation and amortization expense, (d) amortization or impairment of intangibles (including, but not limited to, goodwill) and organization costs, (e) any extraordinary, unusual 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), (f) any other non-cash charges, expenses or losses, including in relation to earn-outs and similar obligations, (g) restructuring and

 

7



 

integration costs, including, without limitation, any severance costs, costs associated with office openings or closings and consolidation, relocation or integration costs and other non-recurring business optimization and restructuring charges and expenses, (h) stock-option based and other equity-based compensation expenses, (i) transaction costs, fees, losses and expenses (including those relating to transactions contemplated hereby (including any amendments or waivers of the Loan Documents), and those payable in connection with the sale of Capital Stock, the incurrence of Indebtedness permitted under Section 7.2, transactions permitted by Section 7.4, Dispositions permitted by Section 7.5 or any Permitted Acquisition or other Investment permitted under Section 7.8 (in each case whether or not successful)), (j) all fees and expenses paid pursuant to the Management Agreement, (k) proceeds from any business interruption insurance (in the case of this clause (k) to the extent not reflected as revenue or income in such statement of such Consolidated Net Income), (l) losses recognized and expenses incurred in connection with the effect of currency and exchange rate fluctuations on intercompany balances and other balance sheet items, (m) cash expenses relating to earn-outs and similar obligations, (n) to the extent actually reimbursed, charges, losses, lost profits, write-offs or expenses incurred to the extent covered by indemnification provisions in any agreement in connection with a Permitted Acquisition or any other acquisition permitted by Section 7.8, (o) the amount of cost savings and other operating improvements and synergies projected by the Borrower in good faith and certified in writing to the Administrative Agent to be realized as a result of any acquisition or Disposition (including the termination or discontinuance of activities constituting such business) of business entities or properties or assets, constituting a division or line of business of any business entity, division or line of business that is the subject of any such acquisition or Disposition, or from any operational change taken or committed to be taken during such period (in each case calculated on a pro forma basis as though such cost savings and other operating improvements and synergies had been realized on the first day of such period), net of the amount of actual benefits realized during such period from such actions to the extent already included in the Consolidated Net Income for such period, provided that (i) the Borrower shall have certified to the Administrative Agent that (A) such cost savings, operating improvements and synergies are reasonably anticipated to result from such actions and (B) such actions have been taken, or have been committed to be taken and the benefits resulting therefrom are anticipated by the Borrower to be realized within 12 months, (ii) no cost savings shall be added pursuant to this clause (o) to the extent already included in clause (e) above with respect to such period and (iii) the amount of such cost savings, operating improvements and synergies shall not exceed 10% of Consolidated EBITDA for any period of 12 consecutive months and (p) Public Company Costs, provided that amount of such costs and Public Company Costs shall not exceed $4,000,000 for any period of 12 consecutive months; minus , to the extent included in the statement of such Consolidated Net Income for such period, the sum of (a) any extraordinary, unusual 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), (b) any other non-cash income or gains (other than the accrual of revenue in the ordinary course), but excluding any such items (i) in respect of which cash was received in a prior period or will be received in a future period or (ii) which represents the reversal in such period of any accrual of, or reserve for, anticipated cash charges in any prior period where such accrual or reserve is no longer required, all as determined on a consolidated basis and (c) gains realized and income accrued in connection with the effect of currency and exchange rate fluctuations on intercompany balances and other balance sheet items; provided that for purposes of calculating Consolidated EBITDA of Holdings and its Restricted Subsidiaries for any period, (A) the Consolidated EBITDA of any Person acquired by Holdings or its Restricted Subsidiaries during such period shall be included on a pro forma basis for such period (but assuming the consummation of such acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred on the first day of such period), (B) the Consolidated EBITDA of any Person Disposed of by Holdings or its Restricted Subsidiaries during such period shall be excluded for such period (assuming the consummation of such Disposition and the repayment of any Indebtedness in connection therewith occurred on the first day of such period) and (C) the Consolidated EBITDA generated by any Qualified Contract that has been entered into by Holdings or any Restricted

 

8



 

Subsidiary during such period will be given pro forma effect for such period as if such Qualified Contract had been entered into on the first day of such period; provided that such Consolidated EBITDA shall be certified by Holdings as having been determined in good faith to be reasonably anticipated to be realizable within 12 months following the date such Qualified Contract is entered into.  For purposes of determining compliance with the financial covenants set forth in Section 7.1, (i) any cash common equity contribution or (ii) any other equity contribution on terms reasonably acceptable to the Administrative Agent, made by Holdings to the Borrower or any Subsidiary Guarantor on or after the first day of any fiscal quarter and prior to the day that is 10 days after the day on which financial statements are required to be delivered for such fiscal quarter (it being understood that each such contribution shall be credited with respect to only one fiscal quarter; provided that such credit shall be effective as to such fiscal quarter for all periods in which such fiscal quarter is included) will, at the request of Holdings, be deemed to increase, dollar for dollar, Consolidated EBITDA for such fiscal quarter for the purposes of determining compliance with such financial covenants at the end of such fiscal quarter and applicable subsequent periods (any such equity contribution so included in the calculation of Consolidated EBITDA, a “ Specified Equity Contribution ”); provided that (a) in each four fiscal quarter period there shall be a period of at least two fiscal quarters in which no Specified Equity Contribution is made, (b) no more than four Specified Equity Contributions shall be made so long as the Commitments remain in effect, any Letter of Credit remains outstanding (that has not been cash collateralized or backstopped) or any Loan or other amount is owing to any Lender or any Agent hereunder and (c) the amount of any Specified Equity Contribution shall be no greater than the amount required to cause Holdings to be in compliance with the financial covenants set forth in Section 7.1.  Notwithstanding the forgoing, Consolidated EBITDA shall be calculated without giving effect to the non-cash effects of purchase accounting or similar adjustments required or permitted by GAAP in connection with any Investment (including any Permitted Acquisition).

 

Consolidated Net Income ”:  of any Person for any period, the consolidated net income (or loss) of such Person and its Subsidiaries (or, in the case of Holdings, its Restricted Subsidiaries) for such period, determined on a consolidated basis in accordance with GAAP; provided that in calculating Consolidated Net Income of Holdings and its consolidated Restricted Subsidiaries for any period, there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Restricted Subsidiary of Holdings or is merged into or consolidated with Holdings or any of its Subsidiaries and (b) the income (or deficit) of any Person (other than a Restricted Subsidiary of Holdings) in which Holdings or any of its Restricted Subsidiaries has an ownership interest, except to the extent that any such income is actually received by Holdings or such Restricted Subsidiary in the form of dividends or similar distributions (which dividends and distributions shall be included in the calculation of Consolidated Net Income).  Notwithstanding the foregoing, for purposes of calculating Excess Cash Flow, Consolidated Net Income shall not include:  (i) extraordinary gains for such period, (ii) the cumulative effect of a change in accounting principles during such period, (iii) any fees and expenses incurred during such period, or any amortization thereof for such period, in connection with any acquisition, investment, recapitalization, asset disposition, issuance or repayment of debt, issuance of equity securities, refinancing transaction or amendment or other modification of any debt instrument (in each case, including any such transaction undertaken but not completed) and any charges or non-recurring merger costs incurred during such period as a result of any such transaction and (iv) any income (loss) for such period attributable to the early extinguishment of Indebtedness or Hedge Agreements.  There shall be excluded from Consolidated Net Income for any period the purchase accounting effects of adjustments to inventory, property and equipment, software and other intangible assets and deferred revenue required or permitted by GAAP and related authoritative pronouncements as a result of any consummated acquisition whether consummated before or after the Closing Date, or the amortization or write-off of any amounts thereof.

 

9



 

Consolidated Net Interest Coverage Ratio ”:  for any period, the ratio of (a) Consolidated EBITDA of Holdings and its Restricted Subsidiaries for such period to (b) Consolidated Net Interest Expense of Holdings and its Restricted Subsidiaries for such period.

 

Consolidated Net Interest Expense ”:  of any Person for any period, (a) total cash interest expense (including that attributable to Capital Lease Obligations) of such Person and its Subsidiaries (or, in the case of Holdings, its Restricted Subsidiaries) for such period with respect to all outstanding Indebtedness of such Person and its Subsidiaries (or, in the case of Holdings, its Restricted Subsidiaries), minus  (b) the sum of (i) total cash interest income of such Person and its Subsidiaries (or, in the case of Holdings, its Restricted Subsidiaries) for such period, in each case determined in accordance with GAAP plus (ii) any one time financing fees (to the extent included in such Person’s consolidated interest expense for such period), including, with respect to Holdings, those paid in connection with the transactions occurring on the Closing Date or in connection with any amendment hereof.  For purposes of the foregoing, interest expense of any Person shall be determined after giving effect to any net payments made or received by such Person with respect to interest rate Hedge Agreements (other than early termination payments) permitted hereunder.

 

Consolidated Total Leverage ”:  at any date, the aggregate principal amount of all Funded Debt of Holdings and its Restricted Subsidiaries at such date, minus cash and Cash Equivalents (other than any restricted cash, Cash Equivalents or Foreign Cash Equivalents) held by Holdings and its Restricted Subsidiaries on such date, in each case determined on a consolidated basis in accordance with GAAP.

 

Consolidated Total Leverage Ratio ”:  as at the last day of any period of four consecutive fiscal quarters of Holdings, the ratio of (a) Consolidated Total Leverage on such day to (b) Consolidated EBITDA of Holdings and its Restricted Subsidiaries for such period.

 

Consolidated Working Capital ”:  at any date, the difference of (a) Consolidated Current Assets on such date less (b) Consolidated Current Liabilities on such date.

 

Continuing Directors ”:  the directors of Holdings on the Closing Date and each other director of Holdings, if, in each case, such other director’s nomination for election to the board of directors of Holdings is recommended by at least 51% of the then Continuing Directors or such other director receives the vote of the Sponsor and/or its Affiliates (excluding any operating portfolio companies of the Sponsor) or any other Permitted Investor in his or her election by the shareholders of Holdings.

 

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.

 

Currency ”:  Dollars or any Agreed Foreign Currency.

 

Debt Fund Affiliate ”:  any Affiliate of Holdings that is a bona fide diversified debt fund, provided that the Sponsor does not, directly or indirectly, possess the power to direct or cause the direction of the investment policies of any such fund.

 

Debtor Relief Laws ”:  means the Bankruptcy Code of the United States of America, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect.

 

10



 

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.

 

Defaulting Lender ”:  subject to Section 2.26(a), any Lender that (a) has failed to (i) fund all or any portion of its Loans within two Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lender’s determination that one or more conditions precedent to funding (which conditions precedent, together with the applicable default, if any, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Administrative Agent, any Issuing Lender, any Swingline Lender or any other Lender any other amount required to be paid by it hereunder (including in respect of its participation in Letters of Credit or Swingline Loans) within two Business Days of the date when due, (b) has notified the Borrower, the Administrative Agent or any Issuing Lender or Swingline Lender in writing that it does not intend to comply with its funding obligations hereunder or has made a public statement to that effect (unless such writing or public statement relates to such Lenders’ obligation to fund a Loan hereunder and states that such position is based on such Lender’s determination that a condition precedent to funding (which condition precedent, together with the applicable default, if any, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three Business Days after written request by the Administrative Agent or the Borrower, to confirm in writing to the Administrative Agent and the Borrower that it will comply with its prospective funding obligations hereunder ( provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, or (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender.  Any determination by the Administrative Agent that a Lender is a Defaulting Lender under clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.26(a)) upon delivery of written notice of such determination to the Borrower, each Issuing Lender, each Swingline Lender and each Lender.

 

Derivatives Counterparty ”:  as defined in Section 7.6.

 

Differential Amount ”:  as defined in Section 7.5(l).

 

Disposition ”:  with respect to any Property, any sale, sale and leaseback, assignment, conveyance, transfer or other effectively complete disposition thereof.  The terms “ Dispose ” and “ Disposed of ” shall have correlative meanings.

 

Disqualified Capital Stock ”:  Capital Stock (other than, for purposes of determining compliance with Section 7.1, any Capital Stock issued in connection with a Specified Equity Contribution for such periods as such Specified Equity Contribution is deemed to increase Consolidated EBITDA) that (a) requires the payment of any dividends (other than dividends payable solely in shares of Qualified Capital Stock), (b) matures or is mandatorily redeemable or subject to mandatory repurchase or redemption or repurchase at the option of the holders thereof (other than solely for Qualified Capital

 

11



 

Stock), in each case in whole or in part and whether upon the occurrence of any event, pursuant to a sinking fund obligation on a fixed date or otherwise (including as the result of a failure to maintain or achieve any financial performance standards), prior to the date that is 91 days after the final scheduled maturity date of the Loans (other than (i) upon payment in full of the Obligations (other than indemnification and other contingent obligations not yet due and owing and Obligations in respect of Specified Hedge Agreements) or (ii) upon a “change in control”; provided that any payment required pursuant to this clause (ii) is contractually subordinated in right of payment to the Obligations on terms reasonably satisfactory to the Administrative Agent) or (c) are convertible or exchangeable, automatically or at the option of any holder thereof, into any Indebtedness, Capital Stock or other assets other than Qualified Capital Stock.

 

Disqualified Institution ”:  (i) those institutions identified by the Borrower in writing to the Administrative Agent prior to the Closing Date, as the case may be, or with the consent of the Administrative Agent (not to be unreasonably withheld; consent of the Administrative Agent shall be deemed to have been given if the Administrative Agent does not object within 5 Business Days after identification of an institution) from time to time thereafter, and their known Affiliates and (ii) business competitors of the Borrower and its Subsidiaries identified in writing to the Administrative Agent from time to time and their known Affiliates.

 

Documentation Agent ”:  as defined in the preamble hereto.

 

Dollar Amount ”:  in respect of any amount, the sum of (a) the portion thereof denominated in Dollars (if any), plus (b) the Dollar Equivalent of the portion thereof denominated in any Foreign Currency (if any).

 

Dollar Equivalent ”:  of any amount means, on the applicable Valuation Date, (a) if such amount is expressed in Dollars, such amount, (b) if such amount is expressed in any Agreed Foreign Currency, the equivalent of such amount in Dollars determined by using the rate of exchange quoted by the Administrative Agent in New York, New York at 11:00 a.m. (New York time) on the Valuation Date (or, in the case of any determination made under Section 2.12(f) or the last sentence of Section 2.18(g), on the date of determination or redenomination therein referred to) to prime banks in New York for the spot purchase in the New York foreign exchange market of such amount of Dollars with such Agreed Foreign Currency.

 

Dollar 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 Dollar Letters of Credit and (b) the aggregate amount of drawings under Dollar Letters of Credit that have not then been reimbursed.  The Dollar L/C Obligations of any Lender at any time shall be its Dollar Revolving Percentage of the total Dollar L/C Obligations at such time.

 

Dollar Letter of Credit ”:  Letters of Credit that utilize the Dollar Revolving Commitments.

 

Dollar Revolving Commitments ”:  as to any Dollar Revolving Lender, the obligation of such Lender, if any, to make Dollar Revolving Loans and participate in Dollar Swingline Loans and Dollar Letters of Credit in an aggregate principal and/or face amount not to exceed the amount set forth under the heading “Dollar Revolving Commitment” opposite such Lender’s name on Schedule 1, or as the case may be, in the Assignment and Assumption 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 aggregate amount of the Dollar Revolving Commitments is $110,000,000.

 

12



 

Dollar Revolving Extensions of Credit ”:  as to any Dollar Revolving Lender at any time, an amount equal to the sum of (a) the aggregate principal amount of all Dollar Revolving Loans held by such Lender then outstanding, (b) such Lender’s Dollar Revolving Percentage of the Dollar L/C Obligations then outstanding and (c) such Lender’s Dollar Revolving Percentage of the aggregate principal amount of Dollar Swingline Loans then outstanding.

 

Dollar Revolving Facility ”:  as defined in the definition of “Facility”.

 

Dollar Revolving Lender ”:  each Lender that has a Dollar Revolving Commitment or that holds Dollar Revolving Loans.

 

Dollar Revolving Loans ”:  as defined in Section 2.4(a).

 

Dollar Revolving Percentage ”:  as to any Dollar Revolving Lender at any time, the percentage which such Lender’s Dollar Revolving Commitment then constitutes of the aggregate Dollar Revolving Commitments or, at any time after the Dollar Revolving Commitments shall have expired or terminated, the percentage which the Dollar Amount of the aggregate principal amount of such Dollar Revolving Lender’s Dollar Revolving Loans then outstanding constitutes of the aggregate principal amount of the Dollar Revolving Loans then outstanding, provided that in the event that the Dollar Revolving Loans are paid in full prior to the reduction to zero of the Dollar Revolving Extensions of Credit, the Dollar Revolving Percentages shall be determined in a manner designed to ensure that the other outstanding Dollar Revolving Extensions of Credit shall be held by the Dollar Revolving Lenders on a comparable basis.

 

Dollar Swingline Loans ”:  as defined in Section 2.6(a).

 

Dollars ” and “ $ ”:  dollars in lawful currency of the United States.

 

Domestic Subsidiary ”:  any direct or indirect Restricted Subsidiary of Holdings organized under the laws of any jurisdiction within the United States other than those directly owned by a Foreign Subsidiary.

 

Environmental Laws ”:  any and all applicable laws, rules, orders, regulations, statutes, ordinances, codes or decrees (including, without limitation, common law) of any international authority, foreign government, the United States, or any state, provincial, local, municipal or other governmental authority, regulating, relating to or imposing liability or standards of conduct concerning protection of the environment, as has been, is now, or at any time hereafter is, in effect.

 

Environmental Liability ”:  any liability, claim, action, suit, judgment or order under or relating to any Environmental Law for any damages, injunctive relief, losses, fines, penalties, fees, expenses (including reasonable fees and expenses of attorneys and consultants) or costs, whether contingent or otherwise, including those arising from or relating to:  (a) compliance or non-compliance with any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Materials of Environmental Concern, (c) exposure to any Materials of Environmental Concern, (d) the Release of any Materials of Environmental Concern or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

 

Equity Issuance ”:  any issuance by Holdings or its Restricted Subsidiaries of its Capital Stock in a public or private offering.

 

13



 

ERISA ”:  the Employee Retirement Income Security Act of 1974, as amended from time to time.

 

euro ”:  the single currency of Participating Member States of the European Union, which shall be an Agreed Foreign Currency and a Foreign Currency under this Agreement.

 

Eurocurrency Base Rate ”:  with respect to each day during each Interest Period pertaining to a Eurocurrency Loan denominated in any Currency, the rate per annum determined on the basis of the rate for deposits in the relevant Currency for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on the Screen as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period, as the Eurocurrency Rate for deposits denominated in such Currency with a maturity comparable to such Interest Period.  In the event that such rate does not appear on the Screen at such time for any reason, then the “ Eurocurrency Base Rate ” shall be determined by reference to such other comparable publicly available service for displaying eurocurrency rates in such Currency as may be selected by the Administrative Agent or, in the absence of such availability, by reference to the rate at which the Administrative Agent is offered deposits in the relevant currency at or about 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period in the interbank eurocurrency 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.

 

Eurocurrency Loans ”:  Loans the rate of interest applicable to which is based upon the Eurocurrency Rate.

 

Eurocurrency Rate ”:  with respect to each day during each Interest Period pertaining to a Eurocurrency Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%):

 

 

Eurocurrency Base Rate

 

 

1.00 - Eurocurrency Reserve Requirements

 

 

Eurocurrency Reserve Requirements ”:  for any day as applied to a Eurocurrency Loan, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including 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.

 

Eurocurrency Tranche ”:  the collective reference to Eurocurrency Loans denominated in the same Currency under a particular Facility the then current Interest Periods with respect to all of which begin on the same date and end on 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 Amount ”:  as defined in Section 7.4(c).

 

14



 

Excess Cash Flow ”:  for any fiscal year of Holdings, the difference, if any, of (a) the sum, without duplication, of (i) Consolidated Net Income for such fiscal year, (ii) the amount of all non-cash charges (including depreciation, amortization and deferred tax expense) deducted in arriving at such Consolidated Net Income, (iii) the amount of the decrease, if any, in Consolidated Working Capital for such fiscal year, (iv) the aggregate net amount of non-cash loss on the Disposition of Property by Holdings and its Restricted Subsidiaries during such fiscal year (other than sales of inventory in the ordinary course of business), to the extent deducted in arriving at such Consolidated Net Income and (v) the net increase during such fiscal year (if any) in deferred tax liabilities or decrease in deferred tax assets (in each case to the extent reflected in Consolidated Net Income and not included in Consolidated Working Capital) of Holdings minus  (b) the sum, without duplication (including, in the case of clauses (ii) and (viii) below, duplication across periods; provided that all or any portion of the amounts referred to in clauses (ii) and (viii) below with respect to a period may be applied in the determination of Excess Cash Flow for any subsequent period to the extent such amounts did not previously result in a reduction of Excess Cash Flow in any prior period), of (i) the amount of all non-cash gains or credits included in arriving at such Consolidated Net Income (including, without limitation, credits included in the calculation of deferred tax assets and liabilities), (ii) the aggregate amount (A) actually paid by Holdings and its Restricted Subsidiaries in cash during such fiscal year on account of Capital Expenditures and Permitted Acquisitions and (B) committed during such fiscal year to be used to make Capital Expenditures or Permitted Acquisitions which in either case have been actually made or consummated or for which a binding agreement exists as of the time of determination of Excess Cash Flow for such fiscal year (in each case under this clause (ii) other than to the extent any such Capital Expenditure or Permitted Acquisition is made (or, in the case of the preceding clause (B), is expected to be made) with the proceeds of new long-term Indebtedness or an Equity Issuance or with the proceeds of any Reinvestment Deferred Amount), (iii) the aggregate amount of all regularly scheduled principal payments or prepayments (including, without limitation, voluntary prepayments (other than with respect to the Term Loans or Revolving Loans)) of Indebtedness (including, without limitation, the Term Loans) of Holdings and its Restricted Subsidiaries made during such fiscal year (other than in respect of any revolving credit facility to the extent there is not an equivalent permanent reduction in commitments thereunder and other than to the extent any such prepayments are the result of the incurrence of additional indebtedness), (iv) the amount of the increase, if any, in Consolidated Working Capital for such fiscal year, (v) the aggregate net amount of non-cash gain on the Disposition of Property by Holdings and its Restricted Subsidiaries during such fiscal year (other than sales of inventory in the ordinary course of business), to the extent included in arriving at such Consolidated Net Income, (vi) fees and expenses incurred in connection with the closing of the Loan Documents (including amendments of the foregoing), (vii) purchase price adjustments paid or received in connection with any Permitted Acquisition or any other acquisition permitted under Section 7.8, (viii) the net amount of Investments made during such period pursuant to paragraphs (d), (f), (h), (l), (o), (q), (x) and (aa) of Section 7.8 or committed during such period to be used to make Investments pursuant to such paragraphs of Section 7.8 which have been actually made or for which a binding agreement exists as of the time of determination of Excess Cash Flow for such period, (ix) the amount (determined by Holdings) of such Consolidated Net Income which is mandatorily prepaid or reinvested pursuant to Section 2.12(b) (or as to which a waiver of the requirements of such Section applicable thereto has been granted under Section 10.1) prior to the date of determination of Excess Cash Flow for such fiscal year as a result of any Asset Sale or Recovery Event and (x) the net decrease during such fiscal year (if any) in deferred tax liabilities or increase in deferred tax assets (in each case to the extent reflected in Consolidated Net Income and not included in Consolidated Working Capital) of Holdings.

 

Excess Cash Flow Application Date ”:  as defined in Section 2.12(c).

 

Excess Cash Flow Percentage ”:  50%; provided that the Excess Cash Flow Percentage for any Excess Cash Flow Application Date shall be reduced to 25% if the Consolidated Total Leverage

 

15


 

Ratio as of the last day of the fiscal year most recently ended prior to such date is less than 3.00 to 1.0 but not less than 2.50:1.00 and reduced further to 0% if the Consolidated Total Leverage Ratio as of the last day of such fiscal year is less than 2.50 to 1.0.

 

Excluded Subsidiary ”:  (a) each Domestic Subsidiary which is an Immaterial Subsidiary as of the Closing Date and listed on Schedule 1.1A to this Agreement and each future Domestic Subsidiary which is an Immaterial Subsidiary, in each case, for so long as such Subsidiary remains an Immaterial Subsidiary, (b) each Domestic Subsidiary that is not a wholly-owned Subsidiary on any date such Subsidiary would otherwise be required to become a Guarantor pursuant to the requirements of Section 6.8(c) (for so long as such Subsidiary remains a non-wholly-owned Restricted Subsidiary), (c) any Foreign Subsidiary Holding Company and any Subsidiaries owned directly or indirectly by such Foreign Subsidiary Holding Company, (d) each Domestic Subsidiary that is a direct or indirect Subsidiary of a Foreign Subsidiary, (e) each Unrestricted Subsidiary, (f) each Domestic Subsidiary to the extent that (i) such Domestic Subsidiary is prohibited by any applicable Contractual Obligation or Requirement of Law from guaranteeing the Obligations, (ii) any Contractual Obligation prohibits such guarantee without the consent of the other party or (iii) a guarantee of the Obligations would give any other party to a Contractual Obligation the right to terminate its obligation thereunder; provided that such Contractual Obligation was not entered into in contemplation of permitting such Domestic Subsidiary not to become a Guarantor and clauses (ii) and (iii) shall not be applicable if (A) such other party is a Loan Party or a wholly-owned Subsidiary or (B) consent has been obtained to provide such guarantee and for so long as such Contractual Obligation or replacement or renewal thereof is in effect, (g) any special purpose entity or (h) any other Domestic Subsidiary with respect to which, in the reasonable judgment of the Administrative Agent (confirmed by notice to the Borrower) the cost of providing a guarantee is excessive in view of the benefits to be obtained by the Lenders.

 

Excluded Taxes ”:  as defined in Section 2.20(a).

 

Facility ”:  each of (a) the Tranche A Term Loan Commitments and the the Tranche A Term Loans (the “ Tranche A Term Facility ”), (b) the Tranche B Term Loan Commitments and the Tranche B Term Loans (the “ Tranche B Term Facility ”), (c) the Dollar Revolving Commitments and the extensions of credit made thereunder (the “ Dollar Revolving Facility ”), (d) the Multicurrency Revolving Commitments and the extensions of credit made thereunder (the “ Multicurrency Revolving Facility ” and, together with the Dollar Revolving Facility, the “ Revolving Facility ”) and (e) each Tranche of New Term Loans and the related New Term Loan Commitments (each, a “ New Term Loan Facility ”).

 

FATCA ”:  means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended version that is substantively comparable if such amended version provides a reasonable method for a Lender to certify that it has complied with information reporting requirements and would be exempt from any withholding imposed) and any current or future regulations or official interpretations thereof.

 

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 that is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it.

 

Fee Payment Date ”:  commencing on June 30, 2011, (a) the last Business Day of each March, June, September and December and (b) the last day of the Revolving Commitment Period.

 

16



 

First Lien Credit Agreement ”:  the First Lien Credit Agreement dated as of September 29, 2006, among Holdings, the Borrower, the lenders party thereto, and Barclays Bank PLC (successor to Lehman Commercial Paper Inc.), as Administrative Agent.

 

Flintbrook ”:  Flintbrook Limited, a limited holding company incorporated under the laws of England and Wales.

 

Foreign Cash Equivalents ”:  (a) certificates of deposit or bankers acceptances of, and bank deposits with, any bank organized under the laws of any country that is a member of the European Economic Community or Canada or any subdivision thereof, whose short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody’s is at least P-1 or the equivalent thereof, in each case with maturities of not more than six months from the date of acquisition, (b) commercial paper maturing not more than one year from the date of creation thereof and, at the time of acquisition, having the highest rating obtainable from either S&P’s or Moody’s and (c) shares of any money market mutual fund that has its assets invested continuously in the types of investments referred to in clauses (a) and (b) above.

 

Foreign Currency ”:  at any time, any Currency other than Dollars.

 

Foreign Subsidiary ”:  any Restricted Subsidiary of Holdings that is not a Domestic Subsidiary.

 

Foreign Subsidiary Holding Company ”:  any Restricted Subsidiary of Holdings which is a Domestic Subsidiary substantially all of the assets of which consist of the Capital Stock of one or more Foreign Subsidiaries (or Restricted Subsidiaries thereof) and other assets relating to an ownership interest in such Capital Stock or Restricted Subsidiaries.

 

Funded Debt ”:  with respect to any Person, all Indebtedness of such Person of the types described in clauses (a), (c) and (e) of the definition of “Indebtedness”.

 

Funding Office ”:  for each Currency, the office of the Administrative Agent specified in Section 10.2 or such other office as may be specified from time to time by the Administrative Agent as its funding office in respect of such Currency by written notice to the Borrower and the Lenders.

 

GAAP ”:  generally accepted accounting principles in the United States as in effect from time to time.  If at any time the SEC requires U.S.-domiciled companies subject to the reporting requirements of the Exchange Act to use IFRS in lieu of GAAP for financial reporting purposes, without limiting Section 10.16, effective from and after the date on which such transition from GAAP to IFRS is required to be completed (or, upon notice from the Borrower or Holdings to the Administrative Agent, such earlier date as the Borrower or Holdings, as applicable, reasonably determines that it should effectuate the transition from GAAP to IFRS in contemplation of such SEC requirement), references herein to GAAP shall thereafter be construed to mean (a) for periods beginning on and after the required transition date or the date specified in such notice, as the case may be, IFRS as in effect from time to time and (b) for prior periods, GAAP as defined in the first sentence of this definition.

 

Governmental Authority ”:  any nation or government, any state, province or other political subdivision thereof and any governmental entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and, as to any Lender, any securities exchange and any self regulatory organization (including the National Association of Insurance Commissioners).

 

17



 

Guarantee and Collateral Agreement ”:  the Guarantee and Collateral Agreement to be executed and delivered by Holdings, the Borrower 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) pursuant to which the guaranteeing person has issued a guarantee, reimbursement, counterindemnity or similar obligation, in either case guaranteeing or by which such Person becomes contingently liable for any Indebtedness, net worth, working capital earnings, leases, dividends or other distributions upon the stock or equity interests (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 and reasonable indemnity obligations in effect on the Closing Date or entered into in connection with any acquisition or disposition of assets or any Investment permitted under this Agreement.  The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be such guaranteeing person’s maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith.

 

Guarantors ”:  the collective reference to Holdings and the Subsidiary Guarantors.

 

Hedge Agreements ”:  all interest rate swaps, caps or collar agreements or similar arrangements entered into by the Borrower or its Subsidiaries 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.

 

Holdings ”:  as defined in the preamble hereto.

 

IFRS ”:  International Financial Reporting Standards and applicable accounting requirements set by the International Accounting Standards Board or any successor thereto (or the Financial Accounting Standards Board, the Accounting Principles Board of the American Institute of Certified Public Accountants, or any successor to either such Board, or the SEC, as the case may be), as in effect from time to time.

 

Immaterial Subsidiary ”:  on any date, any Subsidiary of Holdings that (i) had less than 7% of consolidated assets and 7% of annual consolidated revenues of Holdings and its Restricted Subsidiaries as reflected on the most recent financial statements delivered pursuant to Section 6.1 prior to such date and (ii) has been designated as such by Holdings in a written notice delivered to the Administrative Agent (other than any such Subsidiary as to which Holdings has revoked such designation by written notice to the Administrative Agent); provided that at no time shall all Immaterial Subsidiaries so designated by Holdings have in the aggregate consolidated assets or annual consolidated revenues (as reflected on the most recent financial statements delivered pursuant to Section 6.1 prior to such time) in excess of 7.5% of consolidated assets or annual consolidated revenues, respectively, of Holdings and its Restricted Subsidiaries.

 

18



 

Increased Amount Date ”:  as defined in Section 2.25(a).

 

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 (i) trade payables, current accounts and similar obligations incurred in the ordinary course of such Person’s business and intercompany liabilities arising in the ordinary course of business and (ii) earn-outs and other contingent payments in respect of acquisitions except to the extent that the liability on account of any such earn-out or contingent payment becomes fixed), (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, in which case only the lesser of the amount of such obligation and the fair market value of such Property shall constitute Indebtedness), (e) all Capital Lease Obligations of such Person, (f) all obligations of such Person, contingent or otherwise, as an account party or applicant under acceptance, letter of credit or similar facilities, (g) all obligations of such Person in respect of Disqualified Capital Stock, except for agreements with directors, officers and employees to acquire such Capital Stock upon the death or termination of employment of such director, officer or employee, (h) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (f) above, and (i) all obligations of the kind referred to in clauses (a) through (h) 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 in the event such Person has not assumed or become liable for payment of such obligation, only the lesser of the amount of such obligation and the fair market value of such Property shall constitute Indebtedness).

 

Indebtedness for Borrowed Money ”:  to the extent the following would be reflected on a consolidated balance sheet of Holdings and its Restricted Subsidiaries prepared in accordance with GAAP, the principal amount of all Indebtedness of Holdings and its Restricted Subsidiaries with respect to (i) borrowed money, evidenced by debt securities, debentures, acceptances, notes or other similar instruments, (ii) obligations under Capital Leases, (iii) reimbursement obligations for letters of credit and financial guarantees (without duplication) (other than ordinary course of business contingent reimbursement obligations) and (iv) the deferred purchase price of property or services (except for accounts payable, deferred compensation arrangements and accrued expenses and receipt of progress and advance payments related to such purchase price, in each case arising in the ordinary course of business).

 

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.

 

Instrument ”:  as defined in the Guarantee and Collateral Agreement.

 

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, domain names, patents, patent licenses, trademarks, trademark licenses, trade names, 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.

 

19



 

Interest Payment Date ”:  commencing on June 30, 2011, (a) as to any ABR Loan (other than any Swingline Loan), the last Business 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 Eurocurrency Loan having an Interest Period of three months or less, the last day of such Interest Period, (c) as to any Eurocurrency Loan having an Interest Period longer than three months, each day that is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period, (d) as to any Loan (other than any Revolving Loan that is an ABR Loan and any Swingline Loan), the date of any repayment or prepayment made in respect thereof and (e) as to any Swingline Loan, the day that such Loan is required to be repaid.

 

Interest Period ”:  as to any Eurocurrency Loan, (a) initially, the period commencing on the borrowing, continuation or conversion date, as the case may be, with respect to such Eurocurrency Loan and ending one, two, three or six or (if available to all Lenders under the relevant Facility) nine or twelve months (or such other period acceptable to all such Lenders) thereafter, as selected by the Borrower in its notice of borrowing or notice of continuation or 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 Eurocurrency Loan and ending one, two, three or six or (with the consent of each affected Lender under the relevant Facility) nine or twelve months (or such other period acceptable to all such Lenders) thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not later than 1:00 P.M., New York City time, on the date that is 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 scheduled Revolving Termination Date or beyond the date final payment is due on the Term Loans shall end on the Revolving Termination Date or such due date, as applicable; and

 

(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.

 

Investments ”:  as defined in Section 7.8.

 

Issuing Lenders ”:  with respect to each Class of Revolving Commitments, (a) Barclays Bank PLC or (b) any other Revolving Lender of any Class from time to time designated by the Borrower, in its sole discretion with the consent of the applicable Lender, as an Issuing Lender for such Class with the consent of such other Revolving Lender in its sole discretion.

 

Joinder Agreement ”:  an agreement substantially in the form of Exhibit H.

 

Joint Bookrunners ”:  the collective reference to Merrill Lynch, Pierce, Fenner & Smith Incorporated,  Barclays Capital, the investment banking division of Barclays Bank PLC, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation and Royal Bank of Canada.

 

20



 

Joint Lead Arrangers ”:  the collective reference to Merrill Lynch, Pierce, Fenner & Smith Incorporated, Key Bank, N.A. and Barclays Capital, the investment banking division of Barclays Bank PLC.

 

L/C Commitment ”:  $50,000,000.

 

L/C Disbursements ”:  as defined in Section 3.4(a).

 

L/C Obligations ”:  at any time, the sum of the Dollar L/C Obligations and the Multicurrency L/C Obligations.

 

L/C Participants ”:  with respect to Letter of Credit of a Class, the collective reference to all the Revolving Lenders of such Class other than the applicable Issuing Lender.

 

L/C Shortfall ”:  as defined in Section 3.4(d).

 

Lender Addendum ”:  with respect to any initial Lender, a Lender Addendum, substantially in the form of Exhibit I, to be executed and delivered by such Lender on the Closing Date as provided in Section 10.20.

 

Lenders ”:  as defined in the preamble hereto.

 

Letters of Credit ”:  as defined in Section 3.1(a).

 

Lien ”:  any mortgage, pledge, hypothecation, collateral assignment, encumbrance, lien (statutory or other), charge or other security interest or any other security agreement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any capital lease having substantially the same economic effect as any of the foregoing).  For the avoidance of doubt, it is understood and agreed that each of Holdings and any Restricted Subsidiary may, as part of its business, grant licenses to third parties to use Intellectual Property owned or developed by, or licensed to, such entity.  For purposes of this Agreement and the other Loan Documents, such licensing activity shall not constitute a “Lien” on such Intellectual Property.  Each of the Administrative Agent and each Lender understands that any such licenses may be exclusive to the applicable licensees, and such exclusivity provisions may limit the ability of the Administrative Agent to utilize, sell, lease, license or transfer the related Intellectual Property or otherwise realize value from such Intellectual Property pursuant hereto.

 

Loan ”:  any loan made by any Lender pursuant to this Agreement.

 

Loan Documents ”:  the collective reference to this Agreement, the Security Documents, and the Notes (if any) and any amendment, waiver, supplement or other modification to any of the foregoing.

 

Loan Modification Agreement ”:  as defined in Section 10.1.

 

Loan Modification Offer ”:  as defined in Section 10.1.

 

Loan Parties ”:  Holdings, the Borrower and each Subsidiary Guarantor.

 

Local Time ”:  with respect to any Loan denominated in or any payment to be made in any Currency, the local time in the Principal Financial Center for the Currency in which such Loan is denominated or such payment is to be made.

 

21



 

Majority Facility Lenders ”:  with respect to any Facility, the holders of more than 50% of the aggregate unpaid principal amount of the Tranche Term A Loans, Tranche B Term Loans, New Term Loans (if any) or the Revolving Extensions of Credit, as the case may be, outstanding under such Facility (or, (a) in the case of the Tranche A Term Facility, prior to the borrowings to occur on the Closing Date, the holders of more than 50% of the Tranche A Term Loan Commitments, (b) in the case of the Tranche B Term Facility, prior to the borrowings to occur on the Closing Date, the holders of more than 50% of the Tranche B Term Loan Commitments, (c) in the case of any New Term Facility, prior to the termination of the New Term Loan Commitments under such Facility, the holders of more than 50% of the New Term Loan Commitments under such Facility, and (d) in the case of the Revolving Facility, prior to any termination of the Revolving Commitments under such Facility, the holders of more than 50% of the Revolving Commitments under such Facility); provided that in determining Majority Facility Lenders at any time, the Loans, Commitments and Revolving Extensions of Credit of each Defaulting Lender and each Affiliate Lender (other than any Debt Fund Affiliate) shall be disregarded.

 

Management Agreement ”:  the Management Agreement, by and between Holdings and TC Group, L.L.C., a Delaware limited liability company, as in effect on the Closing Date and as modified from time to time with the consent of the Administrative Agent.

 

Management Rights Agreement ”:  the Management Rights Agreement, by and between Carlyle Partners IV, L.P., a Delaware limited partnership, CP IV Coinvestment L.P., a Delaware limited partnership, Falcon Aerospace Holdings, LLC, a Delaware limited liability company, Holdings, Randy Snyder, an Individual, Susan Snyder, an Individual and the Wesco Entities, as in effect on the Closing Date and as modified from time to time with the consent of the Administrative Agent.

 

Mandatory Prepayment Date ”:  as defined in Section 2.12(f).

 

Material Adverse Effect ”:  a material adverse effect on (a) the business, operations, property or financial condition of Holdings and its Restricted Subsidiaries, taken as a whole, or (b) the validity or enforceability of the Loan Documents or the material rights and remedies of the Administrative Agent and the Lenders thereunder, in each case, taken as a whole.

 

Material Subsidiary ”:  any Subsidiary that is not an Immaterial Subsidiary.

 

Materials of Environmental Concern ”:  any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutants, contaminants, radioactivity and any other substances that is defined as hazardous or toxic under any Environmental Law, that is regulated pursuant to any Environmental Law.

 

Moody’s ”:  Moody’s Investors Service, Inc. or any successor to the rating agency business thereof.

 

Mortgage ”:  any mortgage, deed of trust, hypothec or other similar document made by any Loan Party in favor of, or for the benefit of, the Collateral Agent for the benefit of the Secured Parties, in form and substance reasonably satisfactory to the Administrative Agent and Holdings (taking into account the law of the jurisdiction in which such mortgage, deed of trust, hypothec or similar document is to be recorded), as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time.

 

Multicurrency 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 Multicurrency Letters of Credit and (b) the aggregate amount of drawings under Multicurrency Letters of Credit that have not then been

 

22



 

reimbursed.  The Multicurrency L/C Obligations of any Lender at any time shall be its Multicurrency Revolving Percentage of the total Multicurrency L/C Obligations at such time.

 

Multicurrency Letter of Credit ”:  Letters of Credit that utilize the Multicurrency Revolving Commitments.

 

Multicurrency Revolving Commitments ”:  as to any Multicurrency Revolving Lender, the obligation of such Lender, if any, to make Multicurrency Revolving Loans and participate in Multicurrency Swingline Loans and Multicurrency Letters of Credit in an aggregate principal and/or face Dollar Amount not to exceed the amount set forth under the heading “Multicurrency Revolving Commitment” opposite such Lender’s name on Schedule 1 hereto, or, as the case may be, in the Assignment and Assumption 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 Dollar Amount of the Multicurrency Revolving Commitments is $40,000,000.

 

Multicurrency Revolving Extensions of Credit ”:  as to any Multicurrency Revolving Lender at any time, an amount equal to the Dollar Amount of the sum of (a) the aggregate principal amount of all Multicurrency Revolving Loans held by such Lender then outstanding, (b) such Lender’s Multicurrency Revolving Percentage of the Multicurrency L/C Obligations then outstanding and (c) such Lender’s Multicurrency Revolving Percentage of the aggregate principal amount of Multicurrency Swingline Loans then outstanding.

 

Multicurrency Revolving Facility ”:  as defined in the definition of “Facility”.

 

Multicurrency Revolving Lender ”:  each Lender that has a Multicurrency Revolving Commitment or that holds Multicurrency Revolving Loans.

 

Multicurrency Revolving Loans ”:  as defined in Section 2.4(b).

 

Multicurrency Revolving Percentage ”:  as to any Multicurrency Revolving Lender at any time, the percentage which such Lender’s Multicurrency Revolving Commitment then constitutes of the aggregate Multicurrency Revolving Commitments or, at any time after the Multicurrency Revolving Commitments shall have expired or terminated, the percentage which the Dollar Amount of the aggregate principal amount of such Lender’s Multicurrency Revolving Loans then outstanding constitutes of the Dollar Amount of the aggregate principal amount of the Multicurrency Revolving Loans then outstanding, provided that in the event that the Multicurrency Revolving Loans are paid in full prior to the reduction to zero of the Multicurrency Revolving Extensions of Credit, the Multicurrency Revolving Percentages shall be determined in a manner designed to ensure that the other outstanding Multicurrency Revolving Extensions of Credit shall be held by the Multicurrency Revolving Lenders on a comparable basis.

 

Multicurrency Swingline Loans ”:  as defined in Section 2.6(b).

 

Multiemployer Plan ”:  a Plan that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

 

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 received by any Loan Party, net of attorneys’ fees, accountants’ fees, investment banking fees, consulting fees,

 

23



 

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 by any Loan Party in connection therewith and net of taxes paid or reasonably estimated to be payable by any Loan Party 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 Equity Issuance or other issuance or sale of debt securities or instruments or the incurrence of Funded Debt, the cash proceeds received from such issuance or incurrence, net of attorneys’ fees, investment banking fees, accountants’ fees, consulting fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith.

 

New Lender ”:  as defined in Section 2.25(c).

 

New Term Lender ”:  as defined in Section 2.25(b).

 

New Term Loan Commitments ”:  as defined in Section 2.25(a).

 

New Term Loan Facility ”:  as defined in the definition of “Facility”.

 

New Term Loans ”:  any term loan made by any New Lender pursuant to this Agreement.

 

New Tranche Term Percentage ”:  as to any New Term Lender under any Tranche of New Term Loans at any time, the percentage which the sum of such Lender’s New Term Loan Commitments of such Tranche then constitutes of the aggregate New Term Loan Commitments of such Tranche (or, at any time after the termination of such New Term Loan Commitments, the percentage which the aggregate principal amount of such Lender’s New Term Loans of such Tranche then outstanding constitutes of the aggregate principal amount of the New Term Loans of such Tranche then outstanding).

 

No Undisclosed Information Representation ”:  by a Person means a representation that such Person is not in possession of any material non-public information with respect to Holdings or any of its direct or indirect Subsidiaries that has not been disclosed to the Lenders generally (other than those Lenders who have elected to not receive any non-public information with respect to Holdings or any of its Subsidiaries), and if so disclosed could reasonably be expected to have a material effect upon, or otherwise be material to, the market price of the applicable Loan, or the decision of an assigning Lender to sell, or of an assignee to purchase, such Loan.

 

Non-Defaulting Lender ”:  any Lender other than a Defaulting Lender.

 

Non-Excluded Taxes ”:  as defined in Section 2.20(a).

 

Non-Guarantor Subsidiary ”:  any Subsidiary of Holdings which is not a Subsidiary Guarantor.

 

Non-Recourse Debt ”:  Indebtedness (a) no default with respect to which would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of Holdings or any of the Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity, and (b) as to which the lenders or holders thereof will not have any recourse to the capital stock or assets of Holdings or any of the Restricted Subsidiaries.

 

24



 

Non-US Lender ”:  as defined in Section 2.20(d).

 

Note ”:  any promissory note evidencing any Loan.

 

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 the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans, the Reimbursement Obligations and all other obligations and liabilities of the Borrower to the Administrative Agent, the Collateral Agent or to any Lender (or, in the case of Specified Hedge Agreements of the Borrower or any of its Subsidiaries to the Administrative Agent, the Collateral Agent, any Lender or 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 Specified Hedge Agreement 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 any Lender that are required to be paid by the Borrower pursuant hereto) or otherwise; provided that (a) obligations of the Borrower or any of its Subsidiaries under any Specified Hedge Agreement shall be secured and guaranteed pursuant to the Security Documents only to the extent that, and for so long as, the other Obligations are so secured and guaranteed and (b) any release of Collateral or Guarantors effected in the manner permitted by this Agreement shall not require the consent of holders of obligations under Specified Hedge Agreements.

 

Other Affiliate ”:  any Affiliate of Holdings other than (i) any Subsidiary of Holdings and (ii) any natural person.

 

Other Taxes ”:  any and all present or future stamp, court or, documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, or enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to any Loan Document.

 

Participant ”:  as defined in Section 10.6(c).

 

Participant Register ”:  as defined in Section 10.6(c).

 

Participating Member State ”:  any member state of the European Communities that adopts or has adopted the euro as its lawful currency in accordance with legislation of the European Community relating to Economic and Monetary Union.

 

Payment Amount ”:  as defined in Section 3.5.

 

PBGC ”:  the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA (or any successor).

 

Permitted Acquisition ”:  (i) any acquisition (including, if applicable, in the case of any Intellectual Property, by way of license) approved by the Required Lenders or (ii) any acquisition of a majority controlling interest in the Capital Stock, or all or substantially all of the assets, of any Person, or of all or substantially all of the assets constituting a division, product line or business line of any Person (each, an “ Acquisition ”), if in each case such Acquisition complies with the following criteria:

 

25


 

(a)           No Event of Default shall be in effect immediately prior or after giving effect to the consummation of such Acquisition.

 

(b)           After giving effect to the consummation of such Acquisition and to the incurrence or assumption of any Indebtedness associated therewith, Holdings shall be in pro forma compliance with Section 7.1 (calculated as of the last day of the fiscal quarter immediately preceding the fiscal quarter in which such acquisition is consummated for which financial statements were required to be delivered pursuant to Section 6.1, giving pro forma effect to such Acquisition and the incurrence or assumption of any related Indebtedness).

 

(c)           Prior to the consummation of such Acquisition (i) the Administrative Agent shall have received the then current financial projections in respect of the Person, division, product line or line of business to be acquired in such Acquisition for the one-year period following the consummation of such acquisition, (ii) the Administrative Agent shall have received the then current drafts of the documentation to be executed in connection with such Acquisition (with final copies of such documentation to be delivered to the Administrative Agent promptly upon becoming available), including all schedules and exhibits thereto; provided, that with respect to clauses (i) and (ii), such items will be required to be delivered to the Administrative Agent only to the extent available and (iii) the Administrative Agent shall have received notice of the closing date for such Acquisition; provided , that, such notice shall be given unless doing so would materially interfere with, or would cause materially adverse economic consequences with respect to, the consummation of such Acquisition.

 

(d)           Such Person shall have become a Restricted Subsidiary and, if such Person shall be a wholly-owned Domestic Subsidiary (and not an Immaterial Subsidiary after giving pro forma effect to the consummation of such Acquisition), a Guarantor and the provisions of Section 6.8 shall have been complied with to the reasonable satisfaction of the Administrative Agent.

 

Permitted Amendments ”:  as defined in Section 10.1.

 

Permitted Investors ”:  the collective reference to the Sponsor, any Co-Investors and their respective Affiliates (but excluding, any operating portfolio companies of the foregoing) and the directors, officers and other employees of Holdings and its Subsidiaries or any parent company of Holdings.

 

Permitted Seller Note ”:  a promissory note containing subordination and other related provisions reasonably acceptable to the Administrative Agent, representing Indebtedness of Holdings or any of its Subsidiaries incurred in connection with any acquisition permitted under Section 7.8(f) and payable to the seller in connection therewith.

 

Permitted Subordinated Indebtedness ”:  as defined in Section 7.2(p).

 

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 as defined in Section 3(3) of ERISA and in respect of which Holdings or any of its Restricted Subsidiaries 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.

 

26



 

Pledged Securities ”:  as defined in the Guarantee and Collateral Agreement.

 

Pledged Stock ”:  as defined in the Guarantee and Collateral Agreement.

 

Prepayment Amount ”:  as defined in Section 2.12(f).

 

Prepayment Option Notice ”:  as defined in Section 2.12(f).

 

Pricing Grid ”:  the table set forth below:

 

Consolidated
Total Leverage
Ratio

 

Applicable
Margin for
Revolving
Loans and
Tranche A
Term Loans
that are
Eurocurrency
Loans

 

Applicable
Margin for
Revolving
Loans and
Tranche A
Term Loans
that are
ABR Loans
and
Swingline
Loans

 

Applicable
Margin for
Tranche B Term
Loans that are
Eurocurrency
Loans

 

Applicable
Margin for
Tranche B
Term Loans
that are ABR
Loans

 

Applicable
Commitment
Fee Rate

 

Level I < 2.00:1.00

 

2.25

%

1.25

%

2.75

%

1.75

%

0.375

%

Level II < 2.50:1.00 but > 2.00 to 1.00

 

2.50

%

1.50

%

2.75

%

1.75

%

0.375

%

Level III < 3.00:1.00 but > 2.50 to 1.00

 

2.75

%

1.75

%

3.00

%

2.00

%

0.375

%

Level IV < 3.50:1.00 but > 3.00 to 1.00

 

3.00

%

2.00

%

3.00

%

2.00

%

0.50

%

Level V > 3.50:1.00

 

3.25

%

2.25

%

3.00

%

2.00

%

0.50

%

 

Changes in the Applicable Margin or the Applicable Commitment Fee Rate resulting from changes in the Consolidated Total Leverage Ratio shall become effective on the date on which financial statements are delivered to the Lenders pursuant to Section 6.1 and shall remain in effect until the next change to be effected pursuant to this paragraph.  If any financial statements required to be delivered pursuant to Section 6.1 are not delivered within the time periods specified in Section 6.1, then, at the option of (and upon the delivery of notice (telephonic or otherwise) by) the Administrative Agent or the Required Lenders, until such financial statements are delivered, the Applicable Margin and the Applicable Commitment Fee Rate pricing shall be determined by reference to Level V of the Pricing Grid.  In addition, at all times that an Event of Default set forth in Section 8(a) or Section 8(f) shall have occurred and be continuing, pricing shall be determined by reference to Level V of the Pricing Grid.

 

Prime Rate ”:  as defined in the definition of “ABR”.

 

27



 

Principal Financial Center ”:  in the case of any Currency, the principal financial center where such Currency is cleared and settled, as reasonably determined by the Administrative Agent.

 

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.

 

Public Company Costs ”:  costs associated with, or in anticipation of, or preparation for, compliance with the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith and costs relating to compliance with the provisions of the Securities Act and the Exchange Act, as applicable to companies with equity or debt securities held by the public, the rules of national securities exchange companies with listed equity or debt securities, directors’ compensation, fees and expense reimbursement, costs relating to investor relations, shareholder meetings and reports to shareholders or debtholders, directors and officers’ insurance and other executive costs, legal and other professional fees, and listing fees.

 

Qualified Capital Stock ”:  any Capital Stock that is not Disqualified Capital Stock.

 

Qualified Contract ”:  any contract related to the Business entered into by Holdings or any of its Restricted Subsidiaries so long as (i) an officer of Holdings has certified to the Administrative Agent that the investment related to such contract is at least $5,000,000, (ii) such contract has a stated term of at least two years, (iii) it is reasonably expected that Holdings or its Restricted Subsidiaries will be responsible for substantially all of the parts supplied under such contract and (iv) such contract includes specified pricing levels.

 

Qualified IPO ”:  the issuance by Holdings of its Common Stock in an underwritten primary public offering (other than a public offering pursuant to a registration statement on Form S-8) pursuant to an effective registration statement filed with the SEC in accordance with the Securities Exchange Act of 1934 as amended (whether alone or in connection with a secondary public offering) and such Common Stock is listed on a nationally-recognized stock exchange in the United States.

 

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 any Loan Party, in an amount for each such event exceeding $7,500,000.

 

Refinanced Revolving Commitments ”:  as defined in Section 10.1.

 

Refinanced Term Loans ”:  as defined in Section 10.1.

 

Refunded Swingline Loans ”:  as defined in Section 2.7(b).

 

Register ”:  as defined in Section 10.6(b).

 

Regulation U ”:  Regulation U of the Board as in effect from time to time.

 

Reimbursement Obligation ”:  the obligation of the Borrower to reimburse an Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters of Credit issued by such Issuing Lender.

 

Reinvestment Deferred Amount ”:  with respect to any Reinvestment Event, the aggregate Net Cash Proceeds received by any Loan Party for its own account in connection therewith that are not applied to prepay the Term Loans pursuant to Section 2.12(b) as a result of the delivery of a Reinvestment Notice.

 

28



 

Reinvestment Event ”:  any Asset Sale or Recovery Event in respect of which a Loan Party has delivered a Reinvestment Notice.

 

Reinvestment Notice ”:  a written notice signed on behalf of any Loan Party by a Responsible Officer stating that such Loan Party (directly or indirectly through a Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds of an Asset Sale or Recovery Event to acquire assets or make investments useful in its (or such Subsidiary’s) business.

 

Reinvestment Prepayment Amount ”:  with respect to any Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any amount committed to be expended prior to the relevant Reinvestment Prepayment Date (a “ Committed Reinvestment Amount ”), or actually expended prior to such date, in each case to acquire assets useful in the Business.

 

Reinvestment Prepayment Date ”:  with respect to any Reinvestment Event, the earlier of (i) the date occurring 15 months after such Reinvestment Event and (ii) with respect to any portion of a Reinvestment Deferred Amount, the date on which any Loan Party shall have determined not to acquire assets or make investments useful in its or such Subsidiary’s business with such portion of such Reinvestment Deferred Amount.

 

Release ”:  any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into or through the environment or within or upon any building, structure or facility.

 

Reorganization ”:  with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA.

 

Removal Effective Date ” as defined in Section 9.9(b).

 

Replacement Revolving Commitments ”:  as defined in Section 10.1.

 

Replacement Term Loans ”:  as defined in Section 10.1.

 

Reportable Event ”:  any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty day notice period is waived by the PBGC in accordance with the regulations thereunder.

 

Representatives ”:  as defined in Section 10.15.

 

Repricing Loans ”:  as defined in definition of “Repricing Transaction.”

 

Repricing Transaction ”:  any prepayment of the Tranche B Term Loans using proceeds of Indebtedness incurred by Holdings or one or more of its Restricted Subsidiaries from a substantially concurrent issuance or incurrence of secured, syndicated term loans, including, without limitation, by way of Replacement Term Loans incurred pursuant to Section 10.1 (“ Repricing Loans ”), provided by one or more banks, financial institutions or other Persons for which the Yield payable thereon (disregarding any performance or ratings based pricing grid that could result in a lower interest rate based on future performance) is lower than the Yield with respect to the Tranche B Term Loans on the date of such optional prepayment or any amendment, amendment and restatement or any other modification of this Agreement that reduces the Yield with respect to any Tranche B Term Loans; provided that the primary purpose of such prepayment, amendment, amendment and restatement or modification, as reasonably determined by the Borrower in good faith, is to refinance Tranche B Term Loans at a lower interest rate.

 

29



 

Required Lenders ”:  at any time, the holders of more than 50% of (a) until the Closing Date, the Commitments then in effect and (b) thereafter, the sum of (i) the aggregate unpaid principal amount of the Term Loans then outstanding and (ii) the Revolving Commitments then in effect or, if the Revolving Commitments have been terminated, the Dollar Amount of the Revolving Extensions of Credit then outstanding; provided that in determining Required Lenders at any time, the Loans, Commitments and Revolving Extensions of Credit of each Defaulting Lender and each Affiliate Lender (other than any Debt Fund Affiliate) shall be disregarded.

 

Required Prepayment Lenders ”:  the holders of more than 50% of the aggregate unpaid principal amount of the Term Loans; provided that in determining Required Prepayment Lenders at any time, the Term Loans of each Defaulting Lender and each Affiliate Lender (other than any Debt Fund Affiliate) shall be disregarded.

 

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.

 

Resignation Effective Date ”:  as defined in Section 9.9(a).

 

Responsible Officer ”:  the chief executive officer, president, chief financial officer (or similar title), controller or treasurer (or similar title) of Holdings or the Borrower, as applicable, or (with respect to Section 6.7) any Loan Party and, with respect to financial matters, the chief financial officer (or similar title) or treasurer (or similar title) of Holdings or the Borrower, as applicable.

 

Restricted Payments ”:  as defined in Section 7.6.

 

Restricted Subsidiary ”:  any Subsidiary which is not an Unrestricted Subsidiary.

 

Revolving Commitment Period ”:  the period from and including the Closing Date to the Revolving Termination Date.

 

Revolving Commitments ”:  collectively, the Dollar Revolving Commitments and the Multicurrency Revolving Commitments set forth on Schedule 1 hereto.  The original aggregate amount of the Revolving Commitments is $150,000,000.

 

Revolving Dollar Exposure ”:  with respect to any Dollar Revolving Lender, the sum of the outstanding principal amount of such Lender’s Dollar Revolving Loans (including Dollar Swingline Loans) and its Dollar L/C Obligations at such time made or incurred under the Dollar Revolving Commitments.

 

Revolving Extensions of Credit ”:  collectively, the Dollar Revolving Extensions of Credit and the Multicurrency Revolving Extensions of Credit.

 

Revolving Facility ”:  as defined in the definition of “Facility”.

 

Revolving Lender ”:  each Dollar Revolving Lender and Multicurrency Revolving Lender.

 

Revolving Loans ”:  collectively, the Dollar Revolving Loans and the Multicurrency Revolving Loans.

 

30



 

Revolving Multicurrency Exposure ”:  with respect to any Multicurrency Revolving Lender, the sum of the Dollar Amount of the outstanding principal amount of such Lender’s Multicurrency Revolving Loans (including Multicurrency Swingline Loans) and its Multicurrency L/C Obligations at such time made or incurred under the Multicurrency Revolving Commitments.

 

Revolving Percentage ”:  collectively, the Dollar Revolving Percentage and the Multicurrency Revolving Percentage.

 

Revolving Termination Date ”:  April 7, 2016.

 

S&P ”:  Standard & Poor’s Ratings Services, Standard & Poor’s Financial Services LLC business, or any successor to the rating agency business thereof.

 

Screen ”:  for any Currency, the relevant display page for the Eurocurrency Base Rate for such Currency (as reasonably determined by the Administrative Agent) on the Bloomberg Information Service or any successor thereto; provided that if the Administrative Agent determines that there is no such relevant display page for the Eurocurrency Rate for such Currency, “Screen” means the relevant display page for the Eurocurrency Base Rate for such Currency (as reasonably determined by the Administrative Agent) on the Reuter Monitor Money Rates Service.

 

SEC ”:  the Securities and Exchange Commission (or successors thereto or an analogous Governmental Authority).

 

Second Lien Credit Agreement ”:  the Second Lien Credit Agreement dated as of September 29, 2006, among Holdings, the Borrower, the lenders party thereto and Barclays Bank PLC (successor to Lehman Commercial Paper Inc.), as Administrative Agent.

 

Secured Parties ”:  collectively, the Lenders, the Administrative Agent, the Collateral Agent, the Swingline Lender, any Issuing Lender, any other holder from time to time of any of the Obligations and, in each case, their respective successors and permitted assigns.

 

Security Documents ”:  the collective reference to the Guarantee and Collateral Agreement and all other security documents (including any Mortgages) hereafter delivered to the Administrative Agent or the Collateral Agent purporting to grant a Lien on any Property of any Loan Party to secure the Obligations.

 

Single Employer Plan ”:  any Plan that is covered by Title IV of ERISA, but which is not a Multiemployer Plan.

 

Solvent ”:  with respect to any Person, 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”, (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,

 

31



 

whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured and (iii) except as otherwise provided by applicable law, the amount of “contingent liabilities” at any time shall be the amount thereof which, in light of all the facts and circumstances existing at such time, can reasonably be expected to become actual or matured liabilities.

 

Specified Equity Contribution ”:  as defined in the definition of Consolidated EBITDA.

 

Specified Hedge Agreement ”:  any Hedge Agreement (a) entered into by (i) the Borrower or any of its Subsidiaries and (ii) any Lender or any affiliate thereof at the time such Hedge Agreement was entered into, as counterparty, and (b) that has been designated by such Lender and the Borrower, by notice to the Administrative Agent, as a Specified Hedge Agreement.  The designation of any Hedge Agreement as a Specified Hedge Agreement shall not create in favor of the Lender or affiliate thereof that is a party thereto any rights in connection with the management or release of any Collateral or of the obligations of any Guarantor under the Guarantee and Collateral Agreement.  For the avoidance of doubt, all Hedge Agreements in existence on the Closing Date between the Borrower or any of its Subsidiaries and any Lender shall constitute Specified Hedge Agreements.

 

Sponsor ”:  The Carlyle Group and any Affiliates (excluding any Debt Fund Affiliates) thereof (but excluding any operating portfolio companies of the foregoing).

 

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 direct or indirect Subsidiary or Subsidiaries of Holdings.

 

Subsidiary Guarantors ”:  each wholly owned Domestic Subsidiary (other than the Borrower or any Excluded Subsidiary).

 

Swingline Commitment ”:  the obligation of the Swingline Lenders to make Swingline Loans pursuant to Section 2.6(a) and (b) in an aggregate principal amount at any one time outstanding not to exceed $40,000,000.

 

Swingline Lender ”:  (a) with respect to each Class of Swingline Loans, Barclays Bank PLC, in its capacity as the lender of Swingline Loans or (b) upon the resignation of Barclays Bank PLC, any Revolving Lender of the applicable Class of Swingline Loans from time to time designated by the Borrower as the Swingline Lender with respect to such Class of Swingline Loans (with the consent of such other Revolving Lender (in its sole discretion)).

 

Swingline Loans ”:  collectively, the Dollar Swingline Loans and the Multicurrency Swingline Loans.

 

Swingline Participation Amount ”:  as defined in Section 2.7(c).

 

Syndication Agent ”:  as defined in the preamble hereto.

 

32



 

Taxes ”:  all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

 

Term Lender ”:  each Tranche A Term Lender, Tranche B Term Lender and New Term Lender (if any).

 

Term Loans ”:  collectively, the Tranche A Term Loans, the Tranche B Term Loans and the New Term Loans (if any).

 

Test Period ”:  on any date of determination, the period of four consecutive fiscal quarters of Holdings most recently ended on or prior to such date for which financial statements have been or are required to be delivered pursuant to Section 6.1.

 

Tranche ”:  as defined in Section 2.25(c).

 

Tranche A Term Facility ”:  as defined in the definition of “Facility.”

 

Tranche A Term Lender ”:  each Lender that has a Tranche A Term Loan Commitment or that holds a Tranche A Term Loan.

 

Tranche A Term Loan ”:  as defined in Section 2.1.

 

Tranche A Term Loan Commitments ”:  as to any Lender, the obligation of such Lender, if any, to make a Tranche A Term Loan to the Borrower 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 hereto, or, as the case may be, in the Assignment and Assumption pursuant to which such Lender became a party hereto.  The original aggregate amount of the Tranche A Term Loan Commitments is $265,000,000.

 

Tranche A Term Maturity Date ”:  April 7, 2016.

 

Tranche A Term Percentage ”:  as to any Tranche A Term Lender at any time, the percentage which the sum of such Lender’s Tranche A Term Loan Commitments 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 B Term Facility ”:  as defined in the definition of “Facility.”

 

Tranche B Term Lender ”:  each Lender that has a Tranche B Term Loan Commitment or that holds a Tranche B Term Loan.

 

Tranche B Term Loan ” :  as defined in Section 2.1.

 

Tranche B Term Loan Commitments ”:  as to any Lender, the obligation of such Lender, if any, to make a Tranche B Term Loan to the Borrower 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 hereto, or, as the case may be, in the Assignment and Assumption pursuant to which such Lender became a party hereto.  The original aggregate amount of the Tranche B Term Loan Commitments is $350,000,000.

 

33



 

Tranche B Term Maturity Date ”:  April 7, 2017.

 

Tranche B Term Percentage ”:  as to any Tranche B Term Lender at any time, the percentage which the sum of such Lender’s Tranche B Term Loan Commitments then constitutes of 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).

 

Type ”:  (i) as to any Loan denominated in Dollars, its nature as an ABR Loan or Eurocurrency Loan, and (ii) as to any Loan denominated in an Agreed Foreign Currency, its nature as a Eurocurrency Loan.

 

UK GAAP ”:  generally accepted accounting principles in the United Kingdom as in effect from time to time.

 

United States ”:  the United States of America.

 

Unrestricted Subsidiary ”:  (i) any Subsidiary of Holdings (other than the Borrower) designated as such and listed on Schedule 4.14 on the Closing Date and (ii) any Subsidiary of Holdings (other than the Borrower) that is designated by a resolution of the board of directors of Holdings as an Unrestricted Subsidiary, but only to the extent that, in the case of each of clauses (i) and (ii), such Subsidiary:  (a) has no Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or understanding with Holdings or any Restricted Subsidiary unless (x) the terms of any such agreement, contract, arrangement or understanding are no less favorable to Holdings or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of Holdings or (y) Holdings or any of its Restricted Subsidiaries would be permitted to enter into such agreement, contract, arrangement or understanding with an Unrestricted Subsidiary pursuant to Section 7.10; (c) is a Person with respect to which neither Holdings nor any of the Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Capital Stock or warrants, options or other rights to acquire Capital Stock or (y) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results, unless, in each case, Holdings or any of its Restricted Subsidiaries would be permitted to incur any such obligation with respect to an Unrestricted Subsidiary pursuant to Section 7.8; and (d) has not guaranteed or otherwise provided credit support at the time of such designation for any Indebtedness of Holdings or any of its Restricted Subsidiaries, in the case of clauses (a), (b) and (c), except to the extent not otherwise prohibited by Section 7; provided that after giving effect to any such designation of a Domestic Subsidiary, the combined Consolidated EBITDA of Domestic Subsidiaries that are Unrestricted Subsidiaries for the most recently ended Test Period does not exceed 5% of the Consolidated EBITDA of Holdings for the most recently ended Test Period.  If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes hereof.  Subject to the foregoing, the board of directors of Holdings may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary or any Restricted Subsidiary to be an Unrestricted Subsidiary; provided that (i) such designation shall only be permitted if no Default or Event of Default would be in existence following such designation, (ii) any designation of an Unrestricted Subsidiary as a Restricted Subsidiary shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of any outstanding Indebtedness of such Unrestricted Subsidiary and (iii) any designation of a Restricted Subsidiary as an Unrestricted Subsidiary shall be deemed to be an Investment in an Unrestricted Subsidiary and shall reduce amounts available for Investments in Unrestricted Subsidiaries permitted by Section 7.8 in an amount equal to the fair market value of the Subsidiary so designated; provided that the Borrower may subsequently redesignate any such Unrestricted Subsidiary as a

 

34



 

Restricted Subsidiary so long as the Borrower does not subsequently re-designate such Restricted Subsidiary as an Unrestricted Subsidiary for a period of the succeeding four fiscal quarters.

 

Valuation Date ” means (i) the date two (2) Business Days prior to the making, continuing or converting of any Multicurrency Revolving Loan or the date of issuance or continuation of any Letter of Credit and (ii) any later date designated by the Administrative Agent or Issuing Lender .

 

Vehicles ”:  all cars, trucks, trailers, construction and earth moving equipment and other vehicles covered by a certificate of title law of any state or province.

 

Wesco Entities ”:  Wesco US; Flintbrook; S.A.S. Wesco Aircraft France, a company organized under the laws of France; Wesco Aircraft Germany GmbH, a company organized under the laws of Germany; Wesco Aircraft Israel Ltd., a company organized under the laws of Israel; and each Subsidiary of the foregoing (if any).

 

Wesco Europe ”:  Wesco Aircraft Europe Limited, a private limited company incorporated under the laws of England and Wales.

 

Wesco US ”:  Wesco Aircraft Hardware Corp., a California corporation.

 

Yield ”:  on any date on which the “Yield” is required to be calculated hereunder, will be the internal rate of return on the Repricing Loans or Tranche B Term Loans, as applicable, determined by the Administrative Agent in consultation with the Borrower utilizing (a) the greater of (i) if applicable, any “LIBOR floor” applicable to such Repricing Loans or Tranche B Term Loans, as applicable, on such date and (ii) the price of a LIBOR swap-equivalent maturing on the earlier of (x) the date that is four years following such date and (y) the final maturity date of such Repricing Loans or Tranche B Term Loans, as applicable; (b) the “applicable margin” for such Repricing Loans or Tranche B Term Loans, as applicable, on such date; and (c) the issue price of such Repricing Loans or Tranche B Term Loans, as applicable, (after giving effect to any original issue discount or upfront fees paid to the market (but excluding commitment or arrangement fees in respect of such Repricing Loans or Tranche B Term Loans, as applicable) in respect of such Repricing Loans or Tranche B Term Loans, as applicable, calculated based on an assumed four year average life to maturity).

 

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, (i) accounting terms relating to Holdings and its 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, (ii) the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”, and (iii) references to agreements or other Contractual Obligations shall, unless otherwise specified, be deemed to refer to such agreements or Contractual Obligations as amended, supplemented, restated or otherwise modified from time to time.

 

(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 Annex, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified.

 

35


 

(d)           The term “license” shall include sub-license.

 

(e)           The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

 

1.3           Accounting Terms .  If at any time any change in GAAP or the application thereof would affect the computation of any financial ratio, basket or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent and the Borrower shall negotiate in good faith to amend such ratio, basket or requirement to preserve the original intent thereof in light of such change in GAAP or the application thereof (subject to the approval of the Required Lenders not to be unreasonably withheld, conditioned or delayed and, in the case of any amendment arising out of an accounting change described in the Proposed Accounting Standards Update to Leases (Topic 840) dated August 17, 2010, not subject to any amendment fee); provided , that, until so amended, (i) such ratio basket or requirement shall continue to be computed in accordance with GAAP or the application thereof prior to such change therein and (ii) the Borrower shall provide to the Administrative Agent and the Lenders a written reconciliation in form and substance reasonably satisfactory to the Administrative Agent, between calculations of such ratio or requirement made before and after giving effect to such change in GAAP or the application thereof.

 

1.4           Currencies; Currency Equivalents; Euro .  At any time, any reference in the definition of the term “Agreed Foreign Currency” or in any other provision of this Agreement to the Currency of any particular nation means the lawful currency of such nation at such time whether or not the name of such Currency is the same as it was on the date hereof.  Except as provided in Section 2.12(d) or the last sentence of Section 2.18(f), for purposes of determining (i) whether the amount of any borrowing or Letter of Credit under the Multicurrency Revolving Commitments, together with all other borrowings and Letters of Credit under the Multicurrency Revolving Commitments then outstanding or to be borrowed at the same time as such borrowing, would exceed the total Multicurrency Revolving Commitments, (ii) the aggregate unused amount of the Multicurrency Revolving Commitments and (iii) the outstanding aggregate principal amount of borrowings and Multicurrency L/C Obligations, the outstanding principal amount of any borrowing or Multicurrency Letter of Credit that is denominated in any Foreign Currency shall be deemed to be the Dollar Equivalent of the amount of the Foreign Currency of such borrowing or Letter of Credit determined as of the date of such borrowing or Letter of Credit.  Wherever in this Agreement in connection with a borrowing, Loan or Letter of Credit an amount, such as a required minimum or multiple amount, is expressed in Dollars, but such borrowing, Loan or Letter of Credit is denominated in a Foreign Currency, such amount shall be the relevant Agreed Foreign Currency Equivalent of such amount (rounded to the nearest 1,000 units of such Foreign Currency).

 

Each obligation hereunder of any party hereto that is denominated in a Currency of a country that is not a Participating Member State on the date hereof shall, effective from the date on which such country becomes a Participating Member State, be redenominated in euro in accordance with the legislation of the European Union applicable to the European Monetary Union; provided that if and to the extent that any such legislation provides that any such obligation of any such party payable within such Participating Member State by crediting an account of the creditor can be paid by the debtor either in euro or such Currency, such party shall be entitled to pay or repay such amount either in euro or in such Currency.  If the basis of accrual of interest or fees expressed in this Agreement with respect to an Agreed Foreign Currency of any country that becomes a Participating Member State after the date on which such currency becomes an Agreed Foreign Currency shall be inconsistent with any convention or practice in the interbank market for the basis of accrual of interest or fees in respect of the euro, such convention or practice shall replace such expressed basis effective as of and from the date on which such country becomes a Participating Member State; provided that with respect to any borrowing or Letter of Credit denominated in such Currency that is outstanding immediately prior to such date, such replacement shall

 

36



 

take effect at the end of the Interest Period therefor.  Without prejudice to the respective liabilities of the Borrower to the Lenders and of the Lenders to the Borrower under or pursuant to this Agreement, each provision of this Agreement shall be subject to such reasonable changes of construction as the Administrative Agent may from time to time reasonably specify to be necessary or appropriate to reflect the introduction or changeover to the euro in any country that becomes a Participating Member State after the date hereof.

 

Any baskets specified in this Agreement that are exceeded solely as a result of fluctuations in applicable currency exchange rates after the last time such baskets were assessed will not be deemed to have exceeded solely as a result of such fluctuations in currency exchange rates.

 

1.5           Calculation of Baskets .  If any of the baskets set forth in Section 7 of this Agreement are exceeded solely as a result of fluctuations to consolidated total assets or the financial ratios for the most recently completed fiscal quarter after the last time such baskets were calculated for any purpose under Section 7, such baskets will not be deemed to have been exceeded solely as a result of such fluctuations.

 

1.6           Pro Forma Calculations .  Solely for purposes of determining whether any action is otherwise permitted to be taken hereunder, (i) any calculation to be determined on a “ pro forma ” basis, after giving “ pro forma ” effect to certain transactions or pursuant to words of similar import and (ii) the Consolidated Total Leverage Ratio, in each case, shall be calculated as follows:

 

(A)          For purposes of making the computation referred to above, in the event that Holdings or any Restricted Subsidiary incurs, assumes, guarantees, redeems, retires or extinguishes any Indebtedness subsequent to the commencement of the period for which such ratio is being calculated but on or prior to or simultaneously with the event for which the calculation is made (a “ Calculation Date ”), then such calculation shall be made giving pro forma effect to such incurrence, assumption, guarantee, redemption, retirement or extinguishment of Indebtedness as if the same had occurred at the beginning of the applicable Test Period; provided that, for purposes of making the computation of Consolidated Total Leverage for the computation of Consolidated Total Leverage Ratio referred to above, Consolidated Total Leverage shall be Consolidated Total Leverage as of the date the relevant action is being taken.

 

(B)           For purposes of making the computation referred to above, if any Investments, Dispositions or designations of Unrestricted Subsidiaries or Restricted Subsidiaries are made (or committed to be made pursuant to a definitive agreement) subsequent to the commencement of the period for which such calculation is being made but on or prior to or simultaneously with the relevant Calculation Date, then such calculation shall be made giving pro forma effect to such Investments, Dispositions and designations as if the same had occurred at the beginning of the applicable Test Period in a manner consistent, where applicable, with the pro forma adjustments set forth in clause (o) of and the last proviso of the first sentence of the definition of “Consolidated EBITDA.”  If since the beginning of such period any Person that subsequently became a Restricted Subsidiary or was merged with or into the Borrower or any of its Restricted Subsidiaries since the beginning of such period shall have made any Investment or Disposition that would have required adjustment pursuant to this provision, then such calculation shall be made giving pro forma effect thereto for such Test Period as if such Investment or Disposition had occurred at the beginning of the applicable Test Period.

 

(C)           For purposes of determining any financial ratio or making any financial covenant calculation for any period or a portion of a period prior to the first delivery of financial statements pursuant to Section 6.1, the Consolidated Total Leverage Ratio shall be determined based on the

 

37



 

most recent financial statements of Holdings that have been furnished as referred to in Section 4.1, and, to the extent that pro forma compliance with the Consolidated Total Leverage Ratio is required, the levels for such Consolidated Total Leverage Ratio shall be the levels set forth in Section 7.1(a) for the fiscal period ended March 31, 2011.

 

SECTION 2.           AMOUNT AND TERMS OF COMMITMENTS

 

2.1           Term Loan Commitments .  Subject to the terms and conditions hereof, (a) each Tranche A Term Lender severally agrees to make a term loan (a “ Tranche A Term Loan ”) in Dollars to the Borrower 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 Lender severally agrees to make a term loan (a “ Tranche B Term Loan ”) in Dollars to the Borrower on the Closing Date in an amount not to exceed the amount of the Tranche B Term Loan Commitment of such Lender.  The Term Loans may from time to time be Eurocurrency Loans or ABR Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.2 and 2.13.

 

2.2           Procedure for Term Loan Borrowing .  The Borrower shall give the Administrative Agent irrevocable notice substantially in the form of Exhibit K-1 (which notice must be received by the Administrative Agent prior to 1:00 P.M., New York City time, on the Business Day prior to the anticipated Closing Date) requesting that the Tranche A Term Lenders make the Tranche A Term Loans and the Tranche B Lenders make the Tranche B Term Loans, in each case on the Closing Date and specifying the amount to be borrowed.  The Term Loans made on the Closing Date shall initially be ABR Loans.  Upon receipt of such notice the Administrative Agent shall promptly notify each such Term Lender thereof.  Not later than 3:00 P.M., New York City time, on the Closing Date each such Term 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 credit the account designated in writing by the Borrower to the Administrative Agent with the aggregate of the amounts made available to the Administrative Agent by such Term Lenders in immediately available funds.

 

2.3           Repayment of Term Loans .  (a)  The Tranche A Term Loan of each Tranche A Term Lender shall be payable on each date set forth below in an amount set forth opposite such date (expressed as a percentage of the stated principal amount of the Tranche A Term Loans funded on the Closing Date) (as adjusted to reflect any prepayments thereof), with the remaining balance thereof payable on the Tranche A Term Maturity Date.

 

Date

 

Amount

 

September 30, 2011

 

1.25%

 

December 31, 2011

 

1.25%

 

March 31, 2012

 

1.25%

 

June 30, 2012

 

1.25%

 

September 30, 2012

 

1.25%

 

December 31, 2012

 

1.25%

 

March 31, 2013

 

1.25%

 

June 30, 2013

 

1.25%

 

September 30, 2013

 

1.875%

 

December 31, 2013

 

1.875%

 

 

38



 

March 31, 2014

 

1.875%

 

June 30, 2014

 

1.875%

 

September 30, 2014

 

2.50%

 

December 31, 2014

 

2.50%

 

March 31, 2015

 

2.50%

 

June 30, 2015

 

2.50%

 

September 30, 2015

 

3.75%

 

December 31, 2015

 

3.75%

 

March 31, 2016

 

3.75%

 

Tranche A Term Maturity Date

 

Remaining Balance

 

 

(b)           The Tranche B Term Loan of each Tranche B Term Lender shall be payable in equal consecutive quarterly installments, commencing on September 30, 2011, on the last Business Day of each March, June, September and December following the Closing Date in an amount equal to one quarter of one percent (0.25%) of the stated principal amount of the Tranche B Term Loans funded on the Closing Date (as adjusted to reflect any prepayments thereof), with the remaining balance thereof payable on the Tranche B Term Maturity Date.

 

2.4           Revolving Commitments .  (a)  Subject to the terms and conditions hereof, each Dollar Revolving Lender severally agrees to make revolving credit loans (“ Dollar Revolving Loans ”) in Dollars to the Borrower from time to time during the Revolving Commitment Period in an aggregate principal amount at any one time outstanding which when added to such Lender’s Dollar Revolving Percentage of the sum of (x) the Dollar L/C Obligations then outstanding and (y) the aggregate principal amount of the Dollar Swingline Loans then outstanding, does not exceed the amount of such Lender’s Dollar Revolving Commitment.  During the Revolving Commitment Period the Borrower may use the Dollar Revolving Commitments by borrowing, prepaying the Dollar Revolving Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof.  The Dollar Revolving Loans may from time to time be Eurocurrency Loans or ABR Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.5 and 2.13.

 

(b)           Subject to the terms and conditions hereof, each Multicurrency Revolving Lender severally agrees to make revolving credit loans (“ Multicurrency Revolving Loans ”) in Dollars or any Agreed Foreign Currency to the Borrower from time to time during the Revolving Commitment Period in an aggregate principal amount at any one time outstanding which when added to such Lender’s Multicurrency Revolving Percentage of the sum of (x) Multicurrency L/C Obligations then outstanding and (y) the aggregate principal amount of the Multicurrency Swingline Loans then outstanding, does not exceed the amount of such Lender’s Multicurrency Revolving Commitment.  During the Revolving Commitment Period the Borrower may use the Multicurrency Revolving Commitments by borrowing, prepaying the Multicurrency Revolving Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof.  The Multicurrency Revolving Loans denominated in Dollars may from time to time be Eurocurrency Loans or ABR Loans and the Revolving Loans denominated in any Agreed Foreign Currency shall be Eurocurrency Loans, in each case, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.5 and 2.13.

 

(c)           The Borrower shall repay all outstanding Revolving Loans of each Class made to it on the Revolving Termination Date.

 

2.5           Procedure for Revolving Loan Borrowing .  The Borrower may borrow under the Revolving Commitments of either Class during the Revolving Commitment Period on any Business Day;

 

39



 

  provided that the Borrower shall give the Administrative Agent irrevocable notice substantially in the form of Exhibit K-2 (which notice must be received by the Administrative Agent (i)in the case of Eurocurrency Loans, prior to 12:00 Noon, New York City time, three Business Days prior to the requested Borrowing Date or (ii) in the case of ABR Loans, prior to 12:00 Noon, New York City time, one Business Day prior to the requested Borrowing Date), specifying (v) whether such borrowing is to be made under the Dollar Revolving Commitments or the Multicurrency Revolving Commitments; (w) the amount, Currency (in the case of Multicurrency Revolving Loans) and Type of Revolving Loans to be borrowed, (x) the requested Borrowing Date, (y) in the case of Revolving Loans denominated in Dollars, whether such Revolving Loan is to be an ABR Loan or a Eurocurrency Loan and (z) in the case of Eurocurrency Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Period therefor.  Each borrowing by the Borrower under the Revolving Commitments of either Class shall be in an amount equal to (x) in the case of ABR Loans, $500,000 or a whole multiple of $50,000 in excess thereof (or, if the then aggregate Available Revolving Commitments of the respective Class are less than $500,000, such lesser amount) and (y) in the case of Eurocurrency Loans, $1,000,000 or a whole multiple of $250,000 in excess thereof; provided that the Swingline Lender may request, on behalf of the Borrower, borrowings under the Revolving Commitments of either Class that are ABR Loans in other amounts pursuant to Section 2.7(a).  Upon receipt of any such notice from the Borrower, the Administrative Agent shall promptly notify each Revolving Lender of the applicable Class thereof.  Each Revolving Lender of such Class will make the amount of its pro rata share of each borrowing available to the Administrative Agent for the account of the Borrower at the Funding Office prior to 9:00 A.M., Local Time, on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent.  Such borrowing will then be made available to the Borrower by the Administrative Agent crediting the account of the Borrower on the books of such office with the aggregate of the amounts made available to the Administrative Agent by such Revolving Lenders and in like funds as received by the Administrative Agent.

 

If no election as to the Class of Revolving Loans is requested, and the Loans requested are in Dollars, such election shall be deemed to be made under the Dollar Revolving Commitments.  In the case of Multicurrency Revolving Loans, if no election as to the Currency of such Loan is specified, then the requested Loan shall be denominated in Dollars.  If no election as to the Type of a Revolving Loan is specified, then the requested Loan shall be an ABR Loan, unless an Agreed Foreign Currency has been specified, in which case the requested Loan shall be a Eurocurrency Loan denominated in such Agreed Foreign Currency.  If no Interest Period is specified with respect to any requested Eurocurrency Loan, (i) if the Currency specified for such Loan is Dollars (or if no Currency has been so specified), the requested Loan shall be made instead as an ABR Loan, and (ii) if the Currency specified for such Loan is an Agreed Foreign Currency, the Borrower shall be deemed to have selected an Interest Period of one month’s duration.

 

2.6           Swingline Commitment .  (a)  Subject to the terms and conditions hereof, the Swingline Lender with respect to the Dollar Revolving Commitments agrees to make a portion of the credit otherwise available to the Borrower under the Dollar Revolving Commitments from time to time during the Revolving Commitment Period by making swing line loans (“ Dollar Swingline Loans ”) in Dollars to the Borrower; provided that (i) the aggregate principal amount of Swingline Loans outstanding at any time shall not exceed the Swingline Commitment then in effect (notwithstanding that the Swingline Loans outstanding at any time, when aggregated with the Swingline Lender’s other outstanding Revolving Loans, may exceed the Swingline Commitment then in effect) and (ii) the Borrower shall not request, and such Swingline Lender shall not make, any Dollar Swingline Loan if, after giving effect to the making of such Dollar Swingline Loan, the aggregate amount of the Available Revolving Commitments under the Dollar Revolving Commitments would be less than zero.  During the Revolving Commitment Period, the Borrower may use the Swingline Commitment by borrowing, repaying and

 

40



 

reborrowing, all in accordance with the terms and conditions hereof.  Dollar Swingline Loans shall be ABR Loans only.

 

(b)           Subject to the terms and conditions hereof, the Swingline Lender with respect to the Multicurrency Revolving Commitments agrees to make a portion of the credit otherwise available to the Borrower under the Multicurrency Revolving Commitments from time to time during the Revolving Commitment Period by making swing line loans (“ Multicurrency Swingline Loans ”) in Dollars to the Borrower; provided that (i) the aggregate principal amount of Swingline Loans outstanding at any one time shall not exceed the Swingline Commitment then in effect (notwithstanding that the Swingline Loans outstanding at any time, when aggregated with the Swingline Lender’s other outstanding Revolving Loans, may exceed the Swingline Commitment then in effect) and (ii) the Borrower shall not request, and such Swingline Lender shall not make, any Multicurrency Swingline Loan if, after giving effect to the making of such Multicurrency Swingline Loan, the aggregate amount of the Available Revolving Commitments under the Multicurrency Revolving Commitments would be less than zero.  During the Revolving Commitment Period, the Borrower may use the Swingline Commitment by borrowing, repaying and reborrowing, all in accordance with the terms and conditions hereof.  Multicurrency Swingline Loans shall be ABR Loans only.

 

(c)           The Borrower shall repay to the Swingline Lender of the applicable Class the then unpaid principal amount of each Swingline Loan of such Class on the Revolving Termination Date.

 

2.7           Procedure for Swingline Borrowing; Refunding of Swingline Loans .  (a)  Whenever the Borrower desires that the Swingline Lender make Swingline Loans it shall give the Swingline Lender of the applicable Class and the Administrative Agent irrevocable written notice (which notice must be received by the Swingline Lender and the Administrative Agent not later than 12:00 Noon, New York City time, on the proposed Borrowing Date), specifying (i) the amount to be borrowed, (ii) the requested Borrowing Date (which shall be a Business Day during the Revolving Commitment Period) and (iii) whether such borrowing is to be made under the Dollar Revolving Commitments or the Multicurrency Revolving Commitments.  Each borrowing under the Swingline Commitment shall be in an amount equal to $100,000 or a whole multiple of $50,000 in excess thereof.  Not later than 3:00 P.M., New York City time, on the Borrowing Date specified in a notice in respect of Swingline Loans, the applicable Swingline Lender shall make available to the Administrative Agent at the Funding Office an amount in immediately available funds equal to the amount of the Swingline Loan to be made by such Swingline Lender.  The Administrative Agent shall make the proceeds of such Swingline Loan available to the Borrower on such Borrowing Date by depositing such proceeds in the account of the Borrower with the Administrative Agent or as otherwise directed by the Borrower on such Borrowing Date in immediately available funds.

 

(b)           The Swingline Lender with respect to each Class, at any time and from time to time in its sole and absolute discretion may, on behalf of the Borrower (which hereby irrevocably directs such Swingline Lender to act on its behalf), on one Business Day’s notice given by such Swingline Lender no later than 12:00 Noon, New York City time, request each Revolving Lender of the applicable Class to make, and each such Revolving Lender hereby agrees to make, a Revolving Loan, in an amount equal to such Revolving Lender’s Dollar Revolving Percentage or Revolving Lender’s Multicurrency Revolving Percentage, as applicable, of the aggregate amount of the Swingline Loans (the “ Refunded Swingline Loans ”) outstanding on the date of such notice, to repay such Swingline Lender.  Each Revolving Lender of the applicable Class shall make the amount of Revolving Loan available to the Administrative Agent at the Funding Office in immediately available funds, not later than 10:00 A.M., New York City time, one Business Day after the date of such notice.  The proceeds of such Revolving Loans shall be immediately made available by the Administrative Agent to the Swingline Lender for application by the Swingline Lender to the repayment of the Refunded Swingline Loans.

 

41



 

(c)           If prior to the time a Revolving Loan would have otherwise been made pursuant to Section 2.7(b), one of the events described in Section 8(f) shall have occurred and be continuing with respect to the Borrower or if for any other reason, as determined by the Swingline Lender of the applicable Class, in its sole discretion, Revolving Loans may not be made as contemplated by Section 2.7(b), each Revolving Lender of the applicable Class shall, on the date such Revolving Loan was to have been made pursuant to the notice referred to in Section 2.7(b), purchase for cash an undivided participating interest in the then outstanding Swingline Loans of the applicable Class by paying to the Swingline Lender an amount (the “ Swingline Participation Amount ”) equal to the product of (A) such Revolving Lender’s Dollar Revolving Percentage or Revolving Lender’s Multicurrency Revolving Percentage, as applicable, times (B) the sum of the aggregate principal amount of Swingline Loans of the applicable Class then outstanding that were to have been repaid with such Revolving Loans.

 

(d)           Whenever, at any time after the Swingline Lender has received from any Revolving Lender such Lender’s Swingline Participation Amount with respect to any Swingline Loans, the Swingline Lender receives any payment on account of such Swingline Loans (whether directly from the Borrower or otherwise, including proceeds of collateral applied thereto by the Swingline Lender), the Swingline Lender will distribute to such Lender its Swingline Participation Amount with respect thereto (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s participating interest was outstanding and funded and, in the case of principal and interest payments, to reflect such Lender’s pro rata portion of such payment if such payment is not sufficient to pay the principal of and interest on all such Swingline Loans then due); provided , however , that in the event that such payment received by the Swingline Lender is required to be returned, such Lender will return to the Swingline Lender any portion thereof previously distributed to it by the Swingline Lender.

 

(e)           Each Revolving Lender’s obligation to make the Loans referred to in Section 2.7(b) and to purchase participating interests pursuant to Section 2.7(c) shall be absolute and unconditional and shall not be affected by any circumstance, including (i) any setoff, counterclaim, recoupment, defense or other right that such Revolving Lender or the Borrower may have against the Swingline Lender, the Borrower or any other Person for any reason whatsoever, (ii) the occurrence or continuance of a Default or an Event of Default or the failure to satisfy any of the other conditions specified in Section 5, (iii) any adverse change in the condition (financial or otherwise) of the Borrower, (iv) any breach of this Agreement or any other Loan Document by the Borrower, any other Loan Party or any other Lender or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.

 

(f)            Notwithstanding anything to the contrary contained in this Agreement, in the event there is a Defaulting Lender, then such Defaulting Lender’s Revolving Percentage with respect to all outstanding Swingline Loans will automatically be reallocated among the Revolving Lenders that are Non-Defaulting Lenders pro rata in accordance with each Non-Defaulting Lender’s Revolving Percentage (calculated without regard to the Revolving Commitment of the Defaulting Lender) but only to the extent that no Default or Event of Default shall have occurred and be continuing at the time of such reallocation (provided, that such amounts shall be automatically reallocated upon the cure or waiver of such Default or Event of Default) and that such reallocation does not cause the Revolving Extensions of Credit of any Non-Defaulting Lender to exceed the Revolving Commitment of such Non-Defaulting Lender.  No reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation.  If such reallocation cannot, or can only partially, be effected, the Borrower shall, upon five Business Days’ written notice from the Swingline Lender, prepay such Defaulting Lender’s Revolving Percentage (calculated as in effect immediately prior to it becoming a Defaulting Lender) of any Swingline Loans (after giving effect to any partial reallocation pursuant to the first sentence of this

 

42



 

Section 2.7(f)).  So long as there is a Defaulting Lender, the Swingline Lender shall not be obligated to make a Swingline Loan to the extent that the sum of the Revolving Extensions of Credit of the Non-Defaulting Lenders after giving effect to such Swingline Loan would exceed the aggregate Revolving Commitments of such Non-Defaulting Lenders.

 

2.8           Repayment of Loans .  (a)  The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of the appropriate Revolving Lender or Term Lender, as the case may be, (i) the then unpaid principal amount of each Revolving Loan of such Revolving Lender made to the Borrower outstanding on the Revolving Termination Date (or on such earlier date on which the Loans become due and payable pursuant to Section 8) and (ii) the principal amount of each outstanding Term Loan of such Term Lender made to the Borrower 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 Borrower hereby further agrees to pay interest on the unpaid principal amount of the Loans made to the Borrower 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 2.15.

 

(b)           Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Borrower 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 Borrower, shall maintain the Register pursuant to Section 10.6(b)(iv), and a subaccount therein for each Lender, in which shall be recorded (i) the amount and Currency of each Loan made hereunder and any Note evidencing such Loan, the Type of such Loan and each Interest Period applicable thereto, (ii) the amount of and Currency of any principal, interest and fees, as applicable, due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) both the amount and Currency of any sum received by the Administrative Agent hereunder from the Borrower and each Lender’s share thereof.

 

(d)           (d) The entries made in the Register and the accounts of each Lender maintained pursuant to Section 2.8(c) shall, to the extent permitted by applicable law, be presumptively correct absent demonstrable error of the existence and amounts of the obligations of the Borrower therein recorded; provided , however , that the failure of the Administrative Agent or any Lender to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loans made to the Borrower by such Lender in accordance with the terms of this Agreement.

 

2.9           Commitment Fees, etc .  (a)  The Borrower agrees to pay to the Administrative Agent for the account of each Revolving Lender a commitment fee for the period from and including the Closing Date to the last day of the Revolving Commitment Period, computed at the Applicable Commitment Fee Rate on the average daily amount of the Available Revolving Commitment of such Lender during the period for which payment is made, payable quarterly in arrears on each Fee Payment Date; provided that (i) for purposes of calculating any fees owing in accordance with this Section 2.9(a), the Available Revolving Commitment for the Swingline Lender shall exclude any outstanding Swingline Loans and (ii) the Swingline Lender shall not be entitled to any commitment fee with respect to its Swingline Commitment separate from that to which it is entitled with respect to its Available Revolving Commitment; provided , further , that (i) any commitment fee accrued with respect to any of the Available Revolving Commitments of a Defaulting Lender during the period prior to the time such Lender became a Defaulting Lender and unpaid at such time shall not be payable by the Borrower so long as such Lender shall be a Defaulting Lender except to the extent that such commitment fee shall otherwise have been due and payable by the Borrower prior to such time and (ii) no commitment fee shall accrue on any of the

 

43



 

Available Revolving Commitments of a Defaulting Lender so long as such Lender shall be a Defaulting Lender.

 

(b)           The Borrower agrees to pay to the Administrative Agent the fees in the amounts and on the dates as set forth in any fee agreements with the Administrative Agent.

 

2.10         Termination or Reduction of Revolving Commitments .  The Borrower shall have the right, upon not less than two Business Days’ notice to the Administrative Agent, to terminate the Revolving Commitments of either Class or, from time to time, to reduce the amount of the Revolving Commitments of such Class; provided that no such termination or reduction of such Revolving Commitments of a Class shall be permitted if, after giving effect thereto and to any prepayments of the Revolving Loans of such Class made on the effective date thereof, the total Revolving Extensions of Credit of such Class would exceed the total Revolving Commitments of such Class.  Any such partial reduction shall be in an amount equal to $1,000,000, or a whole multiple of $500,000 in excess thereof, and shall reduce permanently the Revolving Commitments of such Class then in effect.  Notwithstanding anything to the contrary contained in this Agreement, the Borrower may rescind any notice of termination under this Section 2.10 if such termination would have resulted from a replacement of all of the Revolving Commitments outstanding at such time, which replacement shall not be consummated or shall otherwise be delayed.

 

2.11         Optional Prepayments .  (a) The Borrower may at any time and from time to time prepay the Revolving Loans, the Swingline Loans or the Term Loans, in whole or in part, without premium or penalty except as provided in Section 2.11(b), upon irrevocable notice delivered to the Administrative Agent no later than 12:00 Noon, Local Time, three Business Days prior thereto, in the case of Eurocurrency Loans, and no later than 12:00 Noon, New York City time, one Business Day prior thereto, in the case of ABR Loans, which notice shall specify (i) the date and amount of prepayment, (ii) whether the prepayment is of Revolving Loans, Swingline Loans, Tranche A Term Loans, Tranche B Term Loans or New Term Loans of any Tranche, and if such prepayment is of Revolving Loans or Swingline Loans, the Class of Revolving Loans to be prepaid and (iii) whether the prepayment is of Eurocurrency Loans or ABR Loans; provided that if a Eurocurrency Loan is prepaid on any day other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.21.  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 ( provided that such notice may be conditioned on receiving the proceeds of any refinancing), together with (except in the case of Revolving Loans that are ABR Loans and Swingline Loans) accrued interest to such date on the amount prepaid.  Partial prepayments of Term Loans of a Class and of Revolving Loans of a Class shall be in an aggregate principal amount of (i) $1,000,000 or a whole multiple of $100,000 in excess thereof (in the case of prepayments of ABR Loans) or (ii) $1,000,000 or a whole multiple of $500,000 in excess thereof (in the case of prepayments of Eurocurrency Loans), and in each case shall be subject to the provisions of Section 2.18.  Partial prepayments of Swingline Loans of a Class shall be in an aggregate principal amount of $50,000 or a whole multiple of $50,000 in excess thereof.

 

(b)           Any optional prepayment of the Tranche B Term Loans as a result of a Repricing Transaction shall be accompanied by a prepayment fee, which shall initially be 1% of the aggregate principal amount prepaid and shall decline to 0% on and after the first anniversary of the Closing Date.

 

2.12         Mandatory Prepayments .  (a) Unless the Required Prepayment Lenders shall otherwise agree, if any Indebtedness (excluding any Indebtedness incurred in accordance with Section 7.2) shall be incurred by Holdings or any of its Restricted Subsidiaries, an amount equal to 100%

 

44



 

of the Net Cash Proceeds thereof shall be applied not later than one Business Day after the date of receipt of such Net Cash Proceeds toward the prepayment of the Term Loans as set forth in Section 2.12(d).

 

(b)           Unless the Required Prepayment Lenders shall otherwise agree, if on any date any Loan Party shall for its own account receive Net Cash Proceeds from any Asset Sale or Recovery Event then, unless a Reinvestment Notice shall be delivered in respect thereof, such Net Cash Proceeds shall be applied not later than five Business Days after such date toward the prepayment of the Term Loans as set forth in Section 2.12(d); provided that notwithstanding the foregoing, (x) on each Reinvestment Prepayment Date, the Term Loans shall be prepaid as set forth in Section 2.12(d) by an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event and (y) on the date (the “ Trigger Date ”) that is one year after any such Reinvestment Prepayment Date, the Term Loans shall be prepaid as set forth in Section 2.12(d) by an amount equal to the portion of any Committed Reinvestment Amount with respect to the relevant Reinvestment Event not actually expended by such Trigger Date.

 

(c)           Unless the Required Prepayment Lenders shall otherwise agree, if, for any fiscal year of Holdings commencing with the fiscal year ending September 30, 2012, there shall be Excess Cash Flow, Holdings shall, on the relevant Excess Cash Flow Application Date, apply an amount equal to (i) the Excess Cash Flow Percentage of such Excess Cash Flow minus (ii) the aggregate amount of all prepayments of Revolving Loans and Swingline Loans during such fiscal year to the extent accompanied by permanent optional reductions of the Revolving Commitments and all optional prepayments of the Term Loans during such fiscal year, in each case other than to the extent any such prepayment is funded with the proceeds of new long-term Indebtedness, toward the prepayment of the Term Loans as set forth in Section 2.12(d).  Each such prepayment shall be made on a date (an “ Excess Cash Flow Application Date ”) no later than ten days after the date on which the financial statements of Holdings 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.

 

(d)           Amounts to be applied in connection with prepayments pursuant to Section 2.12 shall be applied to the prepayment of the Term Loans in accordance with Section 2.18(b) until paid in full.  The application of any prepayment pursuant to Section 2.12 shall be made, first , to ABR Loans and, second , to Eurocurrency Loans.  Each prepayment of the Term Loans under Section 2.12 shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid.

 

(e)           If as of the last Business Day of each calendar month (computed by the Administrative Agent using the current exchange rate as of such Business Day and promptly notified to the Multicurrency Revolving Lenders and the Borrower) the Dollar Amount of the aggregate outstanding principal amount of the Revolving Loans shall exceed 105% of the aggregate Revolving Commitments, the Borrower shall, within five Business Days after the Borrower’s receipt of such notice, prepay Multicurrency Revolving Loans in such amounts as shall be necessary so that after giving effect thereto the aggregate outstanding principal amount of such Revolving Loans does not exceed the Revolving Commitments as of such Business Day.

 

(f)            Notwithstanding anything to the contrary in Sections 2.12(d) or 2.18, with respect to the amount of any mandatory prepayment pursuant to this Section 2.12 that is allocated to Tranche B Term Loans and each Tranche of New Term Loans (such amount for such Class, the “ Prepayment Amount ”, and each such Class, an “ Applicable Class ”), at any time when Tranche A Term Loans remain outstanding, the Borrower will, in lieu of applying such Prepayment Amount to the Applicable Class of Term Loans as provided in paragraph (d) above, on the date specified in this Section 2.12 for such prepayment, give the Administrative Agent telephonic notice (promptly confirmed in writing) requesting that the Administrative Agent prepare and provide to each Tranche B Term Lender

 

45


 

and each New Term Lender a notice substantially in the form of Exhibit L (each, a “ Prepayment Option Notice ”) as described below.  As promptly as practicable after receiving such notice from the Borrower, the Administrative Agent will send to each Tranche B Term Lender and each New Term Lender a Prepayment Option Notice, which shall be in a form reasonably satisfactory to the Administrative Agent, and shall include an offer by the Borrower to prepay, on the date (each a “ Mandatory Prepayment Date ”) that is ten Business Days after the date of the Prepayment Option Notice, each Applicable Class of Loans of such Lender by an amount equal to the portion of the Prepayment Amount for such Class indicated in such Lender’s Prepayment Option Notice as being applicable to such Lender’s Applicable Class of Term Loans.  Each Tranche B Term Lender and each New Term Lender may reject all or a portion of its Prepayment Amount of the Applicable Class by providing written notice to the Administrative Agent and the Borrower no later than 5:00 p.m. (New York time) one Business Day after such Lender’s receipt of the Prepayment Option Notice (which notice shall specify the principal amount of the Prepayment Amount for each Applicable Class to be rejected by such Lender); provided that any Lender’s failure to so reject such Prepayment Amount for any Applicable Class shall be deemed an acceptance by such Term Lender of such Prepayment Option Notice for such Applicable Class and the amount to be prepaid in respect of Term Loans of such Applicable Class held by such Lender.  On the Mandatory Prepayment Date, the Borrower shall (i) pay to the relevant Lenders the aggregate amount necessary to prepay that portion of the outstanding Term Loans of the Applicable Class in respect of which such Lenders have (or are deemed to have) accepted prepayment as described above and (ii) prepay outstanding Tranche A Term Loans in an aggregate amount equal to the amounts declined by Lenders as described above; provided that, upon the making of such prepayments, any amount remaining unapplied (i.e., after the payment in full of the Tranche A Term Loans) shall be returned to the Borrower.

 

2.13         Conversion and Continuation Options .  (a)  The Borrower may elect from time to time to convert Eurocurrency Loans made to the Borrower to ABR Loans by giving the Administrative Agent prior irrevocable notice substantially in the form of Exhibit M of such election no later than 12:00 Noon, New York City time, on the second Business Day preceding the proposed conversion date; provided that (i) a borrowing of a Class of Loans may not be converted into a borrowing of a different Class of Loans, (ii) a borrowing denominated in one Currency may not be converted to a borrowing of a different Currency, (iii) no Eurocurrency Loan denominated in an Agreed Foreign Currency may be converted to a borrowing of a different Type and (iv) if any Eurocurrency Loan is so converted on any day other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.21.  The Borrower may elect from time to time to convert ABR Loans made to the Borrower to Eurocurrency Loans by giving the Administrative Agent prior irrevocable notice of such election no later than 12:00 Noon, New York City time, on the third Business Day preceding the proposed conversion date (which notice shall specify the length of the initial Interest Period therefor); provided that (i) a borrowing of a Class of Loans may not be converted into a borrowing of a different Class of Loans, (ii) a borrowing denominated in one Currency may not be converted to a borrowing of a different Currency and (iii) no ABR Loan under a particular Facility may be converted into a Eurocurrency Loan 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.  Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof.

 

(b)           Any Eurocurrency Loan may be continued as such by the Borrower giving irrevocable notice to the Administrative Agent, in accordance with the applicable provisions of the term “Interest Period” set forth in Section 1.1 and no later than 1:00 P.M., New York City time, on the third Business Day preceding the proposed continuation date, of the length of the next Interest Period to be applicable to such Loans; provided that (i) a borrowing of a Class of Loans may not be continued as a borrowing of a different Class of Loans, (ii) a borrowing denominated in one Currency may not be continued as a borrowing of a different Currency, (iii) no Eurocurrency Loan denominated in a Foreign

 

46



 

Currency may be continued if, after giving effect thereto, the Revolving Multicurrency Exposure would exceed the aggregate Multicurrency Revolving Commitments and (iv) if any Eurocurrency Loan is so continued on any day other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.21 and; provided , further , that no Eurocurrency Loan under a particular Facility may be continued as such 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 and; provided , further , that if the Borrower 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 denominated (i) in Dollars shall be automatically converted to ABR Loans on the last day of such then expiring Interest Period or (ii) in another Currency shall be automatically converted to Eurocurrency Loans having an Interest Period of one month’s duration on the last day of such then expiring Interest Period.  Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof.

 

2.14         Minimum Amounts and Maximum Number of Eurocurrency Tranches .  Notwithstanding anything to the contrary in this Agreement, all borrowings, conversions, continuations and optional prepayments of Eurocurrency Loans and all selections of Interest Periods 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 Eurocurrency Loans comprising each Eurocurrency Tranche shall be equal to a minimum of $1,000,000 or a whole multiple of $500,000 in excess thereof and (b) no more than fifteen Eurocurrency Tranches shall be outstanding at any one time.

 

2.15         Interest Rates and Payment Dates .  (a)  (i) Each Eurocurrency Loan that is a Revolving Loan or a Tranche A Term Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurocurrency Rate determined for such day plus the Applicable Margin and (ii) each Eurocurrency Loan that is a Tranche B Term Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to (A) the greater of (x) the Eurocurrency Rate determined for such day and (y) 1.25% plus (B) the Applicable Margin.

 

(b)           (i) Each ABR Loan that is a Revolving Loan or a Tranche A Term Loan shall bear interest at a rate per annum equal to the ABR plus the Applicable Margin and (ii) each ABR Loan that is a Tranche B Term Loan shall bear interest at a rate per annum equal to (A) the greater of (x) the ABR and (y) 1.25% plus (B) 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), such overdue amount shall bear interest at a rate per annum 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 plus 2% or (y) in the case of Reimbursement Obligations, the rate applicable to ABR Loans under the Revolving 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 then applicable to ABR 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 rate then applicable to ABR Loans under the Revolving Facility plus 2%), 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); provided that no amount shall be payable pursuant to this Section 2.15(c) to a Defaulting Lender so long as such Lender shall be a Defaulting Lender; provided further no amounts shall accrue pursuant to this Section 2.15(c) on any overdue Loan, Reimbursement Obligation, commitment or other amount payable to a Defaulting Lender so long as such Lender shall be a Defaulting Lender.

 

47



 

(d)           Interest shall be payable by the Borrower in arrears on each Interest Payment Date; provided that interest accruing pursuant to paragraph (c) of this Section 2.15 shall be payable from time to time on demand.

 

2.16         Computation of Interest and Fees .  (a)  Interest and fees payable pursuant hereto shall be calculated on the basis of a 360-day year for the actual days elapsed, except that, with respect to ABR 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 Borrower and the relevant Lenders of each determination of a Eurocurrency Rate.  Any change in the interest rate on a Loan resulting from a change in the ABR 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 Borrower 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 presumptively correct in the absence of manifest error.  The Administrative Agent shall, at the request of the Borrower, deliver to the Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to Section 2.15(a) and Section 2.15(b).

 

2.17         Inability to Determine Interest Rate .  If prior to the first day of any Interest Period for any Eurocurrency Loan (the Currency of such Loan herein called the “ Affected Currency ”):

 

(a)           the Administrative Agent shall have determined (which determination shall be presumptively correct absent manifest error) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurocurrency Rate for the Affected Currency 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 by reason of any changes arising after the date of this Agreement the Eurocurrency Rate for the Affected Currency determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as certified by such Lenders) of making or maintaining their affected Loans during such Interest Period,

 

the Administrative Agent shall give telecopy notice thereof to the Borrower and the relevant Lenders as soon as practicable thereafter.  If such notice is given (i) if the Affected Currency is Dollars (x) any Eurocurrency Loans denominated in Dollars under the relevant Facility requested to be made on the first day of such Interest Period shall be made as ABR Loans, (y) any Loans denominated in Dollars under the relevant Facility that were to have been converted on the first day of such Interest Period to Eurocurrency Loans shall be continued as ABR Loans and (z) any outstanding Eurocurrency Loans denominated in Dollars under the relevant Facility shall be converted, on the last day of the then-current Interest Period with respect thereto, to ABR Loans, or (ii) if the Affected Currency is an Agreed Foreign Currency, any Eurocurrency Loans denominated in the Affected Currency under the relevant Facility requested to be made on the first day of such Interest Period shall be ineffective.  Until such notice has been withdrawn by the Administrative Agent (which action the Administrative Agent will take promptly after the conditions giving rise to such notice no longer exist), no further Eurocurrency Loans denominated in the Affected Currency (including the Eurocurrency Rate component of ABR Loans) under the relevant Facility shall be made or continued as such, nor shall the Borrower have the right to convert Loans under the relevant Facility to Eurocurrency Loans denominated in the Affected Currency.

 

48



 

2.18         Pro Rata Treatment and Payments .  (a)  Each borrowing by the Borrower from the Lenders of a Class hereunder and each payment by the Borrower on account of any commitment fee and any reduction of the Revolving Commitments of a Class shall be made pro rata according to the respective Tranche A Term Percentages, Tranche B Term Percentages, New Tranche Term Percentages or Revolving Percentages of the respective Class, as the case may be, of the relevant Lenders, except (i) for payments in respect of any differences in the Applicable Commitment Fee Rate of Accepting Lenders pursuant to a Loan Modification Agreement, (ii) for payments to Defaulting Lenders as otherwise herein provided and (iii) reductions of Revolving Commitments pursuant to Section 2.24.

 

(b)           Each payment (including prepayments) by the Borrower on account of principal of and interest on the Term Loans of a Class shall be made pro rata according to the respective outstanding principal amounts of the Term Loans of such Class then held by the Term Lenders of such Class, except (i) as otherwise provided in Section 2.12(f) and Section 10.6, (ii) for payments in respect of any differences in the Applicable Margin of Accepting Lenders pursuant to a Loan Modification Agreement and (iii) for payments to Defaulting Lenders as otherwise herein provided.  Each mandatory and optional prepayment of the Term Loans shall be allocated among the Tranche A Term Loans, the Tranche B Term Loans and each Tranche of New Term Loans, if any, pro rata according to the according to the respective outstanding principal amounts of the Term Loans of such Class, except (i) as otherwise provided in Section 2.12(f) and Section 10.6, (ii) for payments in respect of any differences in the Applicable Margin of Accepting Lenders pursuant to a Loan Modification Agreement and (iii) for payments to Defaulting Lenders as otherwise herein provided.  Each mandatory and optional prepayment of Term Loans shall be applied to the remaining installments thereof as specified by the Borrower.  Amounts repaid or prepaid on account of the Term Loans may not be reborrowed.

 

(c)           Each payment (including prepayments) by the Borrower on account of principal of and interest on the Revolving Loans of a Class shall be made pro rata according to the respective outstanding principal amounts of the Revolving Loans of such Class then held by the Revolving Lenders of such Class, except (i) as otherwise provided in Section 2.12(f) and Section 10.6, (ii) for payments in respect of any differences in the Applicable Margin of Accepting Lenders pursuant to a Loan Modification Agreement, (iii) for payments to Defaulting Lenders as otherwise herein provided and (iv) reductions of Revolving Commitments pursuant to Section 2.24.  Each payment in respect of Reimbursement Obligations in respect of any Letter of Credit of a Class shall be made to the Issuing Lender that issued such Letter of Credit.

 

(d)           All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to 2:00 P.M., Local Time, on the due date thereof to the Administrative Agent, for the account of the relevant Lenders, at the Funding Office, in immediately available funds.  The Administrative Agent shall distribute such payments to the relevant Lenders promptly upon receipt in like funds as received.  If any payment hereunder (other than payments on the Eurocurrency 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 Eurocurrency 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

 

49



 

Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower 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 greater of (i) the Federal Funds Effective Rate and (ii) a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, 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 paragraph shall be presumptively correct 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 after such Borrowing Date, the Administrative Agent shall give notice of such fact to the Borrower and the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to ABR Loans under the relevant Facility, on demand, from the Borrower.  Nothing herein shall be deemed to limit the rights of the Administrative Agent or the Borrower against any Defaulting Lender.

 

(f)            Unless the Administrative Agent shall have been notified in writing by the Borrower prior to the date of any payment due to be made by the Borrower hereunder that the Borrower will not make such payment to the Administrative Agent, the Administrative Agent may assume that the Borrower is making such payment, and the Administrative Agent may, but shall not be required to, in reliance upon such assumption, make available to the relevant Lenders their respective pro rata shares of a corresponding amount.  If such payment is not made to the Administrative Agent by the Borrower within three Business Days after such due date, the Administrative Agent shall be entitled to recover, on demand, from each relevant 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 Borrower.

 

(g)           Each obligation of the Loan Parties under the Loan Documents related to any Loans or Letter of Credit denominated in Dollars shall be paid in Dollars.  Each obligation of the Loan Parties related to any Loans denominated in an Agreed Foreign Currency shall be paid in such Agreed Foreign Currency; provided that fees payable pursuant to Section 3.3 shall be payable in Dollars.  All commitment fees payable pursuant to Section 2.9 shall be calculated and payable in Dollars.  Notwithstanding the foregoing, if the Borrower shall fail to pay any principal of any Loan when due (whether at stated maturity, by acceleration, by mandatory prepayment or otherwise), the unpaid portion of such Loan shall, if such Loan is not denominated in Dollars, automatically be redenominated in Dollars on the due date thereof (or, if such due date is a day other than the last day of the Interest Period therefor, on the last day of such Interest Period) in an amount equal to the Dollar Equivalent thereof on the date of such redenomination and such principal shall be payable on demand (provided that no Event of Default shall occur until the expiration of applicable grace periods); and if the Borrower shall fail to pay any interest on any Loan that is not denominated in Dollars, such interest shall automatically be redenominated in Dollars on the due date therefor (or, if such due date is a day other than the last day of the Interest Period therefor, on the last day of such Interest Period) in an amount equal to the Dollar Equivalent thereof on the date of such redenomination and such interest shall be payable on demand (provided that no Event of Default shall occur until the expiration of applicable grace periods).

 

2.19         Requirements of Law .  (a)  Except with respect to Taxes, which shall be governed solely by Section 2.20, 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 first made, in each case, subsequent to the date hereof:

 

50



 

(i)            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 that is not otherwise included in the determination of the Eurocurrency Rate hereunder; or

 

(ii)           shall impose on such Lender any other condition not otherwise contemplated hereunder;

 

and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender reasonably deems to be material, of making, converting into, continuing or maintaining Eurocurrency Loans or issuing or participating in Letters of Credit (in each case hereunder), or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender, in Dollars, within ten Business Days after the Borrower’s receipt of a reasonably detailed invoice therefor (showing with reasonable detail the calculations thereof), any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable.  If any Lender becomes entitled to claim any additional amounts pursuant to this Section, it shall promptly notify the Borrower (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 reasonably 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 request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority first made, in each case, 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 Borrower (with a copy to the Administrative Agent) of a reasonably detailed written request therefor (consistent with the detail provided by such Lender to similarly situated borrowers), the Borrower shall pay to such Lender, in Dollars, such additional amount or amounts as will compensate such Lender or such corporation for such reduction.

 

(c)           A certificate prepared in good faith as to any additional amounts payable pursuant to this Section submitted by any Lender to the Borrower (with a copy to the Administrative Agent) shall be presumptively correct in the absence of manifest error.  Notwithstanding anything to the contrary in this Section, the Borrower shall not be required to compensate a Lender pursuant to this Section for any amounts incurred more than six months prior to the date that such Lender notifies the Borrower of such Lender’s intention to claim compensation therefor; provided that if the circumstances giving rise to such claim have a retroactive effect, then such six-month period shall be extended to include the period of such retroactive effect.  The obligations of the Borrower pursuant to this Section shall survive the termination of this Agreement and the payment of the Obligations.  Notwithstanding the foregoing, the Borrower shall not be obligated to make payment to the Administrative Agent or any Lender with respect to penalties, interest and expenses if written demand therefore was not made by the Administrative Agent or such Lender within 180 days from the date on which such party makes payment for such penalties, interest and expenses.

 

(d)           Notwithstanding anything in this Section 2.19 to the contrary, solely for purposes of this Section 2.19, the Dodd Frank Wall Street Reform and Consumer Protection Act, and all requests,

 

51



 

rules, regulations, guidelines and directives promulgated thereunder or issued in connection therewith, shall be deemed to have been enacted, adopted or issued, as applicable, subsequent to the Closing Date.

 

2.20         Taxes .  (a)   Except as otherwise provided in this Agreement or as required by applicable law, all payments made by the Borrower under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future Taxes, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding (i) net income taxes, net profits or capital taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the Administrative Agent or any Lender as a result of a present or former connection between the Administrative 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 the Administrative 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);  (ii) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction described in clause (i), above; (iii) taxes that are attributable to such Lender’s failure to comply with the requirements of paragraph (d) or (e), as applicable, of this Section; (iv) in the case of a Non-U.S. Lender (as defined below), (A) any withholding tax that is imposed under the law applicable as of the date such Lender becomes a party to this Agreement (or where the Non-U.S. Lender is a partnership for U.S. federal income tax purposes, under the law applicable on the date on which the affected partner(s) became a partner of such Non-U.S. Lender) or designate a new lending office, except to the extent that such Lender’s assignor (if any) was entitled (or where the Non-U.S. Lender is a partnership for U.S. federal income tax purposes, to the extent that the person(s) from which the affected partner(s) acquired their partnership interest was entitled), at the time of assignment or at the time of the designation of a new lending office, to receive additional amounts from the Borrower with respect to such withholding tax pursuant to this paragraph; or (B) any withholding tax imposed on amounts payable to such Non-U.S. Lender that would not have been imposed but for a failure by such Non-U.S. Lender or any other legal or beneficial holder of a Loan under this Agreement or any foreign financial institution through which payments on the Loans under this Agreement are made to comply with any applicable certification, documentation, information or other reporting requirements under FATCA as a precondition to relief or exemption from such withholding tax; and (v) penalties and interest on the foregoing amounts  (all such taxes referred to in clauses (i) , (ii), (iii), (iv) and (v) hereof hereinafter referred to as “ Excluded Taxes ” and all such other Taxes hereinafter referred to as “ Non-Excluded Taxes ”).  If any Non-Excluded Taxes or Other Taxes are required to be withheld from any amounts payable by the Borrower to the Administrative Agent or any Lender hereunder, the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after deduction or withholding of all Non-Excluded Taxes and Other Taxes, including deductions or withholdings applicable to additional sums payable under this Section) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement.

 

(b)           The Borrower 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 the Borrower, as promptly as possible thereafter the Borrower shall send to the Administrative Agent for the account of the Administrative Agent or Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof if such receipt is obtainable, or, if not, such other evidence of payment as may reasonably be required by the Administrative Agent or such Lender.  If the Borrower fails to pay any Non-Excluded Taxes or Other Taxes that the Borrower is required to pay pursuant to this Section 2.20 (or in respect of which the Borrower would be required to pay increased amounts pursuant to Section 2.20(a) if such Non-Excluded Taxes or Other Taxes were withheld) when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts

 

52



 

or other required documentary evidence, the Borrower shall indemnify the Administrative Agent and the Lenders for any payments by them of such Non-Excluded Taxes or Other Taxes (including any Non-Excluded Taxes or Other Taxes imposed on amounts payable under this Section 2.20), other than any amounts arising as a result of such Administrative Agent’s or such Lender’s gross negligence or willful misconduct, within thirty (30) days after written demand therefor.  A certificate as to any amounts payable under this Section submitted by the Administrative Agent or by any Lender (with a copy to the Administrative Agent) shall be presumptively correct in the absence of manifest error.

 

(d)           Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) (a “ Non-US Lender ”) shall deliver to the Borrower and the Administrative Agent (or, in the case of a Participant, to the Borrower and to the Lender from which the related participation shall have been purchased) (i) two accurate and complete originals of IRS Form W-8ECI or W-8BEN, or, (ii) in the case of a Non-US Lender claiming exemption from United States federal withholding tax under Sections 871(h) or 881(c) of the Code with respect to payments of “portfolio interest”, a statement substantially in the form of Exhibit F and two accurate and complete originals of IRS Form W-8BEN, or any subsequent versions or successors to such forms, in each case properly completed and duly executed by such Non-US Lender claiming complete exemption from, or a reduced rate of, United States federal withholding tax on all payments by the Borrower or any Loan Party under this Agreement and the other Loan Documents.  Such forms shall be delivered by each Non-US 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-US Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-US Lender.  Each Non-US Lender shall (i) promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the United States taxing authorities for such purpose) and (ii) take such steps as shall not be disadvantageous to it, in its reasonable judgment, and as may be reasonably necessary (including the re-designation of its lending office pursuant to Section 2.23) to avoid any requirement of applicable laws of any such jurisdiction that the Borrower make any deduction or withholding for taxes from amounts payable to such Lender.  Notwithstanding any other provision of this paragraph, a Non-US Lender shall not be required to deliver any form pursuant to this paragraph that such Non-US Lender is not legally able to deliver.

 

(e)           Each Lender that is a United States person (as such term is defined in Section 7701(a)(30) of the Code) (a “ US Lender ”) shall deliver to the Borrower and the Administrative Agent two accurate and complete originals of IRS Form W-9, or any subsequent versions or successors to such form.  Such forms shall be delivered by each US Lender on or before the date it becomes a party to this Agreement.  In addition, each US Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such US Lender.  Each US Lender shall promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certifications to the Borrower (or any other form of certification adopted by the United States taxing authorities for such purpose).

 

(f)            If a payment made to any Lender hereunder or under any other Loan Document would be subject to United States federal withholding Tax imposed pursuant to FATCA if such Lender fails to comply with applicable reporting and other requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall use commercially reasonable efforts to deliver any documentation reasonably requested by the Borrower or the Administrative Agent sufficient for the Borrower and the Administrative Agent to comply with their obligations under FATCA.

 

(g)           If the Administrative Agent or any Lender determines, in good faith, that it has received a refund of any Non-Excluded Taxes or Other Taxes as to which it has been indemnified by the

 

53



 

Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 2.20, it shall promptly pay over such refund to the Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section 2.20 with respect to the Non-Excluded Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent or such Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that the Borrower, upon the request of the Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender in the event the Administrative Agent or such Lender is required to repay such refund to such Governmental Authority; provided , further , that the Borrower shall not be required to repay to the Administrative Agent or the Lender an amount in excess of the amount paid over by such party to the Borrower pursuant to this Section.  This paragraph shall not be construed to require the Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the Borrower or any other Person.  The agreements in this Section shall survive the termination of this Agreement and the payment of the Obligations.

 

2.21         Indemnity .  Except with respect to Taxes, which shall be governed solely by Section 2.20, the Borrower agrees to indemnify each Lender for, and to hold each Lender harmless from, any loss or expense (other than lost profits, including the loss of Applicable Margin) that such Lender may actually sustain or incur as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurocurrency Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment of or conversion from Eurocurrency Loans after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment, conversion or continuation of Eurocurrency Loans on a day that is not the last day of an Interest Period with respect thereto.  A reasonably detailed certificate as to (showing in reasonable detail the calculation of) any amounts payable pursuant to this Section submitted to the Borrower by any Lender shall be presumptively correct in the absence of manifest error.  This covenant shall survive the termination of this Agreement and the payment of the Obligations.

 

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, in each case, first made after the date hereof, shall make it unlawful for any Lender to make or maintain Eurocurrency Loans as contemplated by this Agreement, such Lender shall promptly give notice thereof (a “ Rate Determination Notice ”) to the Administrative Agent and the Borrower, and (a) the commitment of such Lender hereunder to make Eurocurrency Loans, continue Eurocurrency Loans as such and convert ABR Loans to Eurocurrency Loans shall be suspended during the period of such illegality, (b) such Lender’s Loans then outstanding as Eurocurrency Loans denominated in Dollars, if any, shall be converted automatically to ABR Loans denominated in Dollars 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 and (c) (i) such Lender’s Loans then outstanding as Eurocurrency Loans denominated in any Agreed Foreign Currency, if any, shall be converted automatically on the respective last days of the then current Interest Periods with respect to such Loans (an “ Affected Interest Period ”) to Eurocurrency Loans denominated in such Agreed Foreign Currency having the next shortest Interest Period which is not affected by such adoption of or change in any Requirement of Law and (ii) if all Interest Periods are Affected Interest Periods in respect of such Eurocurrency Loans denominated in any Agreed Foreign Currency, during the 30-day period following any such Rate Determination Notice (the “ Negotiation Period ”) the Administrative Agent and the Borrower shall negotiate in good faith with a view to agreeing upon a substitute interest rate basis which shall reflect the cost to the applicable Lenders of funding such Loans from alternative sources (a “ Substitute Basis ”), and if such Substitute Basis is so agreed upon during the Negotiation Period, such Substitute Basis shall apply in lieu of the Eurocurrency Rate to all Interest Periods for the Eurocurrency

 

54



 

Loans denominated in such Agreed Foreign Currency of the applicable Lenders commencing on or after the first day of an Affected Interest Period, until the circumstances giving rise to such Rate Determination Notice have ceased to apply.  If a Substitute Basis is not agreed upon during the Negotiation Period, each affected Lender shall determine (and shall certify from time to time in a certificate delivered by such Lender to the Administrative Agent setting forth in reasonable detail the basis of the computation of such amount) the rate basis reflecting the cost to such Lender of funding its Eurocurrency Loan denominated in such Agreed Foreign Currency for any Interest Period commencing on or after the first day of an Affected Interest Period, until the circumstances giving rise to such Rate Determination Notice have ceased to apply, and such rate basis shall be binding upon the Borrower and such Lender and shall apply in lieu of the Eurocurrency Rate for the relevant Interest Periods.  If a Rate Determination Notice has been given, then until such Rate Determination Notice has been withdrawn by the Administrative Agent, no Eurocurrency Loans of the applicable Lenders denominated in such Agreed Foreign Currency shall have an Interest Period having a duration equal to an Affected Interest Period.  The Borrower may elect to prepay the Eurocurrency Loans denominated in such Agreed Foreign Currency of the applicable Lenders pursuant to Section 2.11 at any time.

 

If any such conversion or prepayment of a Eurocurrency 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 2.21.

 

2.23         Change of Lending Office .  Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Sections 2.19, 2.20(a) or 2.22 with respect to such Lender, it will, if requested by the Borrower, 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 material economic, legal or regulatory disadvantage and; provided , further , that nothing in this Section shall affect or postpone any of the obligations of the Borrower or the rights of any Lender pursuant to Sections 2.19, 2.20(a) or 2.22.

 

2.24         Replacement of Lenders .  The Borrower shall be permitted to replace with a financial entity or financial entities, any Lender that (i) requests reimbursement for amounts owing pursuant to Sections 2.19, 2.20 or 2.21 or gives a notice of illegality pursuant to Section 2.22, (ii) is a Defaulting Lender, or (iii) has refused to consent to any waiver or amendment with respect to any Loan Document that requires such Lender’s consent and has been consented to by the Required Lenders; provided that (A) such replacement does not conflict with any Requirement of Law, (B) the replacement financial entity or financial entities shall purchase, at par, all Loans and other amounts owing to such replaced Lender on or prior to the date of replacement, (C) the Borrower shall be liable to such replaced Lender under Section 2.21 (as though Section 2.21 were applicable) if any Eurocurrency Loan owing to such replaced Lender shall be purchased other than on the last day of the Interest Period relating thereto, (D) the replacement financial entity or financial entities, (x) if not already a Lender, shall be reasonably satisfactory to the Administrative Agent to the extent that an assignment to such replacement financial institution of the rights and obligations being acquired by it would otherwise require the consent of the Administrative Agent pursuant to Section 10.6(b)(i)(B) and (y) shall pay (unless otherwise paid by the Borrower) any processing and recordation fee required under Section 10.6(b)(ii)(B), (E) the Administrative Agent and any replacement financial entity or entities shall execute and deliver, and such replaced Lender shall thereupon be deemed to have executed and delivered, an appropriately completed Assignment and Assumption to effect such substitution, (F) the Borrower shall pay all additional amounts (if any) required pursuant to Sections 2.19 or 2.20, as the case may be, in respect of any period prior to the date on which such replacement shall be consummated, (G) if applicable, the replacement financial entity or financial entities shall consent to such amendment or waiver, (H) any such replacement shall not

 

55


 

be deemed to be a waiver of any rights that the Borrower, the Administrative Agent or any other Lender shall have against the replaced Lender and (I) if such replacement is in connection with a Repricing Transaction prior to the first anniversary of the Closing Date, the Borrower or the replacement Lender shall pay the replaced Lender a fee equal to 1% of the aggregate principal amount of its Tranche B Term Loans required to be assigned pursuant to this Section 2.24, but such replacement shall not be subject to the provisions of Section 2.18.

 

Each Lender hereby grants to the Administrative Agent an irrevocable power of attorney (which power is coupled with an interest) to execute and deliver, on behalf of such Lender as assignor, any Assignment and Assumption necessary to effectuate any assignment of such Lender’s interests hereunder in respect of the circumstances contemplated by this Section and to be made in accordance with the terms and conditions of this Section 2.24.

 

In addition, the Borrower shall be permitted to prepay or terminate, without duplication or penalty (but subject to Section 2.21), the Loans and Commitments of any Defaulting Lender.  The prepayment of Loans or termination of the Revolving Commitments of any Lender pursuant to this paragraph shall not be subject to the provisions of Section 2.18.

 

2.25         Incremental Loans .  (a) The Borrower may by written notice to the Administrative Agent elect to request the establishment of one or more new term loans (the “ New Term Loan Commitments ”) or the increase of the Dollar Revolving Commitments hereunder, in an aggregate amount for all such New Term Loan Commitments and increases of the Dollar Revolving Commitments not in excess of (i) $150,000,000 plus (ii) an additional $150,000,000 if the pro forma Consolidated Total Leverage Ratio is less than 2.75:1.00 as of the end of the most recently ended Test Period.  Each such notice shall specify the date (each, an “ Increased Amount Date ”) on which the Borrower proposes that the New Term Loan Commitments or increase of the Dollar Revolving Commitments shall be effective, which shall be a date not less than 10 Business Days after the date on which such notice is delivered to the Administrative Agent; provided that any Lender offered or approached to provide all or a portion of any New Term Loan Commitments or increase of the Dollar Revolving Commitments may elect or decline, in its sole discretion, to provide such New Term Loan Commitments or increase of the Dollar Revolving Commitments.

 

(b)           Such New Term Loan Commitments or increase of the Dollar Revolving Commitments shall become effective as of such Increased Amount Date; provided that (i) the conditions set forth in Section 5.2 were satisfied or waived on such Increased Amount Date before or after giving effect to such New Term Loan Commitments and to the making of any Tranche of New Term Loans pursuant thereto or to such increase of the Dollar Revolving Commitments and after giving effect to any transaction consummated in connection therewith; (ii) the Borrower shall be in pro forma compliance with the financial covenants set forth in Section 7.1 as of the end of the most recently ended Test Period; (iii) the proceeds of any New Term Loans shall be used for general corporate purposes of the Borrower and its Subsidiaries (including Permitted Acquisitions and Investments permitted under Section 7.8); (iv) the New Term Loans shall share ratably in the Collateral and shall benefit ratably from the guarantees under the Guarantee and Collateral Agreement; (v) the New Term Loans shall share ratably in any mandatory prepayments of the existing Term Loans; (vi) the maturity date of New Term Loans thereof shall not be earlier than the Tranche B Term Maturity Date and the weighted average life to maturity shall be equal to or greater than the weighted average life to maturity of the Tranche B Term Loans; provided that up to $150.0 million of the New Term Loans may mature earlier than and have an average life to maturity shorter than that of the Tranche B Term Loans so long as such New Term Loans mature no earlier than, and will have a weighted average life to maturity no shorter than, that of the Tranche A Term Loans; (vii) all terms and documentation with respect to any New Term Loans which differ from those with respect to the Tranche B Term Loans shall be reasonably satisfactory to the Administrative Agent

 

56



 

(except to the extent permitted by clauses (vi) and (x) of this Section and the last sentence of this paragraph); (viii) such New Term Loans or New Term Loan Commitments or increase of the Dollar Revolving Commitments shall be effected pursuant to one or more Joinder Agreements executed and delivered by the Borrower, the Administrative Agent and one or more New Lenders; (ix) the Borrower shall deliver or cause to be delivered any customary legal opinions or other documents reasonably requested by Administrative Agent in connection with any such transaction, including any supplements or amendments to the Security Documents providing for such New Term Loans to be secured thereby; and (x) if the initial “spread” (for purposes of this Section 2.25, the “spread” with respect to any Loan shall be calculated as the sum of the Eurodollar Loan margin on the relevant Loan plus any original issue discount or upfront fees in lieu of original issue discount (other than any arranging fees, underwriting fees and commitment fees) (based on an assumed four-year average life for the applicable Facilities (e.g., 100 basis points in original issue discount or upfront fees equals 25 basis points of interest rate margin))) relating to the New Term Loans exceeds the spread then in effect with respect to the Tranche B Term Loans by more than 0.50%, the Applicable Margin relating to the existing Tranche B Term Loans shall be adjusted so that the spread relating to such New Term Loans does not exceed the spread applicable to the existing Tranche B Term Loans by more than 0.50%; provided that if the New Term Loans include an interest rate floor greater than the interest rate floor applicable to the Tranche B Term Loans, such increased amount shall be equated to the applicable interest rate margin for purposes of determining whether an increase to the Applicable Margin for the Tranche B Term Loans shall be required, to the extent an increase in the interest rate floor for the Tranche B Term Loans would cause an increase in the interest rate then in effect thereunder, and in such case the interest rate floor (but not the Applicable Margin) applicable to the Tranche B Term Loans shall be increased by such amount.  Any New Term Loans made on an Increased Amount Date that have terms and provisions that differ from those of the Term Loans outstanding on the date on which such New Term Loans are made shall be designated as a separate tranche (a “ Tranche ”) of Term Loans for all purposes of this Agreement, except as the relevant Joinder Agreement otherwise provides.  For the avoidance of doubt, the rate of interest and the amortization schedule (if applicable) of any New Term Loan shall be determined by the Borrower and the applicable lenders of New Term Loans (each, a “ New Term Lender ”) and shall be set forth in the applicable Joinder Agreement.

 

(c)           On any Increased Amount Date on which any New Term Loan Commitments or increase of the Dollar Revolving Commitments becomes effective, subject to the foregoing terms and conditions, each lender with a New Term Loan Commitment or an increase of the Dollar Revolving Commitments (each, a “ New Lender ”) shall become a Lender hereunder with respect to such New Term Loan Commitment or such increase of the Dollar Revolving Commitments, as the case may be.

 

(d)           The terms and provisions of the New Term Loan Commitments of any Tranche shall be, except as otherwise set forth in the relevant Joinder Agreement, identical to those of the applicable Term Loans and for purposes of this Agreement, any New Term Loans or New Term Loan Commitments shall be deemed to be Term Loans.  Each Joinder Agreement may, without the consent of any other Lenders, effect such amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the opinion of the Administrative Agent, to effect the provisions of this Section 2.25.

 

2.26         Defaulting Lenders .  (a) Defaulting Lender Cure.  If the Borrower, the Administrative Agent and each Swingline Lender and Issuing Lender agree in writing that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any cash collateral), that Lender will, to the extent applicable, purchase at par that portion of outstanding Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Loans and funded and unfunded

 

57



 

participations in Letters of Credit and Swingline Loans to be held pro rata by the Lenders in accordance with the Commitments under the applicable Facility (without giving effect to Sections 2.7(f) and 3.4(d)), whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.

 

(b)           Defaulting Lender Waterfall.  Any payment of principal, interest or other amounts received by the Administrative Agent for the account of any Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Section 8 or otherwise and other than the payment of (i) any commitment fees under Section 2.9, (ii) default interest pursuant to Section 2.15(c) and (iii) Letter of Credit fees pursuant to Section 3.3, which in each case shall be applied pursuant to the provisions of those Sections) shall be applied by the Administrative Agent as follows:  first , to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent pursuant to Section 9.7; second , to the payment on a pro rata basis of any amounts owing by such Defaulting Lender (without duplication of any prepayments of Swingline Loans by the Borrower pursuant to Section 2.7(f) or the application of any cash collateral provided by the Borrower pursuant to Section 3.4(d)) to any Issuing Lender or Swingline Lender hereunder; third , to be held as security for any L/C Shortfall (without duplication of any cash collateral provided by the Borrower pursuant to Section 3.4(d)) in a cash collateral account to be established by, and under the sole dominion and control of, the Administrative Agent; fourth , as the Borrower may request (so long as no Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement; fifth , if so determined by the Administrative Agent and the Borrower, to be held in a deposit account and released in order to satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under this Agreement; sixth , to the payment of any amounts owing to the Lenders, the Issuing Lenders or Swingline Lenders as a result of any final non-appealable judgment of a court of competent jurisdiction obtained by any Lender, the Issuing Lenders or Swingline Lenders against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; seventh , so long as no Default exists, to the payment of any amounts owing to the Borrower as a result of any final non-appealable judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; and eighth , to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (x) such payment is a payment of the principal amount of any Loans or L/C Disbursements in respect of which such Defaulting Lender has not fully funded its appropriate share, and (y) such Loans were made or the related Letters of Credit were issued at a time when the conditions set forth in Section 5.2 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and L/C Disbursements owed to, all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or L/C Disbursements owed to, such Defaulting Lender until such time as all Loans and funded and unfunded participations in L/C Obligations and Swingline Loans are held by the Lenders pro rata in accordance with the Commitments under the applicable Facility without giving effect to Sections 2.7(f) and 3.4(d).  Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to be held as security in a cash collateral account pursuant to this Section 2.26(b) shall be deemed paid to and redirected by such Defaulting Lender and shall satisfy the Borrower’s payment obligation in respect thereof in full, and each Lender irrevocably consents hereto.

 

58



 

SECTION 3.           LETTERS OF CREDIT

 

3.1           L/C Commitment .  (a)  Subject to the terms and conditions hereof, each Issuing Lender of a Class, in reliance on the agreements of the other Revolving Lenders of such Class set forth in Section 3.4(a), agrees to issue letters of credit (“ Letters of Credit ”) under the Revolving Commitments of such Class for the account of the Borrower or any Guarantor on any Business Day during the Revolving Commitment Period in such form as may be approved from time to time by such Issuing Lender; provided that no Issuing Lender shall have any obligation to issue any Letter of Credit if, after giving effect to such issuance, (i) the L/C Obligations of both Classes taken together would exceed the L/C Commitment or (ii) the aggregate amount of the Available Revolving Commitments of such Class would be less than zero.  Each Letter of Credit shall (i) be denominated, in the case of the Dollar Revolving Commitments, in Dollars, or in the case of the Multicurrency Revolving Commitments, in Dollars or in any Agreed Foreign Currency and (ii) expire no later than the earlier of (x) the first anniversary of its date of issuance and (y) the date that is three Business Days prior to the Revolving Termination Date (unless cash collateralized or backstopped, in each case in a manner agreed to by the Borrower and the Issuing Lender); provided that 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).

 

(b)           No Issuing Lender shall at any time be obligated to issue any Letter of Credit (or amend, renew or extend an outstanding Letter of Credit) if such issuance (or such amendment, renewal or extension) would conflict with, or cause such Issuing Lender to exceed any limits imposed by, any applicable Requirement of Law.

 

3.2           Procedure for Issuance of Letter of Credit .  The Borrower may from time to time request that the relevant Issuing Lender issue a Letter of Credit (or amend, renew or extend an outstanding Letter of Credit) by delivering to such Issuing Lender at its address for notices specified to the Borrower by such Issuing Lender an Application therefor, completed to the reasonable satisfaction of such Issuing Lender, and such other certificates, documents and other papers and information as such Issuing Lender may reasonably request.  Upon receipt of any Application, the relevant 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 (or amend, renew or extend, as the case may be) the Letter of Credit requested thereby (but in no event without the consent of the applicable Issuing Lender shall any Issuing Lender be required to issue (or amend, renew or extend, as the case may be) 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 (or such amendment, renewal or extension, as the case may be) to the beneficiary thereof or as otherwise may be agreed to by such Issuing Lender and the Borrower.  Such Issuing Lender shall furnish a copy of such Letter of Credit to the Borrower promptly following the issuance (or such amendment, renewal or extension, as the case may be) thereof.  Each Issuing Lender shall promptly furnish to the Administrative Agent, which shall in turn promptly furnish to the relevant Lenders, notice of the issuance (or such amendment, renewal or extension, as the case may be) of each Letter of Credit issued by it (including the amount and Currency thereof).

 

3.3           Fees and Other Charges .  (a) The Borrower will pay a fee on each outstanding Letter of Credit of each Class requested by it, at a per annum rate equal to the Applicable Margin then in effect with respect to Eurocurrency Loans under the Revolving Facility (minus the fronting fee referred to below), on the face amount of such Letter of Credit, which fee shall be shared ratably among the Revolving Lenders of such Class and payable quarterly in arrears on each Fee Payment Date after the issuance date; provided that, with respect to any Defaulting Lender, such Lender’s ratable share of any

 

59



 

letter of credit fee accrued on the aggregate amount available to be drawn on any outstanding Letters of Credit during the period prior to the time such Lender became a Defaulting Lender and unpaid at such time shall not be payable by the Borrower so long as such Lender shall be a Defaulting Lender except to the extent that such Lender’s ratable share of any letter of credit fee shall otherwise have been due and payable by the Borrower prior to such time; provided further that any Defaulting Lender’s ratable share of any letter of credit fee accrued on the aggregate amount available to be drawn on any outstanding Letters of Credit shall accrue for the account of each Non-Defaulting Lender with respect to such Defaulting Lender’s participation in Letters of Credit which has been reallocated to such Non-Defaulting Lender pursuant to Section 3.4(d) and with respect to any L/C Shortfall either (i) if the Borrower has paid to the Administrative Agent, an amount of cash or Cash Equivalent equal to the amount of the L/C Shortfall to be held as security for all obligations of the Borrower to the Issuing Lenders hereunder in a cash collateral account to be established by, and under the sole dominion and control of, the Administrative Agent, for the account of the Borrower or (ii) otherwise, for the account of the Issuing Lenders, in each case so long as such Lender shall be a Defaulting Lender.  In addition, the Borrower shall pay to each Issuing Lender of a Class for its own account a fronting fee on the aggregate face amount of all outstanding Letters of Credit of such Class issued by it to the Borrower of 0.25% per annum, payable quarterly in arrears on each Fee Payment Date after the issuance date.

 

(b)           In addition to the foregoing fees, the Borrower shall pay or reimburse each Issuing Lender for such normal and customary costs and expenses agreed to by the Borrower and such Issuing Lender in issuing, negotiating, effecting payment under, amending or otherwise administering any Letter of Credit requested by the Borrower.

 

3.4           L/C Participations .  (a) Each Issuing Lender of a Class irrevocably agrees to grant and hereby grants to each L/C Participant of such Class, and, to induce such Issuing Lender to issue Letters of Credit of such Class, each L/C Participant of such Class irrevocably agrees to accept and purchase and hereby accepts and purchases from such Issuing Lender, on the terms and conditions set forth below, for such L/C Participant’s own account and risk an undivided interest equal to such L/C Participant’s Dollar Revolving Percentage or Multicurrency Revolving Percentage, as the case may be, in such Issuing Lender’s obligations and rights under and in respect of each Letter of Credit of the applicable Class issued by it and the amount of each draft paid by such Issuing Lender thereunder.  Each L/C Participant of a Class agrees with each Issuing Lender of such Class that, if a draft is paid under any Letter of Credit of such Class issued by it for which such Issuing Lender is not reimbursed in full by the Borrower in accordance with the terms of this Agreement, such L/C Participant shall pay to the Administrative Agent for the account of such Issuing Lender upon demand an amount equal to such L/C Participant’s Dollar Revolving Percentage or Multicurrency Revolving Percentage, as the case may be, of the amount of such draft, or any part thereof, that is not so reimbursed (“ L/C Disbursements ”); provided that nothing in this paragraph shall relieve the Issuing Lender of any liability resulting from gross negligence or willful misconduct of such Issuing Lender.  Each L/C Participant’s obligation to pay such amount shall be absolute and unconditional and shall not be affected by any circumstance, including (i) any setoff, counterclaim, recoupment, defense or other right that such L/C Participant may have against any Issuing Lender, the Borrower or any other Person for any reason whatsoever, (ii) the occurrence or continuance of a Default or an Event of Default or the failure to satisfy any of the other conditions specified in Section 5, (iii) any adverse change in the financial condition of the Borrower, (iv) any breach of this Agreement or any other Loan Document by the Borrower, any other Loan Party or any other L/C Participant or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing

 

(b)           If any amount required to be paid by any L/C Participant to the Administrative Agent for the account of any Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion of any payment made by such Issuing Lender under any Letter of Credit is paid to the

 

60



 

Administrative Agent for the account of such Issuing Lender within three Business Days after the date such payment is due, such L/C Participant shall pay to the Administrative Agent for the account of such 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 such 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 Administrative Agent for the account of the relevant Issuing Lender by such L/C Participant within three Business Days after the date such payment is due, such 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 ABR Loans under the Revolving Facility.  A certificate of the relevant Issuing Lender submitted to any relevant L/C Participant with respect to any amounts owing under this Section shall be presumptively correct in the absence of manifest error.

 

(c)           Whenever, at any time after any 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) such Issuing Lender receives any payment related to such Letter of Credit (whether directly from the Borrower or otherwise, including proceeds of collateral applied thereto by such Issuing Lender), or any payment of interest on account thereof, such Issuing Lender will distribute to the Administrative Agent for the account of such L/C Participant its pro rata share thereof; provided , however , that in the event that any such payment received by such Issuing Lender shall be required to be returned by such Issuing Lender, such L/C Participant shall return to the Administrative Agent for the account of such Issuing Lender the portion thereof previously distributed by such Issuing Lender to it.

 

(d)           Notwithstanding anything to the contrary contained in this Agreement, in the event an L/C Participant becomes a Defaulting Lender, then such Defaulting Lender’s Revolving Percentage in all outstanding Letters of Credit will automatically be reallocated among the L/C Participants that are Non-Defaulting Lenders pro rata in accordance with each Non-Defaulting Lender’s Revolving Percentage (calculated without regard to the Revolving Commitment of the Defaulting Lender) but only to the extent that no Default or Event of Default shall have occurred and be continuing at the time of such reallocation (provided, that such amounts shall be automatically reallocated upon the cure or waiver of such Default or Event of Default) and that such reallocation does not cause the Revolving Extensions of Credit of any Non-Defaulting Lender to exceed the Revolving Commitment of such Non-Defaulting Lender.  If such reallocation cannot, or can only partially be effected, the Borrower shall, within five Business Days after written notice from the Administrative Agent, pay to the Administrative Agent, an amount of cash equal to such Defaulting Lender’s Revolving Percentage (calculated as in effect immediately prior to it becoming a Defaulting Lender) of the L/C Obligations (after giving effect to any partial reallocation pursuant to the first sentence of this Section 3.4(d)) to be held as security for all obligations of the Borrower to the Issuing Lenders hereunder in a cash collateral account to be established by, and under the sole dominion and control of, the Administrative Agent.  So long as there is a Defaulting Lender, an Issuing Lender shall not be required to issue any Letter of Credit where the sum of the Non-Defaulting Lenders’ Revolving Percentage, as applicable, of the outstanding Revolving Loans, Swingline Loans and their participations in Letters of Credit after giving effect to any such requested Letter of Credit would exceed (such excess, the “ L/C Shortfall ”) the aggregate Revolving Commitments of the Non-Defaulting Lenders, unless the Borrower shall pay to the Administrative Agent, an amount of cash or Cash Equivalents equal to the amount of the L/C Shortfall, such cash or Cash Equivalents to be held as security for all obligations of the Borrower to the Issuing Lenders hereunder in a cash collateral account to be established by, and under the sole dominion and control of, the Administrative Agent.

 

3.5           Reimbursement Obligation of the Borrower .  The Borrower agrees to reimburse each Issuing Lender on the Business Day following the date on which such Issuing Lender notifies the

 

61



 

Borrower of the date and amount of a draft presented under any Letter of Credit issued by such Issuing Lender at the Borrower’s request and paid by such Issuing Lender for the amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs or expenses incurred by such Issuing Lender in connection with such payment (the amounts described in the foregoing clauses (a) and (b) in respect of any drawing, collectively, the “ Payment Amount ”); provided that if such notice is given to the Borrower before 11:00 A.M., New York City time, the Borrower agrees to reimburse such Issuing Lender on the Business Day when such notification was given.  Each such payment shall be made to such Issuing Lender at its address for notices specified to the Borrower and in immediately available funds.  Interest shall be payable on any such amounts from the date on which the relevant draft is paid until payment in full at a rate equal to (i) until the second Business Day next succeeding the date of the relevant notice, the rate applicable to ABR Loans under the Revolving Facility and (ii) thereafter, the rate set forth in Section 2.15(c).

 

3.6           Obligations Absolute .  The Borrower’s 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 that the Borrower may have or have had against any Issuing Lender, any beneficiary of a Letter of Credit or any other Person.  The Borrower also agrees with each Issuing Lender that such Issuing Lender shall not be responsible for, and the Borrower’s 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 Borrower 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 such Borrower against any beneficiary of such Letter of Credit or any such transferee, or any other events or circumstances that, pursuant to applicable law or the applicable customs and practices promulgated by the International Chamber of Commerce, are not within the responsibility of such Issuing Lender, except for errors, omissions, interruptions or delays resulting from the gross negligence or willful misconduct of such Issuing Lender or its employees or agents.  No Issuing Lender shall 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, omissions, interruptions or delays resulting from the gross negligence or willful misconduct of such Issuing Lender or its employees or agents.  The Borrower agrees that any action taken or omitted by any 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 Borrower and shall not result in any liability of such Issuing Lender to the Borrower.

 

3.7           Letter of Credit Payments .  If any draft shall be presented for payment under any Letter of Credit, the relevant Issuing Lender shall promptly notify the Borrower of the date and amount thereof.  The responsibility of such Issuing Lender to the Borrower in connection with any draft presented for payment under any Letter of Credit issued by such Issuing Lender 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.

 

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, Holdings and the Borrower hereby jointly represent and

 

62



 

warrant (as to itself and each of its Subsidiaries) to the Agents and each Lender, which representations and warranties shall be deemed made on the Closing Date and on the date of each borrowing of Loans or issuance of a Letter of Credit hereunder that:

 

4.1           Financial Condition .  The audited consolidated balance sheet of Holdings and its Subsidiaries as at September 30, 2008, September 30, 2009 and September 30, 2010, and the related 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 PricewaterhouseCoopers LLP, present fairly in all material respects the financial condition of Holdings and its Subsidiaries, as at such date, and the results of, their operations, their cash flows and their changes in stockholders’ equity for the respective fiscal years then ended.  The unaudited consolidated balance sheet of Holdings and its Subsidiaries as at December 31, 2010, and the related unaudited statements of income and of cash flows for the three-months ended on such date present fairly in all material respects the financial condition of Holdings and its Subsidiaries, as at such date, and the results of, their operations, their cash flows and their changes in stockholders’ equity for the three-month period then ended (subject to normal year-end audit adjustments and the lack of footnotes).  All such financial statements, including the related schedules and notes thereto and year end adjustments, have been prepared in accordance with GAAP (except as otherwise noted therein).

 

4.2           No Change .  There has been no event, development or circumstance since September 30, 2010 that has had or will have a Material Adverse Effect.

 

4.3           Existence; Compliance with Law .  Each of Holdings and its Restricted Subsidiaries (other than any Immaterial Subsidiaries) (a) (i) is duly organized (or incorporated), validly existing and in good standing (or, only where if applicable, the equivalent status in any foreign jurisdiction) under the laws of the jurisdiction of its organization or incorporation, (ii) has the corporate or organizational 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 except where the failure to do so would not reasonably be expected to have a Material Adverse Effect and (iii) is duly qualified as a foreign corporation or limited liability company and in good standing (where such concept is relevant) under the laws of each jurisdiction where its ownership, lease or operation of Property or the conduct of its business requires such qualification except, in each case, to the extent that the failure to be so qualified or in good standing (where such concept is relevant) would not have a Material Adverse Effect and (b) is in compliance with all Requirements of Law except to the extent that any such failure to comply therewith would not have a Material Adverse Effect.

 

4.4           Corporate Power; Authorization; Enforceable Obligations .  Each Loan Party has the corporate power and authority to make, deliver and perform the Loan Documents to which it is a party and, in the case of the Borrower, to borrow or have Letters of Credit issued hereunder.  Each Loan Party has taken all necessary corporate or other action to authorize the execution, delivery and performance of the Loan Documents to which it is a party and, in the case of the Borrower, to authorize the extensions of credit on the terms and conditions of this Agreement.  Except as would not have a Material Adverse Effect, no consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority is required in connection with the extensions of credit hereunder or the execution, delivery, performance, validity or enforceability of this Agreement or any of the other Loan Documents, except (i) consents, authorizations, filings and notices described in Schedule 4.4, which consents, authorizations, filings and notices have been obtained or made and are in full force and effect or the failure to obtain which would not reasonably be expected to have a Material Adverse Effect and (ii) the filings referred to in Section 4.17.  Each Loan Document has been duly executed and delivered on behalf of each Loan Party that is a party thereto.  This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal, valid and binding obligation of each Loan Party that is a party thereto, enforceable against each such Loan Party in accordance with its terms, except as

 

63



 

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) and the implied covenants of good faith and fair dealing.

 

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 and the use of the proceeds thereof will not (a) violate the organizational or governing documents of any of the Loan Parties, (b) except as would not have a Material Adverse Effect, violate any Requirement of Law or any Contractual Obligation of Holdings or any of its Restricted Subsidiaries or (c) except as would not have a Material Adverse Effect, 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 permitted by Section 7.3).

 

4.6           No Material Litigation .  No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of Holdings and the Borrower, likely to be commenced within a reasonable time period against Holdings or any of its Restricted Subsidiaries or against any of their Properties or revenues which, taken as a whole, (a) are material and adverse with respect to any of the Loan Documents or (b) would reasonably be expected to have a Material Adverse Effect.

 

4.7           No Default .  No Default or Event of Default has occurred and is continuing.

 

4.8           Ownership of Property; Liens .  Except as set forth in Schedule 4.8A, each of Holdings and its Restricted 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 (other than Intellectual Property), in each case, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect, and none of such Property is subject to any Lien except as permitted by the Loan Documents.  Schedule 4.8B lists all real property which is owned or leased by any Loan Party as of the Closing Date.

 

4.9           Intellectual Property .  Each of Holdings and its Restricted Subsidiaries owns, or has a valid license to use, all Intellectual Property necessary for the conduct of its business as currently conducted free and clear of all Liens except as permitted by the Loan Documents, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect.  To Holdings’ or the Borrower’s knowledge, no holding, injunction, decision or judgment has been rendered by any Governmental Authority against Holdings or any of its Restricted Subsidiaries and neither Holdings nor any of its Restricted Subsidiaries has entered into any settlement stipulation or other agreement (except license agreements in the ordinary course of business) which would limit, cancel or question the validity of, Holdings’ or any Restricted Subsidiary’s rights in, any Intellectual Property in any respect that would reasonably be expected to have a Material Adverse Effect.  To Holdings’ or the Borrower’s knowledge, no claim has been asserted or threatened or is pending by any Person challenging or questioning the use by Holdings or its Restricted Subsidiaries of any Intellectual Property owned by the Borrower or any of its Restricted Subsidiaries or the validity or effectiveness of any Intellectual Property, except as would not reasonably be expected to have a Material Adverse Effect.  To the Borrower’s knowledge, the use of Intellectual Property by Holdings and its Restricted Subsidiaries does not infringe on the rights of any Person in a manner that would reasonably be expected to have a Material Adverse Effect.  Holdings and its Restricted Subsidiaries take all reasonable actions that in the exercise of their reasonable business judgment should be taken to protect their Intellectual Property, including Intellectual Property that is confidential in nature, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect.

 

64



 

4.10         Taxes .  Each of Holdings and its Restricted Subsidiaries (i) has filed or caused to be filed all federal, state, provincial and other tax returns that are required to be filed and (ii) has paid all taxes shown to be due and payable on said returns and all other taxes, fees or other charges imposed on it or any of its Property by any Governmental Authority (other than any amounts the validity of which are currently being contested in good faith by appropriate proceedings and with respect to which any reserves required in conformity with GAAP have been provided on the books of Holdings or such Restricted Subsidiary, as the case may be), except in each case where the failure to do so would not reasonably be expected to have a Material Adverse Effect.

 

4.11         Federal Regulations .  No part of the proceeds of any Loans, and no other extensions of credit hereunder, will be used for “buying” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U as now and from time to time hereafter in effect or for any purpose that violates the provisions of the regulations of the Board.  If requested by any Lender (through the Administrative Agent) or the Administrative Agent, the Borrower 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 U.

 

4.12         ERISA .  (a)  Except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect:  neither a Reportable Event nor an “accumulated funding deficiency” (within the meaning of Section 412(a) of the Code or Section 302(a)(2) of ERISA) has occurred during the five-year period prior to the date on which this representation is made with respect to any Plan, and each Plan has complied 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; neither Holdings nor any of its Restricted Subsidiaries has had a complete or partial withdrawal from any Multiemployer Plan that has resulted or would reasonably be expected to result in a liability under ERISA; neither Holdings nor any of its Restricted Subsidiaries would become subject to any liability under ERISA if Holdings or such Restricted Subsidiary were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made; and no Multiemployer Plan is in Reorganization or Insolvent.

 

(b)           Holdings and its Restricted Subsidiaries have not incurred, and do not reasonably expect to incur, any liability under ERISA or the Code with respect to any plan within the meaning of Section 3(3) of ERISA which is subject to Title IV of ERISA that is maintained by a Commonly Controlled Entity (other than Holdings and its Restricted Subsidiaries) (a “ Commonly Controlled Plan ”) merely by virtue of being treated as a single employer under Title IV of ERISA with the sponsor of such plan that would reasonably be likely to have a Material Adverse Effect and result in a direct obligation of Holdings and its Restricted Subsidiaries to pay money.

 

4.13         Investment Company Act .  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.

 

4.14         Subsidiaries .  (a)  The Subsidiaries listed on Schedule 4.14 constitute all the Subsidiaries of Holdings at the Closing Date.  Schedule 4.14 sets forth as of the Closing Date the name and jurisdiction of incorporation of each Subsidiary and, as to each Subsidiary, the percentage of each class of Capital Stock owned by any Loan Party and the designation of such Subsidiary as a Restricted Subsidiary or an Unrestricted Subsidiary.

 

65


 

(b)           As of the Closing Date, except as set forth on Schedule 4.14, there are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (other than stock options granted to officers, employees or directors and directors’ qualifying shares) of any nature relating to any Capital Stock of Borrower or any of Holdings’ Restricted Subsidiaries.

 

4.15         Environmental Matters .  Other than exceptions to any of the following that would not reasonably be expected to have a Material Adverse Effect:  none of Holdings or any of its Restricted Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law for the operation of the Business; or (ii) has become subject to any Environmental Liability.

 

4.16         Accuracy of Information, etc.   As of the Closing Date, no statement or information (excluding the projections and pro forma financial information referred to below) contained in this Agreement, any other Loan Document or any certificate 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 when taken as a whole, contained as of the date such statement, information, or certificate was so furnished, 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, in light of the circumstances under which they were made, not materially misleading.  As of the Closing Date, 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 Holdings to be reasonable at the time made, in light of the circumstances under which they were made, it being recognized by the Lenders that such financial information as it relates to future events is not to be viewed as fact 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.

 

4.17         Security Documents .  (a)  The Guarantee and Collateral Agreement is effective to create in favor of the Collateral Agent for the benefit of the Secured Parties, a legal, valid and enforceable first priority security interest in the Collateral described therein ( including any proceeds of any item of Collateral); provided that for purposes of this Section 4.17(a), Collateral shall be deemed to exclude any Property expressly excluded from the definition of “Collateral” as set forth in the Guarantee and Collateral Agreement, including, without limitation, Deposit Accounts (as defined in the Guarantee and Collateral Agreement).  In the case of (i) the Pledged Securities described in the Guarantee and Collateral Agreement, when any stock certificates or notes, as applicable, representing such Pledged Securities are delivered to the Collateral Agent and (ii) the other Collateral described in the Guarantee and Collateral Agreement, when financing statements in appropriate form are filed in the offices specified on Schedule 4.17 (which financing statements have been duly completed and executed (as applicable) and delivered to the Collateral Agent) and such other filings as are specified on Schedule 3 to the Guarantee and Collateral Agreement are made, the Collateral Agent shall have a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral (including any proceeds of any item of Collateral) (to the extent a security interest in such Collateral can be perfected through the filing of financing statements in the offices specified on Schedule 4.17 and the filings specified on Schedule 3 to the Guarantee and Collateral Agreement, and through the delivery of the Pledged Securities required to be delivered on the Closing Date), as security for the Obligations, in each case prior and superior in right to any other Person (except (i) in the case of Collateral other than Pledged Stock, Liens permitted by Section 7.3 and (ii) Liens having priority by operation of law) to the extent required by the Guarantee and Collateral Agreement.

 

(b)           Upon the execution and delivery of any Mortgage to be executed and delivered pursuant to Section 6.8(b), such Mortgage shall be effective to create in favor of the Collateral Agent for the benefit of the Secured Parties a legal, valid and enforceable Lien on the mortgaged property described

 

66



 

therein and proceeds thereof, 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) and the implied covenants of good faith and fair dealing; and when such Mortgage is filed in the recording office designated by the Borrower, such Mortgage shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such mortgaged property 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 (other than Liens permitted by Section 7.3 or other encumbrances or rights permitted by the relevant Mortgage).

 

4.18         Solvency .  As of the Closing Date, the Loan Parties, taken as a whole, and after giving effect to the incurrence of all Indebtedness and obligations being incurred in connection herewith and therewith will be, Solvent.

 

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 (or waiver), prior to or concurrently with the making of such extension of credit on the Closing Date, of the following conditions precedent:

 

(a)           Credit Agreement; Security Documents .  The Administrative Agent shall have received (i) this Agreement, executed and delivered by the Administrative Agent, the Collateral Agent, Holdings, the Borrower, the Joint Lead Arrangers and the initial Lenders party hereto, (ii) the Guarantee and Collateral Agreement, executed and delivered by Holdings, the Borrower and each Subsidiary Guarantor and (iii) an Acknowledgement and Consent in the form attached to the Guarantee and Collateral Agreement executed and delivered by each Issuer (as defined therein), if any, that is not a Loan Party.

 

(b)           Fees .  The Agents, the Joint Lead Arrangers and the Joint Bookrunners shall have received all fees required to be paid (including those to be passed on to the Lenders), and all reasonable out-of-pocket expenses of the Agents for which reasonably detailed invoices have been presented (including reasonable fees, disbursements and other charges of counsel to the Administrative Agent), on or before the Closing Date.

 

(c)           Solvency Certificate .  The Administrative Agent shall have received a solvency certificate signed by the chief financial officer on behalf of Holdings, substantially in the form of Exhibit G hereto.

 

(d)           Lien Searches .  The Collateral Agent shall have received the results of a recent lien search in each of the jurisdictions in which Uniform Commercial Code financing statements or other filings or recordations should be made to evidence or perfect security interests in all assets of the Loan Parties, and such search shall reveal no liens on any of the assets of the Loan Party, except for Liens permitted by Section 7.3 or liens to be discharged on or prior to the Closing Date.

 

(e)           Closing Certificate .  The Administrative Agent shall have received a certificate of each of the Loan Parties, dated the Closing Date, substantially in the form of Exhibit C, with appropriate insertions and attachments.

 

67



 

(f)            Legal Opinions .  The Administrative Agent shall have received an executed legal opinion of Latham & Watkins LLP, counsel to Holdings and its Subsidiaries, substantially in the form of Exhibit E.

 

(g)           Pledged Stock; Stock Powers .  The Collateral Agent shall have received the certificates representing the shares, if any, of Capital Stock of the Borrower 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.

 

(h)           Filings, Registrations and Recordings .  Each Security Document (including, without limitation, any Uniform Commercial Code financing statement) required by the Security Documents to be filed, registered or recorded in order to create in favor of the Collateral Agent for the benefit of the Secured Parties, a perfected Lien on the Collateral described therein with the priority provided for in the Security Documents, shall have been delivered to the Collateral Agent in proper form for filing, registration or recordation.  To the extent the perfection of the Collateral Agent’s security interest in real property may not be accomplished on or prior to the Closing Date after the Borrower’s use of commercially reasonable efforts to do so, then the perfection of the security interest in such real property shall not constitute a condition precedent to the availability of the Facilities on the Closing Date, but, instead, may be accomplished within a period after the Closing Date reasonably acceptable to the Borrower and the Collateral Agent.

 

(i)            Insurance .  The Administrative Agent shall have received insurance certificates satisfying the requirements of Section 6.5(c).

 

(j)            First Lien Credit Agreement and Second Lien Credit Agreement .  The Administrative Agent shall have received evidence reasonably satisfactory that the First Lien Credit Agreement and the Second Lien Credit Agreement have been or concurrently with the Closing Date are being repaid in full and all commitments to lend or make other extensions of credit thereunder have been terminated and all liens securing such indebtedness or other obligations thereunder have been released and/or terminated.

 

(k)           KYC Information .  At least five Business Days prior to the Closing Date, the Administrative Agent shall have received all documentation and other information required by bank regulatory authorities under applicable “know-your-customer” and anti-money laundering rules and regulations, including the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001) the “ PATRIOT Act ”); provided that such information has been reasonably requested in writing by the Administrative Agent at least ten Business Days prior to the Closing Date.

 

5.2           Conditions to Each Extension of Credit .  The agreement of each Lender to make any Loan or to issue or participate in any Letter of Credit hereunder on any date (including, without limitation, its initial extension of credit) is subject to the satisfaction of the following conditions precedent:

 

(a)           Representations and Warranties .  (i) Each of the representations and warranties made by any Loan Party in or pursuant to the Loan Documents shall be true and correct in all material respects, in each case on and as of such date as if made on and as of such date except to the extent that such representations and warranties relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date.

 

68



 

(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 Borrower hereunder shall constitute a representation and warranty by Holdings 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

 

Each of Holdings and the Borrower (on behalf of itself and each of its Restricted Subsidiaries) hereby agrees that, so long as the Commitments remain in effect, any Letter of Credit remains outstanding (that has not been cash collateralized or backstopped) or any Loan or other amount is owing to any Lender or any Agent hereunder (other than (i) contingent or indemnification obligations not then due and (ii) obligations in respect of Specified Hedge Agreements), Holdings and the Borrower shall and shall cause each of its Restricted Subsidiaries to:

 

6.1           Financial Statements .  Furnish to the Administrative Agent for delivery to each Lender (which may be delivered via posting on Intralinks or another similar electronic platform):

 

(a)           Within 120 days after the end of each fiscal year of Holdings, commencing with the fiscal year ended September 31, 2011, a copy of the audited consolidated balance sheet of Holdings 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, setting forth in each case in comparative form the figures as of the end of and for the previous year, reported on without qualification arising out of the scope of the audit, by PricewaterhouseCoopers LLP or other independent certified public accountants of nationally recognized standing; and

 

(b)           as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of Holdings, commencing with the fiscal quarter ended March 31, 2011, the unaudited consolidated balance sheet of Holdings and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures as of the end of and for the corresponding period in the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments and the absence of footnotes);

 

all such financial statements to be complete and correct in all material respects and to 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 and except in the case of the financial statements referred to in clause (b), for customary year-end adjustments and the absence of footnotes).

 

The Borrower may satisfy its obligations under Section 6.1(a) in respect of any fiscal year of Holdings by furnishing Holdings’ annual report on Form 10-K for such year and under Section 6.1(b) in respect of any fiscal quarter of any fiscal year of Holdings by furnishing Holdings’ quarterly report on Form 10-Q for such quarter, in each case, as filed with the SEC.

 

Documents required to be delivered pursuant to this Section 6.1 may be delivered by posting such documents electronically with notice of such posting to the Administrative Agent and each

 

69



 

Lender and if so posted, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s website on the Internet at www.wescoair.com (or such other website as the Borrower shall designate in writing to the Administrative Agent), or (ii) on which such documents are posted on the Borrower’s behalf on IntraLinks/IntraAgency or another relevant website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent).

 

6.2           Certificates; Other Information .  Furnish to the Administrative Agent for delivery to each Lender, or, in the case of clause (f), to the relevant Lender:

 

(a)           to the extent permitted by the internal policies of such independent certified public accountants, concurrently with the delivery of the financial statements referred to in Section 6.1(a), a certificate of the independent certified public accountants in customary form 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 each set of consolidated financial statements pursuant to Sections 6.1(a) and 6.1(b), (i) a certificate of a Responsible Officer on behalf of Holdings stating that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate.  (ii) (x) if applicable for such period, a Compliance Certificate containing all information and calculations necessary for determining compliance by Holdings and its Subsidiaries with the provisions of Section 7.1 as of the last day of the fiscal quarter or fiscal year of Holdings, as the case may be, and (y) to the extent not previously disclosed to the Administrative Agent, a description of any new Subsidiary and of any change in the jurisdiction of organization of any other Loan Party and a listing of any material United States Intellectual Property filings 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) and (iii) the related consolidating financial statements reflecting the adjustments necessary to eliminate the accounts of Unrestricted Subsidiaries (if any) from such consolidated financial statements;

 

(c)           as soon as available, but in any event not later than 60 days after the end of each fiscal year of Holdings, a detailed consolidated budget for the following fiscal year (including a projected consolidated balance sheet of Holdings and its Subsidiaries as of the end of the following fiscal year and the related consolidated statements of projected cash flow and projected income;

 

(d)           promptly after the same are sent, copies of all financial statements and material reports that Holdings or the Borrower sends to the holders of any class of its debt securities or public equity securities (except for Permitted Investors) and, promptly after the same are filed, copies of all financial statements and reports that Holdings or the Borrower may make to, or file with, the SEC, in each case to the extent not already provided pursuant to Section 6.1 or any other clause of this Section 6.2;

 

(e)           promptly upon delivery thereof to Holdings or the Borrower and to the extent permitted, copies of any accountants’ letters addressed to its Board of Directors (or any committee thereof); and

 

70



 

(f)            promptly, such additional financial and other information as the Administrative Agent (for its own account or upon the request from any Lender) may from time to time reasonably request.

 

Notwithstanding anything to the contrary in this Section 6.2, (a) none of Holdings, the Borrower or any of the Restricted Subsidiaries will be required to disclose any document, information or other matter that (i) constitutes non-financial trade secrets or non-financial proprietary information, (ii) in respect of which disclosure to the Administrative Agent or any Lender (or their respective representatives or contractors) is prohibited by Requirements of Law or any binding agreement, (iii) is subject to attorney-client or similar privilege or constitutes attorney work product or (iv) constitutes classified information and (b) unless such material is identified in writing by the Borrower as “Public Side” information, the Administrative Agent shall deliver such information only to “private-side” Lenders (i.e., Lenders that have affirmatively requested to receive material non-public information with respect to any Loan Party or its securities for purposes of United States federal or state securities laws); provided that there is no requirement that the Borrower identify any such information as “Public Side.”

 

Documents required to be delivered pursuant to this Section 6.2 may be delivered by posting such documents electronically with notice of such posting to the Administrative Agent and each Lender and if so posted, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s website on the Internet at www.wescoair.com (or such other website as the Borrower shall designate in writing to the Administrative Agent), or (ii) on which such documents are posted on the Borrower’s behalf on IntraLinks/IntraAgency or another relevant website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent).

 

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 taxes, governmental assessments and governmental charges (other than Indebtedness), except (a) where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves required in conformity with GAAP with respect thereto have been provided on the books of Holdings or its Subsidiaries, as the case may be, or (b) to the extent that failure to pay or satisfy such obligations would not reasonably be expected to have a Material Adverse Effect.

 

6.4           Conduct of Business and Maintenance of Existence, etc.; Compliance .  (a) Preserve, renew and keep in full force and effect its corporate or other existence and 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 or except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (b) comply with all Requirements of Law except to the extent that failure to comply therewith would not 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 reasonably good working order and condition, ordinary wear and tear excepted, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.

 

(b)           Take all reasonable and necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office or the United States Copyright Office, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of the material United States Intellectual Property owned by the Borrower or its Restricted Subsidiaries, including, without limitation, filing of applications for renewal, affidavits of use and

 

71



 

affidavits of incontestability, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.

 

(c)           Maintain insurance with financially sound and reputable insurance companies on all its material 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.  All such insurance shall, to the extent customary (but in any event, not including business interruption insurance and personal injury insurance) (i) provide that no cancellation thereof shall be effective until at least 10 days after receipt by the Administrative Agent of written notice thereof and (ii) name the Administrative Agent as insured party or loss payee.

 

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 material financial dealings and transactions in relation to its business and activities, (b) permit representatives of any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records upon reasonable notice and during normal business hours ( provided that such visits shall be coordinated by the Administrative Agent, and in no event shall there be more than one such visit per year except during the continuance of an Event of Default), (c) permit representatives of any Lender to have reasonable discussions regarding the business, operations, properties and financial and other condition of Holdings and its Restricted Subsidiaries with officers and employees of Holdings and its Restricted Subsidiaries and (d) permit representatives of the Administrative Agent to have reasonable discussions regarding the business, operations, properties and financial and other condition of Holdings and its Restricted Subsidiaries with its independent certified public accountants; provided that a Responsible Officer of Holdings shall be present during such discussion and any such discussions with Holdings’ independent certified public accountants at Holdings’ expense shall, except while an Event of Default has occurred and is continuing, be limited to one meeting per calendar year.

 

6.7           Notices .  Promptly upon a Responsible Officer of Holdings or any Loan Party obtaining knowledge thereof, give notice to the Administrative Agent (who shall promptly notify each Lender) of:

 

(a)           the occurrence of any Default or Event of Default;

 

(b)           any litigation, investigation or proceeding which may exist at any time between Holdings or any of its Restricted Subsidiaries and any other Person, that in either case, could reasonably be expected to have a Material Adverse Effect;

 

(c)           the following events, that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, as soon as possible and in any event within 30 days after Holdings or any Restricted Subsidiary knows 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, (ii) the institution of proceedings or the taking of any other action by the PBGC or Holdings or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any Plan or (iii) the occurrence of any similar events with respect to a Commonly Controlled Plan, that would reasonably be likely to result in a direct obligation of Holdings or any of its Restricted Subsidiaries to pay money;

 

72



 

(d)           any development or event that has had or could reasonably be expected to have a Material Adverse Effect; and

 

(e)           the acquisition of any Property after the Closing Date in which the Collateral Agent does not already have a perfected security interest and in which a security interest is required to be created or perfected pursuant to Section 6.8.

 

Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action Holdings or the relevant Restricted Subsidiary proposes to take with respect thereto.

 

6.8           Additional Collateral, etc .  (a) With respect to any Property (other than Vehicles, bank accounts, cash, Cash Equivalents, Foreign Cash Equivalents and other assets expressly excluded from the Collateral pursuant to the Security Documents) located in the United States having a value, individually or in the aggregate of at least $5,000,000 acquired after the Closing Date by any Loan Party (other than (x) any interests in real property and any Property described in paragraph (c) of this Section, (y) any Property subject to a Lien expressly permitted by Section 7.3(g) or (bb) and (z) Instruments, Certificated Securities, Securities and Chattel Paper, which are referred to in the last sentence of this paragraph (a)) as to which the Collateral Agent for the benefit of the Secured Parties does not have a perfected Lien, promptly (i) give notice of such Property to the Collateral Agent and execute and deliver to the Collateral Agent such amendments to the Guarantee and Collateral Agreement or such other documents as the Collateral Agent reasonably requests to grant to the Collateral Agent for the benefit of the Secured Parties a security interest in such Property and (ii) take all actions reasonably requested by the Collateral Agent to grant to the Collateral Agent for the benefit of the Secured Parties a perfected security interest (to the extent required by the Security Documents and with the priority required by Section 4.17) in such Property (with respect to Property of a type owned by a Loan Party as of the Closing Date to the extent the Collateral Agent for the benefit of the Secured Parties, has a perfected security interest in such Property as of the Closing Date), 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 reasonably requested by the Collateral Agent.  If any amount in excess of $5,000,000 payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument, Certificated Security, Security or Chattel Paper (or, if more than $5,000,000 in the aggregate payable under or in connection with the Collateral shall become evidenced by Instruments, Certificated Securities, Securities or Chattel Paper), such Instrument, Certificated Security, Security or Chattel Paper shall be promptly delivered to the Collateral Agent indorsed in a manner reasonably satisfactory to the Collateral Agent to be held as Collateral pursuant to this Agreement.

 

(b)           With respect to any fee interest in any real property located in the United States having a value (together with improvements thereof) of at least $5,000,000 acquired after the Closing Date by any Loan Party (other than any such real property subject to a Lien expressly permitted by Section 7.3(g) or (bb)), (i) give notice of such acquisition to the Collateral Agent and, if requested by the Collateral Agent execute and deliver a first priority Mortgage (subject to liens permitted by Section 7.3) in favor of the Collateral Agent for the benefit of the Secured Parties, covering such real property ( provided that no Mortgage nor survey shall be obtained if the Collateral Agent determines in consultation with the Borrower that the costs of obtaining such Mortgage or survey are excessive in relation to the value of the security to be afforded thereby), (ii) if reasonably requested by the Collateral Agent (A) provide the Lenders with a lenders’ title insurance policy with extended coverage covering such real property in an amount at least equal to the purchase price of such real property (or such other amount as shall be reasonably specified by the Collateral Agent) as well as a current ALTA survey thereof, together with a surveyor’s certificate unless the title insurance policy referred to above shall not

 

73



 

contain an exception for any matter shown by a survey (except to the extent an existing survey has been provided and specifically incorporated into such title insurance policy), each in form and substance reasonably satisfactory to the Collateral Agent, and (B) use commercially reasonable efforts to obtain any consents or estoppels reasonably deemed necessary by the Collateral Agent, in connection with such Mortgage, each of the foregoing in form and substance reasonably satisfactory to the Collateral Agent and (iii) if requested by the Collateral Agent deliver to the Collateral Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Collateral Agent.

 

(c)           Except as otherwise contemplated by Section 7.7(p), with respect to any new Domestic Subsidiary that is a Material Subsidiary (and is not an Excluded Subsidiary) created or acquired after the Closing Date (which, for the purposes of this paragraph, shall include (x) any previously non-wholly owned Domestic Subsidiary that becomes wholly owned and is a Material Subsidiary (and is not an Excluded Subsidiary) and (y) any Domestic Subsidiary that was previously an Immaterial Subsidiary or an Unrestricted Subsidiary and becomes a Material Subsidiary (and is not an Excluded Subsidiary) or a Restricted Subsidiary, as applicable) by any Loan Party, promptly (i) give notice of such acquisition or creation to the Collateral Agent and, if requested by the Collateral Agent, execute and deliver to the Collateral Agent such amendments to the Guarantee and Collateral Agreement or such other documents as the Collateral Agent reasonably deems necessary to grant to the Collateral Agent for the benefit of the Secured Parties a perfected security interest (to the extent required by the Security Documents and with the priority required by Section 4.17) in the Capital Stock of such new Subsidiary that is owned by such Loan Party, (ii) deliver to the Collateral Agent the certificates, if any, representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of such Loan Party, and (iii) if such new Subsidiary is a wholly owned Domestic Subsidiary (and is not an Excluded Subsidiary), 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 Collateral Agent for the benefit of the Secured Parties a perfected security interest (to the extent required by the Security Documents and with the priority required by Section 4.17) in the Collateral described in the Guarantee and Collateral Agreement with respect to such new Subsidiary (to the extent the Collateral Agent, for the benefit of the Secured Parties, has a perfected security interest in the same type of Collateral as of the Closing Date), 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 reasonably requested by the Collateral Agent.

 

(d)           With respect to any new first tier Foreign Subsidiary that is a Material Subsidiary (and is not an Excluded Subsidiary other than by reason of being a Foreign Subsidiary) created or acquired after the Closing Date (which, for the purposes of this paragraph, shall include any first-tier Foreign Subsidiary that previously was an Immaterial Subsidiary or an Unrestricted Subsidiary and becomes a Material Subsidiary or a Restricted Subsidiary, as applicable, and is not an Excluded Subsidiary other than by reason of being a Foreign Subsidiary) by any Loan Party, and with respect to any Subsidiary that was an Excluded Subsidiary but has ceased to be an Excluded Subsidiary, promptly (i) give notice of such acquisition or creation to the Collateral Agent and, if requested by the Collateral Agent, execute and deliver to the Collateral Agent such amendments to the Guarantee and Collateral Agreement or such other documents as the Collateral Agent deems necessary or reasonably advisable in order to grant to the Collateral Agent, for the benefit of the Secured Parties, a perfected security interest (to the extent required by the Security Documents and with the priority required by Section 4.17) in the Capital Stock (other than Excluded Capital Stock as defined in the Guarantee and Collateral Agreement) of such Subsidiary that is owned by such Loan Party ( provided that in no event shall more than 65% of the total outstanding voting Capital Stock of any Foreign Subsidiary be required to be so pledged), and (ii) to the extent permitted by applicable law, deliver to the Collateral Agent the certificates, if any, representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by

 

74



 

a duly authorized officer of such Loan Party, and take such other action as may be necessary or, in the reasonable opinion of the Collateral Agent, necessary to perfect or ensure appropriate priority the Lien of the Collateral Agent thereon.

 

(e)           Notwithstanding anything in this Section 6.8 to the contrary, neither Holdings nor any of its Restricted Subsidiaries shall be required to take any actions in order to perfect the security interest granted to the Collateral Agent for the ratable benefit of the Secured Parties under the laws of any jurisdiction outside the United States.

 

6.9           Further Assurances .  Maintain the security interest created by the Security Documents as a perfected security interest having at least the priority described in Section 4.17 (to the extent such security interest can be perfected through the filing of UCC-1 financing statements, the Intellectual Property filings to be made pursuant to Schedule 3 of the Guarantee and Collateral Agreement or the delivery of Pledged Securities required to be delivered under the Guarantee and Collateral Agreement), subject to the rights of the Loan Parties under the Loan Documents to dispose of the Collateral.  From time to time the Loan Parties shall execute and deliver, or cause to be executed and delivered, such additional instruments, certificates or documents, and take all such actions, as the Collateral Agent may reasonably request for the purposes of implementing or effectuating the provisions of this Agreement and the other Loan Documents, or of renewing the rights of the Secured Parties with respect to the Collateral as to which the Collateral Agent, for the ratable benefit of the Secured Parties, has a perfected Lien pursuant hereto or thereto, including, without limitation, filing any financing or continuation statements or financing change statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby.

 

6.10         Use of Proceeds .  The proceeds of the Tranche A Term Loans and the Tranche B Term Loans shall be used to repay the loans outstanding and other amounts owing under the First Lien Credit Agreement and the Second Lien Credit Agreement, to pay related fees and expenses and for other general corporate purposes of the Borrower and its Subsidiaries not prohibited by this Agreement.  The proceeds of the Revolving Loans, the Swingline Loans and the Letters of Credit shall be used to finance Permitted Acquisitions and Investments permitted hereunder and for other general corporate purposes of Holdings and its Subsidiaries not prohibited by this Agreement.

 

6.11         Changes in Jurisdictions of Organization; Name .  In the case of any change to the name or jurisdiction of organization of any Loan Party, promptly deliver to the Collateral Agent a written notice and any additional executed financing statements, financing change statements and other documents reasonably requested by the Collateral Agent to maintain the validity, perfection and priority of the security interests provided for in the Security Documents.

 

SECTION 7.           NEGATIVE COVENANTS

 

Each of Holdings and the Borrower (on behalf of itself and each of its Restricted Subsidiaries) hereby agrees that, so long as the Commitments remain in effect, any Letter of Credit remains outstanding (that has not been cash collateralized or backstopped) or any Loan or other amount is owing to any Lender or any Agent hereunder (other than (i) contingent or indemnification obligations not then due and (ii) obligations in respect of Specified Hedge Agreements), neither Holdings nor the Borrower shall, and shall not permit any of their respective Restricted Subsidiaries to:

 

75


 

7.1                                  Financial Condition Covenants .

 

(a)                                   Consolidated Total Leverage Ratio .  Permit the Consolidated Total Leverage Ratio of Holdings as at the last day of any period of four consecutive fiscal quarters of Holdings ending during any period set forth below to exceed the ratio set forth below opposite such period:

 

 

Period

 

Consolidated Total
Leverage Ratio

 

 

March 31, 2011 — March 31, 2013

 

4.00:1.00

 

 

June 30, 2013 — March 31, 2014

 

3.75:1.00

 

 

June 30, 2014 and thereafter

 

3.50:1.00

 

 

(b)                                  Consolidated Net Interest Coverage Ratio .  Permit the Consolidated Net Interest Coverage Ratio of Holdings to be less than 2.25:  1.00.

 

7.2                                  Indebtedness .  Create, issue, incur, assume, or suffer to exist any Indebtedness, except:

 

(a)                                   Indebtedness of any Loan Party pursuant to any Loan Document or Hedge Agreements;

 

(b)                                  Indebtedness (i) of Holdings or the Borrower to any of its Restricted Subsidiaries, (ii) of any Subsidiary Guarantor to Holdings or any Restricted Subsidiary and (iii) of any Non-Guarantor Subsidiary to any other Non-Guarantor Subsidiary and any refinancings, refundings, renewals or extensions thereof (without any increase (excluding accrued interest) in the principal amount thereof or any shortening of the maturity of any principal amount thereof);

 

(c)                                   Indebtedness (including, without limitation, Capital Lease Obligations) secured by Liens permitted by Section 7.3(g) in an aggregate principal amount not to exceed the greater of (a) $37,500,000 and (b) 4% of consolidated total assets of Holdings and its Restricted Subsidiaries at any one time outstanding;

 

(d)                                  Indebtedness outstanding on the date hereof and listed on Schedule 7.2(d) and any refinancings, replacements, refundings, renewals or extensions thereof (without any increase (excluding accrued interest and the amount of reasonable fees and expenses incurred and premiums paid in connection therewith) in the principal amount thereof or any shortening of the maturity of any principal amount thereof);

 

(e)                                   Guarantee Obligations (i) by Holdings or any of its Restricted Subsidiaries of obligations of any Loan Party, (ii) by any Non-Guarantor Subsidiary of obligations of any other Non-Guarantor Subsidiary;

 

(f)                                     Indebtedness of Non-Guarantor Subsidiaries in respect of local lines of credit, letters of credit, bank guarantees, factoring arrangements, sale/leaseback transactions and similar extensions of credit in the ordinary course of business not to exceed at any one time outstanding an aggregate principal amount equal to the sum of $45,000,000;

 

(g)                                  Indebtedness of Holdings or any of its Restricted Subsidiaries arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn by Holdings or such Restricted Subsidiary in the ordinary course of business against insufficient funds, so long as such Indebtedness is promptly repaid;

 

76



 

(h)                                  (i) Indebtedness of any Non-Guarantor Subsidiary to a Loan Party and (ii) Guarantee Obligations of the Loan Parties of Indebtedness for Borrowed Money of any joint venture or Non-Guarantor Subsidiaries, in an aggregate principal amount for all such Indebtedness and, without duplication, Guarantee Obligations not to exceed the greater of (a) (i) $45,000,000 and (ii) 4% of consolidated total assets of Holdings and its Restricted Subsidiaries at any one time outstanding plus (b) an amount equal to the Available Amount;

 

(i)                                      Indebtedness in the form of earn-outs, indemnification, incentive, non-compete, consulting or other similar arrangements and other contingent obligations in respect of acquisitions or Investments permitted by Section 7.8 (both before or after any liability associated therewith becomes fixed).

 

(j)                                      additional Indebtedness of Holdings or any of its Restricted Subsidiaries in an aggregate principal amount (for Holdings and all Restricted Subsidiaries) not to exceed $30,000,000 at any one time outstanding;

 

(k)                                   Indebtedness under a Permitted Seller Note issued as consideration in connection with an acquisition permitted under Section 7.8(f), in an aggregate principal amount not to exceed $45,000,000 at any one time outstanding;

 

(l)                                      Indebtedness of Holdings or any of its Restricted Subsidiaries in respect of workers’ compensation claims, bank guarantees, warehouse receipts or similar facilities, property casualty or liability insurance, take-or-pay obligations in supply arrangements, self-insurance obligations, performance, bid, customs, government, appeal and surety bonds, completion guaranties and other obligations of a similar nature, in each case in the ordinary course of business;

 

(m)                                Indebtedness incurred by Holdings or any of its Restricted Subsidiaries arising from agreements providing for indemnification related to sales of goods or adjustment of purchase price or similar obligations in any case incurred in connection with the disposition of any business, assets or Restricted Subsidiary of Holdings;

 

(n)                                  Indebtedness supported by a Letter of Credit, in a principal amount not in excess of the stated amount of such Letter of Credit;

 

(o)                                  Indebtedness issued in lieu of cash payments of Restricted Payments permitted by Section 7.6(b); provided that such Indebtedness is subordinated to the Obligations on terms reasonably satisfactory to the Administrative Agent;

 

(p)                                  unsecured, senior subordinated or subordinated Indebtedness of the Loan Parties (such Indebtedness and/or guarantees incurred under this clause (p) being collectively referred to as the “ Permitted Subordinated Indebtedness ”); provided that (i) no scheduled principal payments, prepayments, redemptions or sinking fund or like payments of any Permitted Subordinated Indebtedness shall be required prior to the date at least 180 days after the maturity date of the Tranche B Term Loans, (ii) the terms of any Permitted Subordinated Indebtedness shall not be more restrictive in any respect on the Loan Parties than the provisions of this Agreement, (iii) the terms of subordination applicable to any Permitted Subordinated Indebtedness shall be reasonably satisfactory to the Administrative Agent and shall, in any event, define “senior indebtedness” or a similar phrase for purposes thereof to include all of the Obligations of the Loan Parties, (iv) no Default or Event of Default shall have occurred and be continuing at the time of incurrence of such Indebtedness or would result therefrom and (v) the

 

77



 

pro forma Consolidated Total Leverage Ratio, after giving effect to the incurrence of such Permitted Subordinated Indebtedness (as if such Permitted Subordinated Indebtedness had been incurred on the first day of the most recently completed Test Period, shall not exceed 3.50:1.00;

 

(q)                                  Indebtedness of any Loan Party as an account party in respect of trade letters of credit issued in the ordinary course of business;

 

(r)                                     Indebtedness owing to any insurance company in connection with the financing of any insurance premiums permitted by such insurance company in the ordinary course of business;

 

(s)                                   Guarantee Obligations made in the ordinary course of business; provided that such Guarantees are not of Indebtedness for Borrowed Money and such Guarantee Obligations would not otherwise in the aggregate reasonably be expected to have a Material Adverse Effect;

 

(t)                                     Indebtedness of any Person that becomes a Restricted Subsidiary as part of a Permitted Acquisition or other permitted Investment after the Closing Date, and extensions, renewals, refinancings and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof or shorten maturity (other than by an amount not greater than accrued interest, fees and expenses, including premium and defeasance costs, associated therewith), add Holdings or any Restricted Subsidiary as a new obligor or new property of Holdings or any Restricted Subsidiary as security therefor or result in a decreased average weighted life thereof during the term of this Agreement; provided that (A) such acquired Indebtedness exists at the time such Person becomes a Restricted Subsidiary and is not created in contemplation of or in connection with such Person becoming a Restricted Subsidiary (except to the extent such acquired Indebtedness refinanced (and did not increase principal (except for accrued interest premium or fees) or shorten maturity during the term of this Agreement) other Indebtedness to facilitate such entity becoming a Restricted Subsidiary), (B) the aggregate principal amount of Indebtedness permitted by this clause (t) shall not at any one time outstanding exceed the greater of (a) $30,000,000 and (b) 2.5% of the consolidated total assets of Holdings and its Restricted Subsidiaries and (C) neither Holdings nor any Restricted Subsidiary shall be a new obligor therefor and no new property of Holdings or any Restricted Subsidiary shall provide security therefor;

 

(u)                                  Indebtedness of Holdings or any other Loan Party incurred to finance any acquisition or other Investment permitted under Section 7.8(f) in an aggregate amount for all such Indebtedness not to exceed the greater of (i) $75,000,000 and (ii) 6.5% of consolidated total assets

 

(v)                                  (i) Indebtedness representing deferred compensation or stock-based compensation to employees of Holdings or any Restricted Subsidiary incurred in the ordinary course of business and (ii) Indebtedness consisting of obligations of Holdings or any Restricted Subsidiary under deferred compensation or other similar arrangements incurred in connection with any Investment permitted hereunder;

 

(w)                                Indebtedness issued by Holdings or any Restricted Subsidiary to the officers, directors and employees of Holdings or any Restricted Subsidiary, in lieu of or combined with cash payments to finance the purchase of Capital Stock of Holdings or the Borrower, in each case, to the extent such purchase is permitted by Section 7.6(b);

 

78



 

(x)                                    Indebtedness in respect of overdraft facilities, employee credit card programs, netting services, automatic clearinghouse arrangements and other cash management and similar arrangements in the ordinary course of business; and

 

(y)                                  any accretion of interest paid in kind on obligations described in clauses (a) through (x) above.

 

7.3                                  Liens .  Create, incur, assume or suffer to exist any Lien upon any of its Property, whether now owned or hereafter acquired, except for:

 

(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 Holdings or its Restricted Subsidiaries, as the case may be, to the extent required by GAAP;

 

(b)                                  landlords’, 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 30 days or that are being contested in good faith by appropriate proceedings;

 

(c)                                   pledges, deposits or statutory trusts in connection with workers’ compensation, unemployment insurance and other social security legislation;

 

(d)                                  deposits and other Liens to secure the performance of bids, trade and other similar contracts (other than for borrowed money), leases, subleases, statutory obligations, surety judgment and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;

 

(e)                                   easements, zoning restrictions, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business that, in the aggregate, do not materially detract from the value of the Property subject thereto or materially interfere with the ordinary conduct of the business of Holdings or any of its Restricted Subsidiaries;

 

(f)                                     Liens in existence on the date hereof listed on Schedule 7.3(f) (or to the extent not listed on such Schedule 7.3(f), where the fair market value of the Property to which such Lien is attached is less than $2,000,000), securing Indebtedness permitted by Section 7.2(d) and Liens created after the date hereof in connection with any refinancing, refundings, or renewals or extensions thereof permitted by Section 7.2(d); provided that no such Lien is spread to cover any additional Property of Holdings or any Restricted Subsidiary after the Closing Date and that the amount of Indebtedness secured thereby is not increased;

 

(g)                                  (i) Liens securing Indebtedness of Holdings or any Restricted Subsidiary incurred pursuant to Sections 7.2(c), 7.2(f), 7.2(h), 7.2(j), 7.2(k), 7.2(n), 7.2(r), 7.2(t), or 7.2(u); provided that (A) in the case of any such Liens securing Indebtedness incurred pursuant to Sections 7.2(c), 7.2(k) or 7.2(u) to the extent incurred to finance Permitted Acquisitions or Investments permitted under Section 7.8, (x) such Liens shall be created substantially concurrently with the acquisition of the assets financed by such Indebtedness, (y) such Liens do not at any time encumber any Property of Holdings or any Restricted Subsidiary other than the Property financed by such Indebtedness and the proceeds thereof and (z) the principal amount of Indebtedness secured thereby is not increased, (B) in the case of any such Liens securing Indebtedness incurred pursuant to Section 7.2(r), such Liens do not encumber any Property other than cash paid to any such insurance company in respect of such insurance and (ii) any extension, refinancing, renewal

 

79



 

or replacement of the Liens described in clause (i) of this Section and (C) in the case of any such Liens securing Indebtedness incurred pursuant to Section 7.2(j), the principal amount of Indebtedness secured thereby shall not exceed $20,000,000;

 

(h)                                  Liens created pursuant to the Security Documents;

 

(i)                                      any interest or title of a lessor under any lease entered into by Holdings or any Restricted Subsidiary in the ordinary course of its business and covering only the assets so leased, and any financing statement filed in connection with any such lease;

 

(j)                                      (i) Liens arising from judgments in circumstances not constituting an Event of Default under Section 8(h);

 

(k)                                   Liens on property or assets acquired pursuant to an acquisition permitted under Section 7.8(f) (and the proceeds thereof) or assets of a Loan Party in existence at the time such Loan Party is acquired pursuant to an acquisition permitted under Section 7.8(f) and not created in contemplation thereof;

 

(l)                                      (i) Liens on Property of Non-Guarantor Subsidiaries securing Indebtedness or other obligations not prohibited by this Agreement to be incurred by such Non-Guarantor Subsidiaries and (ii) Liens securing Indebtedness or other obligations of Holdings or any Subsidiary in favor of any Loan Party;

 

(m)                                receipt of progress payments and advances from customers in the ordinary course of business to the extent same creates a Lien on the related inventory and proceeds thereof;

 

(n)                                  Liens in favor of customs and revenue authorities arising as a matter of law to secure the payment of customs duties in connection with the importation of goods;

 

(o)                                  Liens arising out of consignment or similar arrangements for the sale by Holdings and its Restricted Subsidiaries of goods through third parties in the ordinary course of business;

 

(p)                                  Liens solely on any cash earnest money deposits made by Holdings or any of its Restricted Subsidiaries in connection with an Investment permitted by Section 7.8;

 

(q)                                  Liens deemed to exist in connection with Investments permitted by Section 7.8(b) that constitute repurchase obligations;

 

(r)                                     Liens upon specific items of inventory or other goods and proceeds of Holdings or any of its Restricted Subsidiaries arising in the ordinary course of business securing such Person’s obligations in respect of bankers’ acceptances and letters of credit issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;

 

(s)                                   (i) cash deposits in favor of any Lender or any of their respective Affiliates securing any Hedge Agreement permitted hereunder and (ii) any other cash deposits in favor of any other party securing any Hedge Agreement permitted hereunder in an aggregate amount not to exceed $30,000,000 at any one time outstanding;

 

80



 

(t)                                     any interest or title of a lessor under any leases or subleases entered into by Holdings or any Restricted Subsidiary in the ordinary course of business and any financing statement filed in connection with any such lease;

 

(u)                                  Liens on cash and Cash Equivalents used to defease or satisfy and discharge Indebtedness; provided that such defeasance or satisfaction and discharge is not prohibited hereunder;

 

(v)                                  (i) Liens that are contractual rights of set-off (A) relating to the establishment of depository relations with banks not given in connection with the issuance of Indebtedness, (B) relating to pooled deposit or sweep accounts of Holdings or any Restricted Subsidiary to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Borrower and the Subsidiaries or (C) relating to purchase orders and other agreements entered into with customers of Holdings or any Restricted Subsidiary in the ordinary course of business and (ii) other Liens securing cash management obligations (that do not constitute Indebtedness) in the ordinary course of business;

 

(w)                                Liens arising solely by virtue of any statutory or common law provision relating to banker’s liens, rights of set-off or similar rights;

 

(x)                                    Liens on Capital Stock in joint ventures securing obligations of such joint venture;

 

(y)                                  Liens on securities that are the subject of repurchase agreements constituting Cash Equivalents;

 

(z)                                    Liens securing obligations in respect of trade-related letters of credit incurred in the ordinary course of business permitted under Section 7.2 and covering the goods (or the documents of title in respect of such goods) financed by such letters of credit and the proceeds and products thereof;

 

(aa)                             encumbrances shown as exceptions in the title insurance policies insuring the Mortgages that don’t materially impair the use or value of the Property subject thereto; and

 

(bb)                           other Liens with respect to obligations that do not exceed $20,000,000 at any one time outstanding.

 

7.4                                  Fundamental Changes .  Consummate 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, except that:

 

(a)                                   (i) any Restricted Subsidiary (other than the Borrower) may be merged, amalgamated or consolidated with or into Holdings or the Borrower ( provided that Holdings or the Borrower, as applicable, shall be the continuing or surviving corporation) or (ii) any Restricted Subsidiary (other than the Borrower) may be merged, amalgamated or consolidated with or into any Subsidiary Guarantor ( provided that (x) a Subsidiary Guarantor shall be the continuing or surviving corporation or (y) simultaneously with such transaction, the continuing or surviving corporation shall become a Subsidiary Guarantor and Holdings shall comply with Section 6.8 in connection therewith);

 

81



 

(b)                                  any Non-Guarantor Subsidiary may be merged or consolidated with or into, or be liquidated into, any other Non-Guarantor Subsidiary that is a Restricted Subsidiary;

 

(c)                                   Holdings or any Restricted Subsidiary (other than the Borrower) may Dispose of all or substantially all of its assets upon voluntary liquidation or otherwise (other than, in the case of Holdings, the Capital Stock of the Borrower) to any Loan Party; provided that, with respect to any such Dispositions by any Non-Guarantor Subsidiary to any Loan Party for consideration in excess of the fair value of such assets (such excess, the “ Excess Amount ”), the sum of, without duplication, (A) the aggregate amount of all such Excess Amounts, (B) the aggregate book value of all Property transferred pursuant to Section 7.5(h) to a Person other than a Loan Party, (C) the aggregate amount of all Differential Amounts in respect of Dispositions made pursuant to Section 7.5(l) and (D) the aggregate amount of all Investments made pursuant to Sections 7.8(h) and 7.8(q), shall not at any time while this Agreement is in effect exceed 4% of consolidated total assets of Holdings and its Restricted Subsidiaries (at the time of any transfer giving rise to any such amount or any such Investment);

 

(d)                                  any Non-Guarantor Subsidiary may Dispose of all or substantially all of its assets (upon voluntary liquidation, dissolution, winding-up or otherwise) to any other Non-Guarantor Subsidiary that is a Restricted Subsidiary;

 

(e)                                   Dispositions permitted by Section 7.5 may be consummated;

 

(f)                                     any Investment expressly permitted by Section 7.8 may be structured as a merger, consolidation or amalgamation; and

 

(g)                                  any Restricted Subsidiary may liquidate or dissolve if (i) Holdings determines in good faith that such liquidation or dissolution is in the best interest of Holdings and is not materially disadvantageous to the Lenders and (ii) to the extent such Restricted Subsidiary is a Loan Party, any assets or business of such Restricted Subsidiary not otherwise disposed of or transferred in accordance with Sections 7.4 or 7.5 or, in the case of any such business, discontinued, shall be transferred to, or otherwise owned or conducted by, a Loan Party after giving effect to such liquidation or dissolution.

 

7.5                                  Dispositions of Property .  Dispose of any of its owned Property (including, without limitation, receivables) whether now owned or hereafter acquired, or, in the case of any Restricted Subsidiary, issue or sell any shares of such Restricted Subsidiary’s Capital Stock to any Person, except:

 

(a)                                   (i) the Disposition of surplus, obsolete or worn out property in the ordinary course of business, (ii) the sale of defaulted receivables in the ordinary course of business, (iii) abandonment, cancellation or disposition of any Intellectual Property in the ordinary course of business and (iv) sales, leases or other dispositions of inventory determined by the management of the Borrower to be no longer useful or necessary in the operation of the business;

 

(b)                                  (i) the sale of inventory or other property in the ordinary course of business (including, without limitation, Dispositions to Flintbrook and Wesco Europe in accordance with past practices), (ii) the cross-licensing or non-exclusive licensing of Intellectual Property, in the ordinary course of business and (iii) the contemporaneous exchange, in the ordinary course of business, of Property for Property of a like kind (other than as set forth in clause (ii) above), to the extent that the Property received in such exchange is of a value equivalent to the value of the Property exchanged ( provided that after giving effect to such exchange, the value of the Property

 

82



 

of the Loan Parties subject to perfected first priority Liens in favor of the Collateral Agent under the Security Documents is not materially reduced);

 

(c)                                   Dispositions permitted by Section 7.4;

 

(d)                                  the sale or issuance of (i) any Subsidiary’s Capital Stock to any Loan Party; provided that the sale or issuance of Capital Stock of an Unrestricted Subsidiary to a Loan Party is otherwise permitted by Section 7.8 and (ii) the Capital Stock of any Non-Guarantor Subsidiary that is a Restricted Subsidiary to any other Non-Guarantor that is a Restricted Subsidiary, in each case, including, without limitation, in connection with any tax restructuring activities not otherwise prohibited hereunder;

 

(e)                                   the Disposition of other assets having a fair market value not to exceed 5% of consolidated total assets of Holdings and its Restricted Subsidiaries in the aggregate; provided that the requirements of Section 2.12(b), to the extent applicable, are complied with in connection therewith;

 

(f)                                     (i) any Recovery Event; provided that the requirements of Section 2.12(b) are complied with in connection therewith and (ii) any event that would constitute a Recovery Event but for the Dollar threshold set forth in the definition thereof;

 

(g)                                  the leasing, occupancy agreements or sub-leasing of Property that would not materially interfere with the required use of such Property by Holdings or its Restricted Subsidiaries;

 

(h)                                  Holdings and any Restricted Subsidiary may transfer for fair value Property (including Capital Stock of Subsidiaries (other than the Borrower)) to another Person in connection with a joint venture arrangement with respect to the transferred Property; provided that the sum of, without duplication, (A) the aggregate book value of all Property so transferred to any Person other than a Loan Party, (B) the aggregate amount of all Excess Amounts in respect of Dispositions made pursuant to Section 7.4(c), (C) the aggregate amount of all Differential Amounts in respect of Dispositions made pursuant to Section 7.5(l) and (D) the aggregate amount of all Investments made pursuant to Sections 7.8(h) and 7.8(q), shall not at any one time outstanding exceed 4% of consolidated total assets of Holdings and its Restricted Subsidiaries (at the time of any transfer giving rise to any such amount or any such Investment);

 

(i)                                      the sale or discount, in each case without recourse and in the ordinary course of business, of overdue accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof consistent with customary industry practice (and not as part of any bulk sale or financing of receivables);

 

(j)                                      transfers of condemned property as a result of the exercise of “eminent domain” or other similar policies to the respective Governmental Authority or agency that has condemned same (whether by deed in lieu of condemnation or otherwise), and transfers of properties that have been subject to a casualty to the respective insurer of such property as part of an insurance settlement;

 

(k)                                   the Disposition of any Immaterial Subsidiary or any Unrestricted Subsidiary;

 

(l)                                      Holdings and any Restricted Subsidiary may transfer Property (including Capital Stock of Subsidiaries (other than the Borrower)) for less than fair value (such difference, the

 

83



 

Differential Amount ”) of any Loan Party to any Non-Guarantor Subsidiary; provided that the sum of, without duplication, (A) the aggregate amount of all such Differential Amounts, (B) the aggregate amount of all Excess Amounts in respect of Dispositions made pursuant to Section 7.4(c), (C) the aggregate book value of all Property transferred to a Person other than a Loan Party pursuant to Section 7.5(h) and (D) the aggregate amount of all Investments made pursuant to Sections 7.8(h) and 7.8(q), shall not at any one time outstanding exceed 4% of consolidated total assets of Holdings and its Restricted Subsidiaries (at the time of any transfer giving rise to any such amount or any such Investment); provided , further , that any sale or issuance of Capital Stock of an Unrestricted Subsidiary to a Loan Party is otherwise permitted by Section 7.8;

 

(m)                                the transfer of Property (i) by any Loan Party to any other Loan Party or (ii) from a Non-Guarantor Subsidiary to (A) any Loan Party for no more than fair market value or (B) any other Non-Guarantor Subsidiary that is a Restricted Subsidiary; provided that any sale or issuance of Capital Stock of an Unrestricted Subsidiary to a Loan Party is otherwise permitted by Section 7.8;

 

(n)                                  the sale of Cash Equivalents and Foreign Cash Equivalents in the ordinary course of business;

 

(o)                                  sale and leaseback transactions permitted by Section 7.11;

 

(p)                                  Liens permitted by Section 7.3;

 

(q)                                  Restricted Payments permitted by Section 7.6;

 

(r)                                     Investments permitted by Section 7.8;

 

(s)                                   the factoring of receivables by Holdings or any of its Restricted Subsidiaries in accordance with past practice;

 

(t)                                     the sale or issuance of the Capital Stock of (i) any Foreign Subsidiary that is a Restricted Subsidiary to any other Foreign Subsidiary that is a Restricted Subsidiary or (ii) any Foreign Subsidiary that is an Unrestricted Subsidiary to any other Foreign Subsidiary that is an Unrestricted Subsidiary, in each case, including, without limitation, in connection with any tax restructuring activities not otherwise prohibited hereunder;

 

(u)                                  the sale or issuance of the Capital Stock of Holdings to the Permitted Investors; and

 

(v)                                  Dispositions of Investments in joint ventures to the extent required by, or made pursuant to, customary buy/sell arrangements between the joint venture parties set forth in joint venture agreements and similar binding arrangements; provided that the requirement of Section 2.12(b), to the extent applicable, are complied in connection therewith.

 

7.6                                  Restricted Payments .  Declare or pay any 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 Capital Stock of Holdings or any Restricted Subsidiary, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of Holdings or any Restricted Subsidiary, or enter into any derivatives or other transaction with any financial institution, commodities

 

84



 

or stock exchange or clearinghouse (a “ Derivatives Counterparty ”) obligating Holdings or any Restricted Subsidiary to make payments to such Derivatives Counterparty as a result of any change in market value of any such Capital Stock (collectively, “ Restricted Payments ”), except that:

 

(a)                                   any Restricted Subsidiary may make Restricted Payments to any Loan Party;

 

(b)                                  Restricted Payments in connection with the acquisition by Holdings of Holdings’ common stock or other equity interests relating to Holdings’ common stock from present or former officers, directors, consultants, agents or employees (or their estates, family members or former spouses) of Holdings or any Restricted Subsidiary upon the death, disability, retirement or termination of employment of the applicable officer, director, consultant, agent or employee or pursuant to any equity subscription agreement, stock option or equity incentive award agreement, shareholders’ or members’ agreement or similar agreement, plan or arrangement; provided that the aggregate amount of payments under this clause (b) in any fiscal year of Holdings shall not exceed the sum of (i) $11,250,000, plus (ii) any proceeds received by Holdings subsequent to the date hereof in connection with sales of any common stock or common stock options sold in connection with permitted employee compensation and incentive arrangements, plus (iii) any amounts received by Holdings in such fiscal year and (to the extent not used pursuant to this clause (b)) any prior fiscal years pursuant to key man life insurance policies plus (iv) any Restricted Payments permitted (but not made) pursuant to this clause (b) in the immediately prior fiscal year; provided, that cancellation of Indebtedness owing to Holdings or any Restricted Subsidiary by any member of management of Holdings or its Restricted Subsidiaries in connection with a repurchase of the Capital Stock of the Holdings or any parent company will not be deemed to constitute a Restricted Payment for purposes of this Section 7.6;

 

(c)                                   Non-Guarantor Subsidiaries may make Restricted Payments to other Non-Guarantor Subsidiaries;

 

(d)                                  Holdings may purchase fractional shares of its common stock arising out of stock dividends, splits or combinations or business combinations;

 

(e)                                   Restricted Payments to the extent made with the Available Amount;

 

(f)                                     Restricted Payments to make payments provided for in the Management Agreement;

 

(g)                                  Investments permitted by Section 7.8;

 

(h)                                  provided that no Default or Event of Default is continuing or would result therefrom, Holdings may make Restricted Payments in an aggregate amount not to exceed $20,000,000;

 

(i)                                      noncash repurchases of Capital Stock deemed to occur upon exercise of stock options or similar equity incentive awards if such Capital Stock represents a portion of the exercise price of such options or similar equity incentive awards;

 

(j)                                      to the extent constituting Restricted Payments, Holdings and its Restricted Subsidiaries may enter into and consummate transactions expressly permitted by any provision of Sections 7.4, 7.5, 7.8 and 7.10;

 

85


 

(k)                                   any non-wholly owned Restricted Subsidiary of Holdings may declare and pay cash dividends to its equity holders generally so long as Holdings or its respective Subsidiary which owns the equity interests in the Restricted Subsidiary paying such dividend receives at least its proportional share thereof (based upon its relative holding of the equity interests in the Restricted Subsidiary paying such dividends and taking into account the relative preferences, if any, of the various classes of equity interest of such Restricted Subsidiary); and

 

(l)                                      at any time after a Qualified IPO, provided that no Default or Event of Default is continuing or would result therefrom and the Consolidated Total Leverage Ratio shall not exceed 2.00 to 1.00 on a pro forma basis as of the end of the most recently ended Test Period for which financial statements have been delivered pursuant to Section 6.1, both immediately prior to and immediately after giving effect to such Restricted Payment, Holdings may make unlimited Restricted Payments.

 

7.7                                  [Reserved.] .

 

7.8                                  Investments .  Make any advance, loan, extension of credit (by way of guaranty or otherwise) or capital contribution to, or purchase any Capital Stock, bonds, notes, debentures or other debt securities of, or all or substantially all of the assets constituting an ongoing business from, or make any other investment in, any other Person (all of the foregoing, “ Investments ”), except:

 

(a)                                   extensions of trade credit in the ordinary course of business;

 

(b)                                  Investments in Cash Equivalents and Foreign Cash Equivalents and Investments that were Cash Equivalents or Foreign Cash Equivalents when made;

 

(c)                                   Investments arising in connection with (i) the incurrence of Indebtedness permitted by Sections 7.2(b), (e), (h) and (s) and (ii) guarantees by Holdings or any Restricted Subsidiary of operating leases (other than Capital Lease Obligations) or of other obligations that do not constitute Indebtedness, in each case entered into in the ordinary course of business;

 

(d)                                  loans and advances to employees, consultants or directors of Holdings or any of its Restricted Subsidiaries in the ordinary course of business in an aggregate amount (for Holdings and all Restricted Subsidiaries) not to exceed $4,500,000 (excluding (for purposes of such cap) tuition advances, travel and entertainment expenses, but including relocation expenses) at any one time outstanding;

 

(e)                                   Investments (other than those relating to the incurrence of Indebtedness permitted by Section 7.8(c)) by Holdings or any of its Restricted Subsidiaries in Holdings, the Borrower or any Person that, prior to such Investment, is a Subsidiary Guarantor or is a Domestic Subsidiary that becomes a Subsidiary Guarantor at the time of such Investment;

 

(f)                                     (i) Permitted Acquisitions to the extent that any Person or Property acquired in such acquisition becomes a Loan Party or a part of any Loan Party or becomes (whether or not such Person is a wholly owned Subsidiary) a Subsidiary Guarantor in the manner contemplated by Section 6.8(c) and (ii) other Permitted Acquisitions in an aggregate purchase price (other than purchase price paid through the Available Amount) not to exceed in any fiscal year an amount equal to the greater of (i) $75,000,000 and (ii) 6.5% of consolidated total assets;

 

(g)                                  loans by Holdings or any of its Restricted Subsidiaries to the employees, officers or directors of Holdings or any of its Restricted Subsidiaries in connection with management

 

86



 

incentive plans; provided that such loans represent cashless transactions pursuant to which such employees, officers or directors directly invest the proceeds of such loans in the Capital Stock of Holdings;

 

(h)                                  Investments by Holdings and its Restricted Subsidiaries in joint ventures or similar arrangements; provided , that the sum of, without duplication, (A) the aggregate amount of all such Investments, (B) the aggregate amount of all Excess Amounts in respect of Dispositions made pursuant to Section 7.4(c), (C) the aggregate book value of all Property transferred pursuant to Section 7.5(h), (D) the aggregate amount of all Differential Amounts in respect of Dispositions made pursuant to Section 7.5(l) and (E) the aggregate amount of all Investments made pursuant to Section 7.8(q), shall not at any one time outstanding exceed 4% of consolidated total assets of Holdings and its Restricted Subsidiaries (at the time of any transfer giving rise to any such amount or any such Investment);

 

(i)                                      Investments (including debt obligations) received in the ordinary course of business by Holdings or any Restricted Subsidiary in connection with the bankruptcy or reorganization of suppliers and customers and other Persons and in settlement of delinquent obligations of, and other disputes with, customers and suppliers and other Persons arising out of the ordinary course of business;

 

(j)                                      Investments (i) by any Non-Guarantor Subsidiary in any other Non-Guarantor Subsidiary;

 

(k)                                   Investments in existence on, or pursuant to legally binding written commitments in existence on, the Closing Date and listed on Schedule 7.8, in each case, any extensions or renewals thereof, so long as the amount of any Investment made pursuant to this clause (k) is not increased above the amount of such Investment set forth on Schedule 7.8;

 

(l)                                      Investments of Holdings or any Restricted Subsidiary under Hedge Agreements permitted hereunder;

 

(m)                                Investments of any Person in existence at the time such Person becomes a Restricted Subsidiary of Holdings; provided that such Investment was not made in connection with or in anticipation of such Person becoming a Restricted Subsidiary of Holdings;

 

(n)                                  Investments by the Loan Parties in the form of loans and advances to Non-Guarantor Subsidiaries permitted to be incurred by the Non-Guarantor Subsidiaries under Section 7.2(h);

 

(o)                                  Investments so long as the aggregate amount thereof (determined as the amount originally advanced, loaned or otherwise invested, less any returns on the respective Investment not to exceed the original amount invested) at no time exceeds the greater of:  (i) $37,500,000 and (ii) 4% of the consolidated total assets of Holdings and its Restricted Subsidiaries plus, in the case of clauses (i) and (ii), an amount equal to the Available Amount;

 

(p)                                  Subsidiaries may be established or created, if (i) to the extent such new Subsidiary is a Domestic Subsidiary, Holdings, the Borrower and such Subsidiary comply with the provisions of Section 6.8(c) and (ii) to the extent such new Subsidiary is a Foreign Subsidiary, Holdings complies with the provisions of Section 6.8(d), in each case, to the extent required thereunder; provided that, in each case, to the extent such new Subsidiary is created solely for the purpose of consummating a merger transaction pursuant to an acquisition permitted by

 

87



 

Section 7.8, and such new Subsidiary at no time holds any assets or liabilities other than any merger consideration contributed to it contemporaneously with the closing of such merger transactions, such new Subsidiary shall not be required to take the actions set forth in Sections 6.8(c) or 6.8(d), as applicable, until the respective acquisition is consummated (at which time the surviving entity of the respective merger transaction shall be required to so comply within ten Business Days or such longer period as Administrative Agent shall agree);

 

(q)                                  Investments by any Loan Party in any Non-Guarantor Subsidiary; provided , that the sum of, without duplication, (A) the aggregate amount of all such Investments, (B) the aggregate amount of all Excess Amounts in respect of Dispositions made pursuant to Section 7.4(c), (C) the aggregate book value of all Property transferred to any Person other than a Loan Party pursuant to Section 7.5(h), (D) the aggregate amount of all Differential Amounts in respect of Dispositions made pursuant to Section 7.5(l) and (E) the aggregate amount of all Investments made pursuant to Section 7.8(h), shall not at any time while this Agreement is in effect exceed 4% of consolidated total assets of Holdings and its Restricted Subsidiaries (at the time of any transfer giving rise to any such amount or any such Investment);

 

(r)                                     Investments arising directly out of the receipt by Holdings or any Restricted Subsidiary of non-cash consideration for any sale of assets permitted under Section 7.5; provided that such non-cash consideration shall in no event exceed 25% of the total consideration received for such sale;

 

(s)                                   Investments resulting from pledges and deposits referred to in Sections 7.3(c) and (d);

 

(t)                                     the forgiveness or conversion to equity of any Indebtedness permitted by Section 7.2(b);

 

(u)                                  any Investment in a Foreign Subsidiary to the extent such Investment is substantially contemporaneously repaid in full with a dividend or other distribution from such Foreign Subsidiary;

 

(v)                                  Guarantee Obligations permitted by Section 7.2 and any payments made in respect of such Guarantees Obligations;

 

(w)                                Investments consisting of licensing or contribution of Intellectual Property pursuant to joint marketing arrangements with other persons;

 

(x)                                    Investments in the ordinary course of business consisting of UCC Article 3 endorsements for collection or deposit and UCC Article 4 customary trade arrangements with customers consistent with past practice;

 

(y)                                  advances of payroll payments to employees, or fee payments to directors or consultants, in the ordinary course of business;

 

(z)                                    Investments constituting loans or advances to Holdings or a parent company in lieu of Restricted Payment permitted pursuant to Section 7.6 (and such loans and advances shall be deemed to be a utilization of the applicable baskets under Section 7.6); and

 

(aa)                             provided that (x) no Default or Event of Default is continuing or would result therefrom and (y) the Consolidated Total Leverage Ratio shall not exceed 2.00 to 1.00 as of the

 

88



 

end of the most recently ended Test Period for which financial statements have been delivered pursuant to Section 6.1, on a pro forma basis, immediately after giving effect to such Investment, any Investment.

 

It is further understood and agreed that for purposes of determining the value of any Investment outstanding for purposes of this Section 7.8, such amount shall be deemed to be the amount of such Investment when made, purchased or acquired less any returns on such Investment (not to exceed the original amount invested).

 

7.9                                  Optional Payments and Modifications of Certain Debt Instruments .  (a)  Make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption of, or otherwise voluntarily or optionally defease the principal of or interest on, or any other amount owing in respect of, any Permitted Subordinated Indebtedness, except any such payment, prepayment, repurchase, redemption or defeasance made (a) with the Available Amount or (b) so long as (x) the aggregate amount of all such payments, prepayments, repurchases, redemptions or defeasances after the Closing Date shall not exceed $50,000,000 and (y) immediately following each such payment, prepayment, repurchase, redemption or defeasance, the Consolidated Total Leverage Ratio shall not exceed 2.00 to 1.00 as of the end of the most recently ended Test Period for which financial statements have been delivered pursuant to Section 6.1, on a pro forma basis.

 

(b)                                  Amend, modify or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of any agreement or instrument governing or evidencing Permitted Subordinated Indebtedness relating to subordination, maturity, amortization or mandatory prepayment, repurchase, redemption or defeasance in any manner that is materially adverse to the Lenders without the prior consent of the Administrative Agent (with the approval of the Required Lenders).

 

7.10                            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 Holdings or its Restricted Subsidiaries) unless such transaction is (a) otherwise not prohibited under this Agreement and (b) upon fair and reasonable terms no less favorable to Holdings or such Restricted Subsidiary, as the case may be, than it would obtain in a comparable arm’s length transaction with a Person that is not an Affiliate.  Notwithstanding the foregoing, Holdings and its Restricted Subsidiaries may (i) pay to the Sponsor and its Affiliates fees, indemnities and expenses permitted by the Management Agreement; (ii) enter into and perform its obligations under the Management Rights Agreement; (iii) enter into any transaction with an Affiliate that is not prohibited by the terms of this Agreement to be entered into by Holdings or such Restricted Subsidiary with an Affiliate; and (iv) without being subject to the terms of this Section 7.10, enter into any transaction with any Person which is an Affiliate of Holdings only by reason of such Person and Holdings having common directors.  For the avoidance of doubt, this Section 7.10 shall not apply to employment, benefit, compensation, bonus, retention and severance arrangements with, and payments of compensation or benefits to or for the benefit of, current or former employees, officers or directors of Holdings or any of its Restricted Subsidiaries, including, without limitation, Randy Snyder.

 

7.11                            Sales and Leasebacks .  Enter into any arrangement with any Person providing for the leasing by Holdings or any Restricted Subsidiary of real or personal property which is to be sold or transferred by Holdings or such Restricted Subsidiary (a) to such Person or (b) 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 Holdings or such Restricted Subsidiary, except for (i) sales or transfers that do not exceed $30,000,000 in the aggregate at any one time outstanding, (ii) sales or transfers by any Loan Party to any other Loan Party, (iii) sales or transfers by any Non-Guarantor

 

89



 

Subsidiary to any other Non-Guarantor Subsidiary that is a Restricted Subsidiary and (iv) any such arrangement entered into in the ordinary course of business of Holdings and its Restricted Subsidiaries.

 

7.12                            Changes in Fiscal Periods .  Permit the fiscal year of Holdings to end on a day other than September 30.

 

7.13                            Negative Pledge Clauses .  Enter into any agreement that prohibits or limits the ability of Holdings or any of its Restricted Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its Property or revenues, whether now owned or hereafter acquired, to secure the Obligations or, in the case of any Guarantor, its obligations under the Guarantee and Collateral Agreement, other than (a) this Agreement and the other Loan Documents, (b) any agreements governing any purchase money Liens or Capital Lease Obligations otherwise permitted by this Agreement (in which case, any prohibition or limitation shall only be effective against the assets financed thereby and the proceeds thereof), (c) software and other Intellectual Property licenses pursuant to which Holdings or such Restricted Subsidiary is the licensee of the relevant software or Intellectual Property, as the case may be, (in which case, any prohibition or limitation shall relate only to the assets subject of the applicable license), (d) Contractual Obligations incurred in the ordinary course of business and on customary terms which limit Liens on the assets subject of the applicable Contractual Obligation, (e) any agreements regarding Indebtedness or other obligations of any Non-Guarantor Subsidiary not prohibited under Section 7.2 (in which case, any prohibition or limitation shall only be effective against the assets of such Non-Guarantor Subsidiary and its Subsidiaries), (f) prohibitions and limitations in effect on the date hereof and listed on Schedule 7.13, (g) customary provisions contained in joint venture agreements and other similar agreements applicable to joint ventures entered into in the ordinary course of business, (h) customary provisions restricting the subletting or assignment of any lease governing a leasehold interest, (i) customary restrictions and conditions contained in any agreement relating to an asset sale permitted by Sections 7.4 or 7.5, (j) any agreement in effect at the time any Person becomes a Subsidiary, so long as such agreement was not entered into in contemplation of such Person becoming a Subsidiary, (k) restrictions in any agreements or instruments relating to any Indebtedness permitted to be incurred by this Agreement (i) that are consistent with prevailing market practice for similar types of Indebtedness at the time such restrictions are incurred or (ii) to which the Administrative Agent has not objected after having been afforded a period of at least five Business Days to review such restrictions and (l) customary provisions restricting assignment of any agreement entered into in the ordinary course of business.

 

7.14                            Clauses Restricting Subsidiary Distributions .  Enter into any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (a) make Restricted Payments in respect of any Capital Stock of such Restricted Subsidiary held by, or pay any Indebtedness owed to, Holdings or any other Restricted Subsidiary or (b) make Investments in Holdings or any other Restricted Subsidiary, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing under the Loan Documents, (ii) any restrictions with respect to such Restricted Subsidiary imposed pursuant to an agreement that has been entered into in connection with the Disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary, (iii) any restrictions contained in agreements related to Indebtedness of any Non-Guarantor Subsidiary not prohibited under Section 7.2 (in which case such restriction shall relate only to such Indebtedness and/or such Non-Guarantor Subsidiary and its Restricted Subsidiaries) or Indebtedness secured by Liens permitted by Sections 7.3(g) and 7.3(bb), (iv) any restrictions regarding licenses or sublicenses by Holdings and its Restricted Subsidiaries of Intellectual Property in the ordinary course of business (in which case such restriction shall relate only to such Intellectual Property), (v) Contractual Obligations incurred in the ordinary course of business which include customary provisions restricting the assignment of any agreement relating thereto, (vi) customary provisions contained in joint venture agreements and other similar agreements applicable to joint ventures entered into in the ordinary course of business, (vii) customary provisions restricting the subletting or assignment of any lease governing a leasehold

 

90



 

interest, (viii) customary restrictions and conditions contained in any agreement relating to an asset sale permitted by Sections 7.4 or 7.5, (ix) any agreement in effect at the time any Person becomes a Restricted Subsidiary, so long as such agreement was not entered into in contemplation of such Person becoming a Restricted Subsidiary and (x) restrictions on cash or other deposits imposed by customers under contracts entered into in the ordinary course of business.

 

7.15                            Lines of Business .  Enter into any business, either directly or through any of its Restricted Subsidiaries, except for the Business or a business reasonably related thereto or that are reasonable extensions thereof.

 

7.16                            Limitation on Hedge Agreements .  Enter into any Hedge Agreement other than Hedge Agreements entered into in the ordinary course of business, and not for speculative purposes.

 

SECTION 8.                                 EVENTS OF DEFAULT

 

If any of the following events shall occur and be continuing:

 

(a)                                   The Borrower shall fail to pay (i) any principal of or premium on any Loan when due in accordance with the terms hereof, (ii) any principal of any Reimbursement Obligation within three Business Days after any such principal becomes due in accordance with the terms hereof or (iii) any interest owed by it on any Loan or Reimbursement Obligation, or any other amount payable by it hereunder or under any other Loan Document, within five Business 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 that 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 furnished; or

 

(c)                                   Any Loan Party shall default in the observance or performance of any covenant contained in Section 6.7(a) or Section 7; or

 

(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 after such Loan Party receives from the Administrative Agent or any Lender notice of the existence of such default; or

 

(e)                                   Holdings or any of its Restricted Subsidiaries shall (i) default in making any payment of any principal of any Indebtedness for Borrowed Money (excluding the Loans and Reimbursement Obligations) on the scheduled or original due date with respect thereto; or (ii) default in making any payment of any interest on any such Indebtedness for Borrowed Money beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness for Borrowed Money was created; or (iii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness for Borrowed Money or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event of default shall occur, the effect of which payment or other default or other event of default 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 for Borrowed Money to become due prior to its stated maturity or to become subject

 

91



 

to a mandatory offer to purchase by the obligor thereunder or to become payable; provided that (A) a default, event or condition described in this paragraph shall not at any time constitute an Event of Default unless, at such time, one or more defaults or events of default of the type described in this paragraph shall have occurred and be continuing with respect to Indebtedness for Borrowed Money the outstanding principal amount of which individually exceeds $25,000,000, and in the case of Indebtedness for Borrowed Money of the types described in clauses (i) and (ii) of the definition thereof, with respect to such Indebtedness which exceeds such amount either individually or in the aggregate and (B) this paragraph (e) shall not apply to (i) secured Indebtedness that becomes due as a result of the sale, transfer, destruction or other disposition of the Property or assets securing such Indebtedness for Borrowed Money if such sale, transfer, destruction or other disposition is not prohibited hereunder and under the documents providing for such Indebtedness or (ii) any Guarantee Obligations except to the extent such Guarantee Obligations shall become due and payable by any Loan Party and remain unpaid after any applicable grace period or period permitted following demand for the payment thereof; or

 

(f)                                     (i) Holdings or any of its Restricted Subsidiaries (other than Immaterial 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 Holdings or any of its Restricted Subsidiaries (other than any Immaterial Subsidiary) shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against Holdings or any of its Restricted Subsidiaries (other than any Immaterial Subsidiary) any case, proceeding or other action of a nature referred to in clause (i) above that (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 Holdings or any of its Restricted Subsidiaries (other than any Immaterial Subsidiary) any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against substantially all of its assets that results in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) Holdings or any of its Restricted Subsidiaries (other than any Immaterial Subsidiary) shall consent to or approve of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) Holdings or any of its Restricted Subsidiaries (other than any Immaterial Subsidiary) 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) Holdings or any of its Restricted Subsidiaries shall incur any liability in connection with 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 Holdings or any of its Restricted Subsidiaries, (iii) a Reportable Event 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 reasonably 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) Holdings or any of its Restricted Subsidiaries shall, or is reasonably likely to, incur any liability as a result of a withdrawal from, or the Insolvency or Reorganization of, a

 

92



 

Multiemployer Plan or (vi) any other event or condition (other than one which could not reasonably be expected to result in a violation of any applicable law or of the qualification requirements of the Code) shall occur or exist with respect to a Plan or a Commonly Controlled 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 reasonably be expected to result in a direct obligation of Holdings or any of its Restricted Subsidiaries to pay money that could have a Material Adverse Effect; or

 

(h)                                  One or more judgments or decrees shall be entered against Holdings or any of its Material Subsidiaries (which are not Unrestricted Subsidiaries) involving for Holdings and any Material Subsidiaries (which are not Unrestricted Subsidiaries) taken as a whole a liability (not paid or fully covered by insurance or effective indemnity) of $25,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or

 

(i)                                      Any of the Security Documents shall cease, for any reason (other than by reason of the express release thereof pursuant to Section 10.16), to be in full force and effect in any material respect, or any Loan Party shall so assert in writing, or any Lien on any material amount of Collateral created by any of the Security Documents shall cease in any material respect to be enforceable and of the same effect and priority purported to be created thereby; provided that there shall be no Event of Default under this clause (i) to the extent such Event of Default arises from (A) the resignation of the Agents or (B) the negligence or willful misconduct of the Agents following a reasonable request from Holdings or the Borrower to execute any document or take any other action relating to such Security Document or the Liens granted thereunder; or

 

(j)                                      (i) Holdings shall cease to own, directly or indirectly, 100% of the Capital Stock of the Borrower; (ii) at any time prior to a Qualified IPO, the Permitted Investors shall cease to own directly or indirectly, free and clear of all Liens, at least 50.1% of the Capital Stock of Holdings or (iii) at any time after a Qualified IPO, (x) a majority of the Board of Directors of Holdings shall not be Continuing Directors or (y) any “person” or “group” (within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934 as in effect on the Closing Date, but excluding any employee benefit plan of such person and its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of such plan, and excluding the Permitted Investors) shall become the “beneficial owner” (within the meaning of Rule 13d-3 and 13d-5 of the Securities Exchange Act of 1934 as in effect on the Closing Date), directly or indirectly, of more than the greater of (A) 35% of the then outstanding voting securities having ordinary voting power of Holdings and (B) the percentage of the then outstanding voting securities having ordinary voting power of Holdings owned, directly or indirectly, beneficially by the Permitted Investors (it being understood that if any such person or group includes one or more Permitted Investors, the outstanding voting securities having ordinary voting power of Holdings directly or indirectly owned by the Permitted Investors that are part of such person or group shall not be treated as being owned by such person or group for purposes of determining whether this clause (B) is triggered);

 

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 the Borrower, 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 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 Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower declare the Revolving Commitments

 

93



 

to be terminated forthwith, whereupon the Revolving 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 Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents to be due and payable forthwith, whereupon the same shall immediately become due and payable.  In the case of 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 Borrower 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 backstopped or been fully drawn upon, if any, shall be applied to repay other obligations of the Borrower hereunder and under the other Loan Documents.  After all such Letters of Credit shall have expired, backstopped or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Borrower then due and owing hereunder and under the other Loan Documents shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrower (or such other Person as may be lawfully entitled thereto).  Except as expressly provided above in this Section or otherwise in any Loan Document, presentment, demand and protest of any kind are hereby expressly waived by Holdings and the Borrower.

 

SECTION 9.                                 THE AGENTS

 

9.1                                  Appointment .  Each Lender hereby irrevocably designates and appoints each Agent as the agent of such Lender under the Loan Documents and each such Lender irrevocably authorizes each Agent, in such capacity, to take such action on its behalf under the provisions of the applicable Loan Documents and to exercise such powers and perform such duties as are expressly delegated to such Agent by the terms of the applicable Loan Documents, together with such other powers as are reasonably incidental thereto.

 

9.2                                  Delegation of Duties .  Each Agent may execute any of its duties under the applicable 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.  Neither 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 .  Notwithstanding any provision to the contrary elsewhere in this Agreement:

 

(a)                                   Neither Agent shall have any duties or obligations except those expressly set forth herein and in the other Loan Documents.  Without limiting the generality of the foregoing, each Agent:

 

(i)                                      shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or Event of Default has occurred and is continuing;

 

(ii)                                   shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that such Agent is required to exercise as directed in writing by the Required Lenders; provided that neither Agent shall be required to take any action that, in its opinion or the opinion of its counsel, may expose such Agent to liability or that is contrary to any Loan Document or applicable Law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture,

 

94



 

modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and

 

(iii)                                shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.

 

(b)                                  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 the Agents .  The Agents shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person.  The Agents also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon.  In determining compliance with any condition hereunder that by its terms must be fulfilled to the satisfaction of the Required Lenders (or, if so specified by this Agreement, all Lenders or the Majority Facility Lenders in respect of any Facility), each Agent may presume that such condition is satisfactory to the Required Lenders (or, if so specified by this Agreement, all Lenders or the Majority Facility Lenders in respect of any Facility) unless such Agent shall have received notice to the contrary from the Required Lenders (or, if so specified by this Agreement, all Lenders or the Majority Facility Lenders in respect of any Facility) prior to any such condition being fulfilled.

 

9.5                                  Notice of Default .  Neither Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless such Agent has received notice from a Lender, Holdings or the Borrower 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 an Agent receives such a notice, such Agent shall give notice thereof to the Lenders.  The Agents 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 or the Majority Facility Lenders in respect of any Facility); provided that unless and until such Agent shall have received such directions, such 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 acknowledges that it has, independently and without reliance upon the Agents or any other Lender and based on such

 

95


 

documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.  Each Lender also acknowledges that it will, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

 

9.7                                  Indemnification .  The Lenders agree to indemnify each Agent in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Aggregate Exposure Percentages in effect on the date on which indemnification is sought under this Section (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 Aggregate Exposure 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 that may at any time (whether before or after 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 that 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 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 accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for, and generally engage in any kind of business with, the Borrower or any Subsidiary or other Affiliate thereof as if such Agent were not an Agent hereunder and without any duty to account therefor to the Lenders.  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 in its capacity as a Lender as any other Lender and may exercise the same as though it were not an Agent, and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include each Person serving as an Agent hereunder in its individual capacity.

 

9.9                                  Successor Agents .

 

(a)                                   Any Agent may at any time give notice of its resignation to the Lenders and the Borrower.  Upon receipt of any such notice of resignation, the Required Lenders shall have the right, with the consent of the Borrower to appoint a successor, which shall be a bank with an office in New York, New York, or an Affiliate of such bank with an office in New York, New York, which successor agent shall (unless an Event of Default under Sections 8.1(a) or 8.1(f) with respect to the Borrower shall have occurred and be continuing) be subject to the approval of the Borrower (which approval shall not be unreasonably withheld or delayed).  If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation (or such earlier day as shall be agreed by the Required Lenders) (the “ Resignation Effective Date ”), then the retiring Agent may (but shall not be obligated to), on behalf of the Lenders, appoint a successor Agent meeting the qualifications set forth above.  Whether or not a successor has been appointed, such resignation shall become effective in accordance with such notice on the Resignation Effective Date.

 

96



 

(b)                                  If at any time either the Borrower or the Required Lenders determine that any Person serving as an Agent is a Defaulting Lender due to a bankruptcy event, the Borrower by notice to the Lenders and such Person or the Required Lenders by notice to the Borrower and such Person may remove such Person as an Agent.  If such Person is removed as an Agent, 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 the Borrower shall have occurred and be continuing) be subject to approval by the Borrower (which approval shall not be unreasonably withheld or delayed), whereupon such successor agent shall succeed to the rights, powers and duties of such retiring Agent, and the retiring Agent’s rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such retiring Agent or any of the parties to this Agreement or any holders of the Loans.  Such removal will, to the fullest extent permitted by applicable law, be effective on the date a replacement Agent is appointed.  If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days (or such earlier day as shall be agreed by the Required Lenders) (the “ Removal Effective Date ”), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.

 

(c)                                   With effect from the Resignation Effective Date or the Removal Effective Date (as applicable) (i) the retiring or removed Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any Collateral held by the Collateral Agent on behalf of the Lenders under any of the Loan Documents, the retiring or removed Collateral Agent shall continue to hold such Collateral until such time as a successor Collateral Agent is appointed) and (ii) all payments, communications and determinations provided to be made by, to or through the Agent shall instead be made by or to each Lender directly, until such time, if any, as the Required Lenders appoint a successor agent as provided for above.  Upon the acceptance of a successor agent’s appointment as Agent hereunder, such successor agent shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring or removed Agent, and the retiring or removed Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents.  The fees payable by the Borrower to a successor agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor agent.  After the retiring or removed Agent’s resignation or removal hereunder and under the other Loan Documents, the provisions of this Section and Section 9.7 shall continue in effect for the benefit of such retiring or removed Agent in respect of any actions taken or omitted to be taken by such Agent while such Agent was acting as an Agent.

 

9.10                            Authorization to Release Liens and Guarantees .  The Agents are hereby irrevocably authorized by each of the Lenders to effect any release or subordination of Liens or Guarantee Obligations contemplated by Section 10.16.

 

9.11                            Joint Lead Arrangers, Joint Bookrunners, Documentation Agent and Syndication Agent .  None of the Joint Lead Arrangers, the Joint Bookrunners,  the Documentation Agent nor the Syndication Agent shall have any duties or responsibilities hereunder in their respective capacities as such.

 

9.12                            Administrative Agent May File Proof of Claims .  In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to the Borrower, the Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered (but not obligated) by intervention in such proceeding or otherwise:

 

97



 

(a)                                   to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Sections 2.9 and 9.7, as applicable) allowed in such judicial proceeding; and

 

(b)                                  to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

 

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.9 and 9.7, as applicable.

 

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 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 or obligations of the Agents, the Swingline Lender, the Issuing Lenders, 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 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 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 premium payable hereunder (except (A) in connection with the waiver of applicability of any post default increase in interest rates and (B) that any amendment or modification of defined terms used in the financial covenants in this Agreement shall not constitute a reduction in the rate of interest or fees for purposes of this clause (i)) or extend the scheduled date of any payment thereof, or increase the amount or extend the expiration date of any Lender’s Revolving Commitment, in each case without the written consent of each Lender directly and adversely affected thereby; (ii) eliminate or reduce the voting rights of any Lender under this Section 10.1 without the written consent of such Lender; (iii) reduce any percentage specified in the definition of Required Lenders, consent to the assignment or transfer by the Borrower 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 (other than in connection with Dispositions permitted hereunder), in each case without the written consent of all Lenders; (iv) amend, modify or waive any provision of paragraph (a), (b) or (c) of Section 2.18 without the written consent of the Majority Facility Lenders in respect of each Facility adversely affected thereby; (v) reduce the percentage specified in the definition of Majority Facility Lenders with respect to any Facility without the written consent of all Lenders under such Facility; (vi) amend, modify or waive any provision of Section 9 without the written consent of the Agents; (vii) amend, modify or waive any provision of Sections 2.6 or 2.7 with respect to Swingline

 

98



 

Loans of any Class without the written consent of the Swingline Lender with respect to such Class; or (viii) amend, modify or waive any provision of Section 3 without the written consent of the Issuing Lenders.  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 Agents and all future holders of the Loans.  In the case of any waiver, the Loan Parties, the Lenders and the Agents 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 unless limited by the terms of such waiver; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon.  Notwithstanding anything to the contrary herein, no Defaulting Lender or Affiliate Lender (other than any Debt Fund Affiliate) shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent which by its terms requires the consent of all Lenders or each affected Lender may be effected with the consent of the applicable Lenders other than Defaulting Lenders or Affiliate Lenders (other than Debt Fund Affiliates)), except that (x) the Commitment of any Defaulting Lender or Affiliate Lender may not be increased or extended, the maturity of any of its Loans may not be extended, the rate of interest on any of its Loans may not be reduced and the principal amount of any of its Loans may not be forgiven, in each case without the consent of such Defaulting Lender or Affiliate Lender and (y) any waiver, amendment or modification that by its terms affects any Defaulting Lender or Affiliate Lender in its capacity as a Lender more adversely than other affected Lenders shall require the consent of such Defaulting Lender or Affiliate Lender.

 

Notwithstanding the foregoing, this Agreement may be amended (or amended and restated) with the written consent of the Required Lenders, the Agents, Holdings and the Borrower (a) to add one or more additional credit facilities to this Agreement (it being understood that no Lender shall have any obligation to provide or to commit to provide all or any portion of any such additional credit facility) and to permit the extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement and the other Loan Documents with the Term Loans and Revolving Extensions of Credit and the accrued interest and fees in respect thereof and (b) to include appropriately the Lenders holding such credit facilities in any determination of the Required Lenders and Majority Facility Lenders.

 

In addition, notwithstanding the foregoing, this Agreement may be amended with the written consent of the Agents, Holdings, the Borrower and the Lenders providing the relevant Replacement Term Loans (as defined below) to permit the refinancing of all or a portion of the outstanding Term Loans of any Class (“ Refinanced Term Loans ”) with a replacement term loan tranche hereunder (“ Replacement Term Loans ”); provided that (a) the aggregate principal amount of such Replacement Term Loans shall not exceed the aggregate principal amount of such Refinanced Term Loans plus accrued interest, fees, discounts, premiums and expenses, (b) the Applicable Margin for such Replacement Term Loans shall not be higher than the Applicable Margin for such Refinanced Term Loans, (c) the weighted average life to maturity of such Replacement Term Loans shall not be shorter than the weighted average life to maturity of such Refinanced Term Loans at the time of such refinancing and (d) all other terms applicable to such Replacement Term Loans shall be substantially identical to, or less favorable to the Lenders providing such Replacement Term Loans than, those applicable to such Refinanced Term Loans, except to the extent necessary to provide for covenants and other terms applicable to any period after the latest final maturity of the Term Loans in effect immediately prior to such refinancing.

 

In addition, notwithstanding the foregoing, this Agreement may be amended with the written consent of the Agents, Holdings, the Borrower and the Lenders providing the relevant Replacement Revolving Commitments (as defined below) to permit the refinancing of all or a portion of the outstanding Revolving Commitments of either Class (“ Refinanced Revolving Commitments ”) with a

 

99



 

replacement revolving tranche hereunder (“ Replacement Revolving Commitments ”); provided that (i) the aggregate amount of such Replacement Revolving Commitments shall not exceed the aggregate amount of such Refinanced Revolving Commitments, (ii) the maturity date or commitment termination date of such Replacement Revolving Commitments shall not be earlier than the maturity date or commitment termination date of such Refinanced Revolving Commitments at the time of such refinancing and (iii) all other terms applicable to such Replacement Revolving Commitments shall be substantially identical to, or less favorable to the Lenders providing such Replacement Revolving Commitments than, those applicable to such Refinanced Revolving Commitments, except to the extent necessary to provide for covenants and other terms applicable to any period after the final maturity of the Term Loans in effect immediately prior to such refinancing.

 

In addition, notwithstanding anything to the contrary herein (i) The Borrower may, by written notice to the Administrative Agent from time to time, make one or more offers (each, a “ Loan Modification Offer ”) to all of the Lenders of any Class to make one or more amendments or modifications to (A) allow the maturity and scheduled amortization of the Loans and/or Commitments of the Accepting Lenders (as defined below) to be extended and (B) increase the Applicable Margins and/or Applicable Commitment Fee Rate payable with respect to the Loans and Commitments of the Accepting Lenders (“ Permitted Amendments ”) pursuant to procedures reasonably specified by the Administrative Agent and reasonably acceptable to the Borrower.  Such notice shall set forth (i) the terms and conditions of the requested Permitted Amendment and (ii) the date on which such Permitted Amendment is requested to become effective.  Permitted Amendments shall become effective only with respect to the Loans and/or Commitments of the Lenders that accept the applicable Loan Modification Offer (such Lenders, the “ Accepting Lenders ”) and, in the case of any Accepting Lender, only with respect to such Lender’s Loans and/or Commitments as to which such Lender’s acceptance has been made.  The Borrower, each Loan Party and each Accepting Lender shall execute and deliver to the Administrative Agent an agreement containing the terms of the Permitted Amendments (a “ Loan Modification Agreement ”) and such other documentation as the Administrative Agent shall reasonably specify to evidence the acceptance of the Permitted Amendments and the terms and conditions thereof.  The Administrative Agent shall promptly notify each Lender as to the effectiveness of each Loan Modification Agreement.  Each of the parties hereto hereby agrees that, upon the effectiveness of any Loan Modification Agreement, this Agreement shall be deemed amended to the extent (but only to the extent) necessary to reflect the existence and terms of the Permitted Amendment evidenced thereby and only with respect to the Loans and Commitments of the Accepting Lenders as to which such Lenders’ acceptance has been made and (ii) any amendment or waiver of any provision of this Agreement or any other Loan Document, or consent to any departure by any Loan Party therefrom, that by its express terms amends or modifies the rights or duties under this Agreement or such other Loan Document of Lenders under a particular Facility (but not Lenders under any other Facility) and that would require Required Lender approval under Section 10.1 may be effected by an agreement or agreements in writing signed by the Company or the applicable Loan Party, as the case may be, and the Majority Facility Lenders under each affected Facility as if all such affected Lenders under the applicable Facility were the only Lenders hereunder at the time.

 

Furthermore, notwithstanding the foregoing, if following the Closing Date, the Administrative Agent and the Borrower shall have jointly identified an obvious error or any error or omission of a technical or immaterial nature, in each case, in any provision of this Agreement or any other Loan Document, then the Administrative Agent and the Borrower shall be permitted to amend such provision and such amendment shall become effective without any further action or consent of any other party to this Agreement or any other Loan Document if the same is not objected to in writing by the Required Lenders within five Business Days following receipt of notice thereof; it being understood that posting such amendment electronically on IntraLinks/IntraAgency or another relevant website with notice

 

100



 

of such posting by the Administrative Agent to the Required Lenders shall be deemed adequate receipt of notice of such amendment.

 

Notwithstanding anything to the contrary contained herein, in connection with any “Required Lender” or “Majority Facility Lender” votes, Lenders that are Debt Fund Affiliates shall not be permitted, in the aggregate to account for more than 50% of the amounts includable in determining whether the “Required Lenders” or “Majority Facility Lender” have consented to any amendment, modification, waiver, consent or other action that is subject to such vote.  The voting power of each Lender that is a Debt Fund Affiliate shall be reduced, pro rata, to the extent necessary in order to comply with the immediately preceding sentence.

 

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 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 Holdings, the Borrower, the Agents, 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:

 

 

Holdings:

Wesco Holdings, Inc.

27727 Avenue Scott

Valencia, California 91355
Attention: Greg Hann
Telecopy: (661) 295-1340

Telephone: (661) 775-7200

 

in each case with a copy to:

 

The Carlyle Group

1001 Pennsylvania Avenue, NW

Washington, DC 20004

Attention:  Dayne Baird

Telecopy: (202) 347-9250

Telephone: (202) 729-5463

 

 

 

 

With a copy to:

Latham & Watkins LLP

555 Eleventh Street, NW

Suite 1000

Washington, D.C. 20004

 

 

Attention: Jennifer Van Driesen

 

 

Telecopy: 202-637-2201

 

 

Telephone: 202-637-2252

 

 

 

 

The Borrower:

Wesco Aircraft Hardware Corp.

27727 Avenue Scott

Valencia, California 91355
Attention: Greg Hann
Telecopy: (661) 295-1340

Telephone: (661) 775-7200

 

in each case with a copy to:

 

The Carlyle Group

 

101



 

 

 

1001 Pennsylvania Avenue, NW

Washington, DC 20004

Attention:  Dayne Baird

Telecopy: (202) 347-9250

Telephone: (202) 729-5463

 

 

 

 

With a copy to:

Latham & Watkins LLP

555 Eleventh Street, NW

Suite 1000

Washington, D.C. 20004

 

 

Attention: Jennifer Van Driesen

 

 

Telecopy: 202-637-2201

 

 

Telephone: 202-637-2252

 

 

 

 

Agents:

Barclays Bank PLC

745 Seventh Avenue, 26th Floor

New York, NY 10019

 

 

Attention: Michael Mozer

 

 

Telecopy: 212-526-5115

 

With a copy to:

Telephone: 212-526-1456

Email: Michael.mozer@barcap.com

 

Barclays Bank PLC

1301 Avenue of the Americas

New York, NY 10019

 

 

Attention: Patrick Kerner

 

 

Telecopy: 917-522-0569

 

 

Telephone: 212-320-6927

Email: XraUSLoanOps5@barcap.com

 

provided that any notice, request or demand to or upon the Agents, the Lenders, Holdings or the Borrower shall not be effective until received.

 

Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Section 2 unless otherwise agreed by the Administrative Agent and the applicable Lender.  The Agents, Holdings or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

 

10.3                            No Waiver; Cumulative Remedies .  No failure to exercise and no delay in exercising, on the part of any 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 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.

 

102



 

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 and other extensions of credit hereunder.

 

10.5                            Payment of Expenses; Indemnification .  Except with respect to Taxes, which shall be governed by Section 2.20, the Borrower agrees (a) to pay or reimburse each Agent and the Joint Lead Arrangers for all their respective reasonable, documented out-of-pocket costs and expenses incurred in connection with the syndication of the Facilities (other than fees payable to syndicate members) and the development, preparation, execution and delivery of this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith and any amendment, supplement or modification thereto, and, as to the Agents only, the administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements and other charges of counsel to the Agents (including one primary counsel and such local counsel as the Agents may reasonably require in connection with collateral matters, but no more than one counsel in any jurisdiction) in connection with all of the foregoing, (b) to pay or reimburse each Lender, each Issuing Lender, the Agents and the Joint Lead Arrangers for all their documented out-of-pocket costs and expenses incurred in connection with the enforcement of any rights under this Agreement, the other Loan Documents and any such other documents, including, without limitation, the documented fees and disbursements of counsel to each Lender and of counsel to the Agents, (c) to pay, indemnify, or reimburse each Lender, each Issuing Lender and the Agents for, and hold each Lender, each Issuing Lender and the Agents harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and similar other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, 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 or reimburse each Lender, each Agent, each Joint Lead Arranger and their respective affiliates, and their respective officers, directors, trustees, employees, advisors, agents and controlling Persons (each, an “ Indemnitee ”) for, and hold each Indemnitee harmless from and against any and all other liabilities, obligations, losses, damages, penalties, costs, expenses or disbursements arising out of any actions, judgments or suits of any kind or nature whatsoever, arising out of or in connection with any claim, action or proceeding relating to or otherwise 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 Holdings, any of its Subsidiaries or any of the Properties and the fees and disbursements and other charges of legal counsel in connection with claims, actions or proceedings by any Indemnitee against Holdings or the Borrower hereunder (all the foregoing in this clause (d), collectively, the “ Indemnified Liabilities ”); provided that neither Holdings nor the Borrower shall have any obligation hereunder to any Indemnitee with respect to Indemnified Liabilities to the extent such Indemnified Liabilities are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence, bad faith or willful misconduct of, material breach of the Loan Documents by, such Indemnitee or its affiliates, officers, directors, trustees, employees, advisors, agents or controlling Persons or any dispute among the indemnified persons (other than any dispute involving any Agent or Arranger in is capacity as such).  All amounts due under this Section 10.5 shall be payable promptly after receipt of a reasonably detailed invoice therefor.  Statements payable by the Borrower pursuant to this Section shall be submitted to the Borrower at the address thereof set forth in Section 10.2, or to such other Person or address as may be hereafter designated by the Borrower in a written notice to the Administrative Agent.  The agreements in this Section 10.5 shall survive repayment of the Obligations.

 

103



 

10.6                            Successors and Assigns; Participations and Assignments .  (a)  The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any affiliate of any Issuing Lender that issues any Letter of Credit), except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section.

 

(b)                                  (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign (other than to a Defaulting Lender or any Disqualified Institution without the consent of the Borrower or to any natural person) to one or more assignees (each, an “ Assignee ”), all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld or delayed) of:

 

(A)                               the Borrower; provided that (x) no consent of the Borrower shall be required for an assignment of (x) Term Loans to a Lender, an Affiliate of a Lender, an Approved Fund (as defined below), and (y) Revolving Loans to a Revolving Lender (other than a Defaulting Lender), or, in each case, if an Event of Default under Section 8(a) or (f) has occurred and is continuing, any other Person and (y) a consent under this clause (A) shall be deemed given if the Borrower shall not have objected in writing to the proposed assignment within ten Business Days after receipt by it of a written notice thereof from the Administrative Agent; and

 

(B)                                 the Administrative Agent; provided that no consent of the Administrative Agent shall be required for an assignment of all or any portion of a Term Loan to a Lender, an Affiliate of a Lender or an Approved Fund or of a Revolving Loan to a Revolving Lender; and

 

(C)                                 in the case of an assignment under a Revolving Facility, each Issuing Lender and Swingline Lender for such Facility.

 

(ii)                                   Assignments shall be subject to the following additional conditions:

 

(A)                               except in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund or an assignment of the entire remaining amount of the assigning Lender’s Commitments or Loans under any Facility, the amount of the Commitments or Loans of the assigning Lender subject to each such assignment (determined as of (I) the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or (II) if earlier, the “trade date” (if any) specified in such Assignment and Assumption) shall not be less than (x) $5,000,000, in the case of a Revolving Facility or (y) $1,000,000, in the case of each other Facility, unless the Borrower and the Administrative Agent otherwise consent; provided that (1) no such consent of the Borrower shall be required if an Event of Default under Section 8(a) or (f) has occurred and is continuing and (2) such amounts shall be aggregated in respect of each Lender and its affiliates or Approved Funds, if any;

 

(B)                                 the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; provided that only one such fee shall be payable in the case of contemporaneous assignments to or by two or more related Approved Funds; and

 

104



 

(C)                                 the Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an administrative questionnaire.

 

For the purposes of this Section 10.6, “ Approved Fund ” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) (i) an entity or an Affiliate of an entity that administers or manages a Lender or (ii) an entity or an Affiliate of an entity that is the investment advisor to a Lender.

 

(iii)                                 Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) below, from and after the effective date specified in each Assignment and Assumption the Assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.19, 2.20, 2.21 and 10.5).  Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 10.6 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.

 

(iv)                                The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amount of the Loans and L/C Obligations owing to, each Lender pursuant to the terms hereof from time to time (the “ Register ”).  Holdings, the Borrower, the Administrative Agent, the Issuing Lenders and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement (and the entries in the Register shall be conclusive absent manifest error for such purposes), notwithstanding notice to the contrary.  The Register shall be available for inspection by Holdings, the Borrower, the Issuing Lenders and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

 

(v)                                   Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an Assignee, the Assignee’s completed administrative questionnaire (unless the Assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register.  No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.

 

(c)                                   (i) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations (other than to a Defaulting Lender or any Disqualified Institution without the consent of the Borrower or to any natural person) to one or more banks or other entities (a “ Participant ”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans owing to it); provided that (A) such Lender’s obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the Administrative Agent, the Issuing Lenders and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement.  Any agreement pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this

 

105


 

Agreement; provided that such agreement may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver that (1) requires the consent of each Lender directly and adversely affected thereby pursuant to the proviso to the second sentence of Section 10.1 and (2) directly affects such Participant.  Subject to paragraph (c)(ii) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.19, 2.20 and 2.21 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section, including for purposes of the definition of Excluded Taxes.

 

(ii)                                    A Participant shall not be entitled to receive any greater payment under Sections 2.19 or 2.20 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent to such greater amounts or such greater payment results from a change in applicable law following the sale of the participation to such Participant.  No Participant shall be entitled to the benefits of Section 2.20 unless such Participant complies with Section 2.20(d) or (e), as (and to the extent) applicable, as if such Participant were a Lender.

 

(iii)                                 Each Lender that sells a participation pursuant to this Section 10.6, acting solely for this purpose as an agent of the Borrower (and such agency being solely for Tax purposes), shall maintain a register comparable to the Register on which it enters the name and address of each Participant and the economic interests of each Participant in all or a portion of the Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitments, Loans and/or Letters of Credit owing to it) (the “ Participant Register ”).  The entries in the Participant Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders shall treat each person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement, notwithstanding notice to the contrary; provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register to any Person (including the identity of any Participant or any information relating to a Participant’s interest in any Commitments, Loans, Letters of Credit or its other obligations under any Loan Document) except to the extent that such disclosure is necessary to establish that such Commitment, Loan, Letter of Credit or other obligation is in “registered form” within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2) of the Code.  The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary.

 

(d)                                  Any Lender may, without the consent of or notice to the Administrative Agent or the Borrower, at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or Assignee for such Lender as a party hereto.

 

(e)                                   The Borrower, upon receipt of written notice from the relevant Lender, agrees to issue Notes to any Lender requiring Notes to facilitate transactions of the type described in paragraph (d) above.

 

(f)                                     Notwithstanding anything to the contrary contained herein, except as provided in Sections 10.6(g) and 10.6(h), neither Holdings nor any Affiliate of Holdings may acquire by assignment, participation or otherwise any right to or interest in any of the Commitments or Loans hereunder (and any such attempted acquisition shall be null and void).

 

106



 

(g)                                  So long as no Default or Event of Default has occurred and is continuing or would result therefrom, each Term Lender of any Class shall have the right at any time to sell, assign or transfer all or a portion of its Term Loans of such Class on a non-pro rata basis to Holdings or any of its Subsidiaries, subject to the following limitations:

 

(i)                                      Holdings or any of its Subsidiaries may conduct one or more modified Dutch auctions (each, an “ Auction ”) to repurchase all or any portion of the Term Loans of any Class, provided that, (A) the Auction shall be made to Term Lenders of such Class on a pro rata basis in accordance with their Tranche A Term Percentages, Tranche B Term Percentages or New Tranche Term Percentages, as the case may be, and (B) the Auction shall be conducted pursuant to such procedures as the Auction Manager may establish which are consistent with this Section 10.6(g) and the procedures set forth on Exhibit J hereto and are otherwise reasonably acceptable to the Borrower and the Administrative Agent;

 

(ii)                                   With respect to all repurchases made by Holdings or any of its Subsidiaries pursuant to this Section 10.6(g), (A) Holdings or the applicable Subsidiary shall deliver to the Auction Manager a certificate of a Responsible Officer stating that (1) no Default or Event of Default has occurred and is continuing or would result from such repurchase and (2) it affirms the No Undisclosed Information Representation, (B) Holdings or the applicable Subsidiary shall not use the proceeds of any Revolving Loans to acquire such Term Loans and (C) the assigning Lender and Holdings or the applicable Subsidiary shall execute and deliver to the Auction Manager an Affiliate Assignment Agreement in lieu of an Assignment and Assumption; and

 

(iii)                                Following repurchase by Holdings or any of its Subsidiaries pursuant to this Section 10.6(g), the Term Loans of any Class so repurchased shall, without further action by any Person, be deemed cancelled for all purposes and no longer outstanding (and may not be resold by Holdings or any of its Subsidiaries), for all purposes of this Agreement and all other Loan Documents, including, but not limited to (A) the making of, or the application of, any payments to the Lenders under this Agreement or any other Loan Document, (B) the making of any request, demand, authorization, direction, notice, consent or waiver under this Agreement or any other Loan Document or (C) the determination of Required Lenders, or for any similar or related purpose, under this Agreement or any other Loan Document.  In connection with any Term Loans of any Class, repurchased and cancelled pursuant to this Section 10.6(g), Administrative Agent is authorized to make appropriate entries in the Register to reflect any such cancellation.

 

(h)                                  Each Term Lender of any Class shall have the right at any time to sell, assign or transfer all or a portion of its Term Loans of such Class on a non-pro rata basis to any Other Affiliate (including any Debt Fund Affiliate), subject to the following limitations:

 

(i)                                      Such assignment is made pursuant to an open market purchase;

 

(ii)                                   The assigning Lender and Other Affiliate purchasing such Lender’s Term Loans shall execute and deliver to the Administrative Agent an Affiliate Lender Assignment and Assumption in lieu of an Assignment and Assumption;

 

(iii)                                After giving effect to such assignment, Other Affiliates (other than Debt Fund Affiliates) shall not, in the aggregate, own or hold Term Loans with an aggregate principal amount in excess of 20% of the principal amount of all Loans then outstanding; and

 

107



 

(iv)                               Such Other Affiliate shall at the time of such assignment affirm the No Undisclosed Information Representation and shall at all times thereafter be subject to the voting restrictions specified in Section 10.1.

 

(i)                                      Notwithstanding anything to the contrary contained herein, no Affiliate Lender shall have any right to (i) attend (including by telephone) any meeting or discussions (or portion thereof) among the Administrative Agent or any Lender to which representatives of the Borrower are not then present or (ii) receive any information or material prepared by the Administrative Agent or any Lender or any communication by or among Administrative Agent and one or more Lenders, except to the extent such information or materials have been made available to the Borrower or its representatives.

 

10.7                            Adjustments; Set-off .  (a)  Except to the extent that this Agreement provides for payments to be allocated to a particular Lender or 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 the Obligations owing to it, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by setoff, 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 Obligations, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender’s Obligations, or shall provide such other Lenders with the benefits of any such collateral, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral 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 the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by the Borrower hereunder (whether at the stated maturity, by acceleration or otherwise) after the expiration of any cure or grace periods, to set off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final but excluding trust accounts), 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 the Borrower; provided that in the event that any Defaulting Lender shall exercise any such right of setoff, (i) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.26(b) and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent, the Issuing Lenders, and the Lenders, and (ii) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff.  Each Lender agrees promptly to notify the Borrower 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, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.  Delivery of an executed signature page of this Agreement or Lender Addendum by facsimile or electronic (i.e., ‘pdf”) transmission shall be effective as delivery of a manually executed counterpart hereof.  A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent.

 

108



 

10.9                            Severability .  Any provision of this Agreement that 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 entire agreement of Holdings, the Borrower, the Agents and the Lenders with respect to the subject matter hereof and thereof.

 

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 party to this Agreement 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 it 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 any special, exemplary, punitive or consequential damages.

 

10.13                      Judgment Currency .  This is an international loan transaction in which the specification of Dollars or any Agreed Foreign Currency, as the case may be (the “ Specified Currency ”), and payment in New York City or the country of the Specified Currency, as the case may be (the “ Specified Place ”), is of the essence, and the Specified Currency shall be the currency of account in all events relating to Loans denominated in the Specified Currency.  The payment obligations of the Borrower under this Agreement shall not be discharged or satisfied by an amount paid in another currency or in another place, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on conversion to the Specified Currency and transfer to the Specified Place under normal banking procedures does not yield the amount of the Specified Currency at the Specified Place due hereunder.  If for the purpose of obtaining judgment in any court it is necessary to convert a sum due hereunder in the Specified

 

109



 

Currency into another currency (the “ Second Currency ”), the rate of exchange that shall be applied shall be the rate at which in accordance with normal banking procedures the Administrative Agent could purchase the Specified Currency with the Second Currency on the Business Day next preceding the day on which such judgment is rendered.  The obligation of the Borrower in respect of any such sum due from it to the Administrative Agent or any Lender hereunder or under any other Loan Document (in this Section called an “ Entitled Person ”) shall, notwithstanding the rate of exchange actually applied in rendering such judgment, be discharged only to the extent that on the Business Day following receipt by such Entitled Person of any sum adjudged to be due hereunder in the Second Currency such Entitled Person may in accordance with normal banking procedures purchase and transfer to the Specified Place the Specified Currency with the amount of the Second Currency so adjudged to be due; and the Borrower hereby, as a separate obligation and notwithstanding any such judgment, agrees to indemnify such Entitled Person against, and to pay such Entitled Person on demand, in the Specified Currency, the amount (if any) by which the sum originally due to such Entitled Person in the Specified Currency hereunder exceeds the amount of the Specified Currency so purchased and transferred.

 

10.14                      Acknowledgments .  Each of Holdings and the Borrower 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 Agents nor any Lender has any fiduciary relationship with or duty to either of Holdings or the Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Agents and Lenders, on one hand, and Holdings and the Borrower, 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 Holdings, the Borrower and the Lenders.

 

10.15                      Confidentiality .  The Agents and the Lenders agree to treat any and all information, regardless of the medium or form of communication, that is disclosed, provided or furnished, directly or indirectly, by or on behalf of Holdings or any of its affiliates, whether in writing, orally, by observation or otherwise and whether furnished before or after the Closing Date (“ Confidential Information ”), strictly confidential and not to use Confidential Information for any purpose other than negotiating, making available, syndicating and administering this Agreement (the “ Agreed Purposes ”).  Without limiting the foregoing, each Agent and each Lender agrees to treat any and all Confidential Information with no less than adequate means to preserve its confidentiality, and each Agent and each Lender agrees not to disclose Confidential Information, at any time, in any manner whatsoever, directly or indirectly, to any other Person whomsoever, except (1) to its Affiliates and to its and its Affiliates’ respective directors, officers, employees, counsel, trustees and other representatives (collectively, the “ Representatives ”), to the extent necessary to permit such Representatives to assist in connection with the Agreed Purposes, (2) to prospective Lenders and participants in connection with the syndication (including secondary trading) of the Facilities and Commitments and Loans hereunder, in each case who are informed of the confidential nature of the information and agree to observe and be bound by standard confidentiality terms, (3) upon the request or demand of any Governmental Authority having jurisdiction over it, (4) in response to any order of any Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (5) to the extent reasonably required or necessary, in connection with any litigation or similar proceeding relating to the Facilities, (6) that has been publicly disclosed other than in breach of this Section 10.15 or has become available to the Administrative Agent or any

 

110



 

Lender or any of their respective Affiliates on a non-confidential basis from a source other than Holdings or any of its affiliates that has been publicly disclosed other than in breach of this Section 10.15 or has become available to the Administrative Agent or any Lender or any of their respective Affiliates on a non-confidential basis from a source other than Holdings or any of its affiliates that, to the knowledge of the Admin Agent or any Lender or their respective affiliates, is not subject to confidentiality obligations owing to Holdings or any of its Affiliates, (7) 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 (8) to the extent reasonably required or necessary, in connection with the exercise of any remedy under the Loan Documents.  Each Agent and each Lender acknowledges that (i) Confidential Information includes information that is not otherwise publicly available and that such non-public information may constitute confidential business information which is proprietary to Holdings and (ii) Holdings has advised the Agents and the Lenders that it is relying on the Confidential Information for its success and would not disclose the Confidential Information to the Agents and the Lenders without the confidentiality provisions of this Agreement.

 

10.16                      Release of Collateral and Guarantee Obligations; Subordination of Liens .  (a)  Notwithstanding anything to the contrary contained herein or in any other Loan Document, upon request of Holdings in connection with any Disposition of Property permitted by the Loan Documents, the Collateral Agent shall (without notice to, or vote or consent of, any Lender, or any affiliate of any Lender that is a party to any Specified Hedge Agreement or contingent or indemnification obligations not then due) take such actions as shall be required to release its security interest in any Collateral being Disposed of in such Disposition, and to release any Guarantee Obligations under any Loan Document of any Person being Disposed of in such Disposition, to the extent necessary to permit consummation of such Disposition in accordance with the Loan Documents.  Any representation, warranty or covenant contained in any Loan Document relating to any such Property so Disposed of (other than Property Disposed of to Holdings or any of its Restricted Subsidiaries) shall no longer be deemed to be repeated once such Property is so Disposed of.

 

(b)                                  Notwithstanding anything to the contrary contained herein or any other Loan Document, when all Obligations (other than (x) obligations in respect of any Specified Hedge Agreement and (y) any contingent or indemnification obligations not then due) have been paid in full, all Commitments have terminated or expired and no Letter of Credit shall be outstanding that is not cash collateralized or backstopped, upon request of Holdings or the Borrower, the Collateral Agent shall (without notice to, or vote or consent of, any Lender, or any affiliate of any Lender that is a party to any Specified Hedge Agreement) take such actions as shall be required to release its security interest in all Collateral, and to release all Guarantee Obligations under any Loan Document, whether or not on the date of such release there may be outstanding Obligations in respect of Specified Hedge Agreements or contingent or indemnification obligations not then due.  Any such release of Guarantee Obligations shall be deemed subject to the provision that such Guarantee Obligations shall be reinstated if after such release any portion of any payment in respect of the Obligations guaranteed thereby shall be rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower 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, the Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though such payment had not been made.

 

(c)                                   Notwithstanding anything to the contrary contained herein or in any other Loan Document, upon request of Holdings in connection with any Liens permitted by the Loan Documents, the Collateral Agent shall (without notice to, or vote or consent of, any Lender) take such actions as shall be required to subordinate the Lien on any Collateral to any Lien permitted under Section 7.3.

 

111



 

10.17                      Accounting Changes .  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 Holdings 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 Holdings’ 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 Holdings, 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.  “ 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 SEC.

 

10.18                      WAIVERS OF JURY TRIAL .  EACH OF HOLDINGS, THE BORROWER, 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.

 

10.19                      USA PATRIOT ACT .  Each Lender hereby notifies the Loan Parties that pursuant to the requirements of the USA Patriot Act (Title III of Publ.  107-56 (signed into law October 26, 2001)) (the “ Act ”), it is required to obtain, verify and record information that identifies the Loan Parties, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Loan Parties in accordance with the Act.

 

10.20                      Delivery of Lender Addenda .  Each initial Lender (other than any Lender whose name appears on the signature pages to this Agreement) shall become a party to this Agreement by delivering to the Administrative Agent a Lender Addendum duly executed by such Lender.

 

112



 

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 date first above written.

 

 

WESCO AIRCRAFT HARDWARE CORP.

 

 

 

 

 

By:

/s/ Gregory A. Hann

 

Name: Gregory A. Hann

 

Title: Chief Financial Officer

 

 

 

WESCO HOLDINGS, INC.

 

 

 

 

 

By:

/s/ Gregory A. Hann

 

Name: Gregory A. Hann

 

Title: Chief Financial Officer

 

CREDIT AGREEMENT — SIGNATURE PAGE

 



 

 

BARCLAYS BANK PLC, as Joint Lead Arranger, Joint Bookrunner, Administrative Agent, Collateral Agent, Issuing Lender, Swingline Lender and as a Lender

 

 

 

 

 

By:

/s/ Craig J. Malloy

 

Name: Craig J. Malloy

 

Title: Director

 

CREDIT AGREEMENT — SIGNATURE PAGE

 



 

 

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, as Joint Lead Arranger and Joint Bookrunner

 

 

 

 

 

By:

/s/ William H. Pegler

 

Name: William (“Hutch”) Pegler

 

Title: Managing Director

 

CREDIT AGREEMENT — SIGNATURE PAGE

 



 

 

J.P. MORGAN SECURITIES LLC, as Joint Bookrunner

 

 

 

By:

/s/ Karan Rai

 

Name: Karan Rai

 

Title: Vice President

 

CREDIT AGREEMENT — SIGNATURE PAGE

 



 

 

MORGAN STANLEY SENIOR FUNDING, INC., as Joint Bookrunner

 

 

 

By:

/s/ Fred [name illegible]

 

Name: Fred [name illegible]

 

Title:   [Title illegible]

 

CREDIT AGREEMENT — SIGNATURE PAGE

 



 

 

Sumitomo Mitsui Banking Corporation

 

 

 

 

By:

/s/ Yasuhiko Imai

 

Name: Yasuhiko Imai

 

Title: Group Head

 

CREDIT AGREEMENT — SIGNATURE PAGE

 



 

 

ROYAL BANK OF CANADA, as Joint Bookrunner and as a Lender

 

 

 

 

 

 

 

By:

/s/ Richard Smith

 

Name: Richard Smith

 

Title: Authorized Signatory

 

CREDIT AGREEMENT — SIGNATURE PAGE

 



 

 

BANK OF AMERICA, N.A., as Syndication Agent and as a Lender

 

 

 

 

 

 

 

By:

/s/ William H. Pegler

 

Name: William (“Hutch”) Pegler

 

Title: Managing Director

 

CREDIT AGREEMENT — SIGNATURE PAGE

 



 

 

JPMORGAN CHASE BANK, N.A.

 

 

 

 

 

 

 

By:

/s/ Matthew H. Massie

 

Name: Matthew H. Massie

 

Title: Managing Director

 

CREDIT AGREEMENT — SIGNATURE PAGE

 



 

 

MORGAN STANLEY BANK, N.A.

 

 

 

 

 

 

 

By:

/s/ Ryan Vetsch

 

Name: Ryan Vetsch

 

Title: Authorized Signatory

 

CREDIT AGREEMENT — SIGNATURE PAGE

 



 

 

CT BANK

 

 

 

 

 

 

 

By:

/s/ Daniel A. Burnett

 

Name: Daniel A. Burnett

 

Title: Vice President

 

CREDIT AGREEMENT — SIGNATURE PAGE

 



 

 

EAST WEST BANK

 

 

 

 

 

 

 

By:

/s/ Nancy Moore

 

Name: Nancy Moore

 

Title: Senior Vice President

 

CREDIT AGREEMENT — SIGNATURE PAGE

 



 

 

KEYBANK NATIONAL ASSOCIATION

 

 

 

 

 

 

 

By:

/s/ Marcel Fournier

 

Name: Marcel Fournier

 

Title: Vice President

 

CREDIT AGREEMENT — SIGNATURE PAGE

 



 

 

CITIZENS BANK & TRUST COMPANY

 

 

 

 

 

 

 

By:

/s/ Aileen O. Cartwright

 

Name: Aileen O. Cartwright

 

Title: Senior Credit Manager, AVP

 

CREDIT AGREEMENT — SIGNATURE PAGE

 



 

 

UNION BANK, N.A.

 

 

 

 

 

 

 

By:

/s/ Cary Moore

 

Name: Cary Moore

 

Title: Senior Vice President

 

CREDIT AGREEMENT — SIGNATURE PAGE

 



 

 

RAYMOND JAMES BANK, FSB

 

 

 

 

 

 

 

By:

/s/ Alexander L. Rody

 

Name: Alexander L. Rody

 

Title: Senior Vice President

 

CREDIT AGREEMENT — SIGNATURE PAGE

 



 

 

Bank of the West

 

 

 

 

 

 

 

By:

/s/ David Alterman

 

Name: David Alterman

 

Title: Vice President

 

CREDIT AGREEMENT — SIGNATURE PAGE

 



 

 

SIEMENS FINANCIAL SERVICES, INC.

 

 

 

 

 

 

 

By:

/s/ Douglas Maher

 

Name: Douglas Maher

 

Title: Managing Director

 

 

 

 

 

 

 

By:

/s/ April Greaves-Bryan

 

Name: April Greaves-Bryan

 

Title: Loan Servicing Manager

 

CREDIT AGREEMENT — SIGNATURE PAGE

 


 

EXHIBIT A

 

FORM OF GUARANTEE AND COLLATERAL AGREEMENT

 

[Separately Attached]

 



 

EXHIBIT B

 

FORM OF COMPLIANCE CERTIFICATE

 

This Compliance Certificate is delivered to you pursuant to Section 6.2 of the Credit Agreement, dated as of April 7, 2011 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among Wesco Holdings, Inc. (“ Holdings ”), Wesco Aircraft Hardware Corp., as the Borrower, the several banks and other financial institutions or entities from time to time parties to the Credit Agreement as lenders, Bank of America, N.A., as Syndication Agent, Barclays Bank PLC, as Administrative Agent (in such capacity, the “ Administrative Agent ”), Collateral Agent and Documentation Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“ MLPFS ”), Key Bank, N.A. and Barclays Capital (“ Barclays Capital ”), the investment banking division of Barclays Bank PLC, as Joint Lead Arrangers, and MLFPS, Barclays Capital, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation and Royal Bank of Canada, as Joint Bookrunners.  Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

 

1.                                        At the end of the accounting period, for the accounting period ended                   , covered by the financial statements attached hereto as Attachment 1 , Holdings has no knowledge of any Default or Event of Default[, except as set forth below].

 

2.                                        Attached hereto as Attachment 2 are information and calculations showing compliance with the covenants set forth in Section 7.1 of the Credit Agreement.

 

[3.                                    Include description of any new Subsidiary, any change in jurisdiction of organization of any Loan Party and a listing of any material United States Intellectual Property filings by any Loan Party, to the extent not previously disclosed to the Administrative Agent.]

 



 

IN WITNESS WHEREOF, Holdings has caused this Certificate to be executed as of this            day of         , 201 .

 

 

 

 

[                    ]

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

 

Title:

 

 



 

Attachment 1

to Compliance Certificate

 

[Financial Statements]

 



 

Attachment 2

to Compliance Certificate

 

The information described herein is as of             , 201 , and pertains to the period from                   , 201  to                      , 201 .

 

[Covenant Calculations]

 



 

EXHIBIT C

 

FORM OF CLOSING CERTIFICATE

 

Pursuant to section 5.1(e) of the Credit Agreement, dated as of April 7, 2011 (the “ Credit Agreement ”; unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement), among Wesco Holdings, Inc. (“ Holdings ”), Wesco Aircraft Hardware Corp., as the Borrower, the several banks and other financial institutions or entities from time to time parties to the Credit Agreement as lenders, Bank of America, N.A., as Syndication Agent, Barclays Bank PLC, as Administrative Agent, Collateral Agent and Documentation Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“ MLPFS ”), Key Bank, N.A. and Barclays Capital (“ Barclays Capital ”), the investment banking division of Barclays Bank PLC, as Joint Lead Arrangers, and MLFPS, Barclays Capital, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation and Royal Bank of Canada, as Joint Bookrunners, the undersigned [Insert name of officer], [Insert title of officer] of                            (the “ Company ”), hereby certifies on behalf of the Company as follows:

 

1.                                        The Representations of the Company set forth in each of the Loan Documents to which it is a party or that are contained in any certificate furnished by or on behalf of the Company pursuant to any of the Loan Documents to which it is a party are true and correct in all material respects on and as of the date hereof with the same effect as if made on the date hereof, except to the extent such representations and warranties relate to an earlier date, in which case such representations and warranties were true and correct in all material respects as of such earlier date.

 

2.                                                                          is the duly elected and qualified Corporate Secretary of the Company, and the signature set forth for such officer below is such officer’s true and genuine signature.

 

3.                                        No Default or Event of Default has occurred and is continuing as of the date hereof or after giving effect to the Loans and other extensions of credit to be made on the date hereof.

 

The undersigned Corporate Secretary of the Company hereby certifies as follows:

 

1.                                        Attached hereto as Annex 1 is a true and complete copy of a Certificate of Good Standing or the equivalent from the Company’s jurisdiction of organization dated as of a recent date prior to the date hereof.

 

2.                                        Attached hereto as Annex 2 is a true and complete copy of resolutions/unanimous written consent duly adopted by the Board of Directors of the Company on                        , 2011, such resolutions have not in any way been amended, modified, revoked or rescinded, have been in full force and effect since their adoption to and including the date hereof and are now in full force and effect and are the only corporate proceedings of the Company now in force relating to or affecting the matters referred to therein.

 

3.                                        Attached hereto as Annex 3 is a true and correct copy of the Bylaws/Memorandum of Association of the Company as in effect on the date hereof.

 



 

4.                                        Attached hereto as Annex 4 is a true and complete certified copy of the Articles of Incorporation/Association of the Company, along with any amendments, restatements, or modifications thereto (collectively, the “ Charter Documents ”), and, except as attached as Annex 4 hereto, such Charter Documents have not been amended, repealed, modified or restated.

 

5.                                        The persons listed on Schedule I hereto are now duly elected and qualified officers of the Company holding the offices indicated next to their respective names on Schedule I hereto, and the signatures appearing opposite their respective names on Schedule I hereto are the true and genuine signatures of such officers, and each of such officers is duly authorized to execute and deliver on behalf of the Company each of the Loan Documents to which it is a party and any certificate or other document to be delivered by the Company pursuant to the Loan Documents to which it is a party.

 

6.                                        Latham & Watkins LLP may rely on this certificate in rendering its opinion.

 

IN WITNESS WHEREOF, the undersigned have hereunto set their names as of the date set forth below.

 

 

 

 

 

 

 

 

 

 

Name:

 

 

Name:

 

Title:

 

 

Title:

 

 

 

 

 

 

 

Date:

April 7, 2011

 

 

 



 

Schedule I

to Closing Certificate

 

NAME

 

OFFICE

 

SIGNATURE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Annex 1

to Closing Certificate

 

[Certificate of Good Standing]

 



 

Annex 2

to Closing Certificate

 

[Board Resolutions/Unanimous Written Consent]

 



 

Annex 3

to Closing Certificate

 

[Bylaws/Memorandum of Association]

 



 

Annex 4

to Closing Certificate

 

[Charter Documents]

 



 

EXHIBIT D

 

FORM OF
ASSIGNMENT AND ASSUMPTION

 

This Assignment and Assumption (the “ Assignment and Assumption ”) is dated as of the Effective Date set forth below and is entered into by and between [ Insert name of Assignor ] (the “ Assignor ”) and [ Insert name of Assignee ] (the “ Assignee ”).  Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the “ Credit Agreement ”), receipt of a copy of which is hereby acknowledged by the Assignee.  The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

 

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent (as identified below) as contemplated below (i) all of the Assignor’s rights and obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including any letters of credit, guarantees, and swingline loans included in such facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as the “ Assigned Interest ”).  Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.

 

1.

 

Assignor:

 

 

 

 

 

 

 

 

2.

 

Assignee:

 

 

 

 

 

 

 

[and is an Affiliate/Approved Fund of [ identify Lender ](1)]

 

 

 

 

 

3.

 

Borrower:

 

Wesco Aircraft Hardware Corp.

 

 

 

 

 

4.

 

Administrative Agent:

 

Barclays Bank PLC, as the administrative agent under the Credit Agreement (in such capacity, the “ Administrative Agent ”)

 

 

 

 

 

5.

 

Credit Agreement:

 

Credit Agreement dated as of April 7, 2011 among Wesco Holdings, Inc., Wesco Aircraft Hardware Corp., as the Borrower, the several banks and other financial institutions or entities from time to time parties to the Credit Agreement as lenders, Bank of America, N.A., as Syndication Agent, the Administrative Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“ MLPFS ”), Key Bank, N.A. and Barclays Capital (“ Barclays Capital ”), the investment banking division of Barclays Bank

 


(1) Select as applicable.

 



 

 

 

 

 

PLC, as Joint Lead Arrangers, and MLFPS, Barclays Capital, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation and Royal Bank of Canada, as Joint Bookrunners

 

 

 

 

 

6.

 

Assigned Interest:

 

 

 

 

 

 

 

 

Facility Assigned(2)

 

Aggregate Amount of
Commitment/Loans for
all Lenders

 

Amount of
Commitment/Loans
Assigned

 

Percentage Assigned of
Commitment/Loans(3)

 

 

 

$

 

 

$

 

 

 

%

 

 

$

 

 

$

 

 

 

%

 

 

$

 

 

$

 

 

 

%

 

Effective Date:                                  , 20     [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

 

The terms set forth in this Assignment and Assumption are hereby agreed to:

 

 

 

ASSIGNOR

 

 

 

 

 

[NAME OF ASSIGNOR]

 

 

 

 

 

 

 

 

By

 

 

 

Title:

 

 

 

 

 

 

 

 

ASSIGNEE

 

 

 

 

 

 

[NAME OF ASSIGNEE]

 

 

 

 

 

 

 

 

 

 

By

 

 

 

Title:

 


(2) Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Assignment (e.g. “Tranche A Term Loan,” “Tranche B Term Loan” and “Revolving Commitment”)

 

(3) Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.

 

2



 

[Consented to and](4) Accepted:

 

 

 

 

 

BARCLAYS BANK PLC,

 

 

  as Administrative Agent

 

 

 

 

 

 

 

 

By

 

 

 

Title:

 

 

 

 

 

 

 

 

 

 

[Consented to:

 

 

 

 

 

 

WESCO AIRCRAFT HARDWARE CORP.

 

 

 

 

 

 

 

 

 

 

By

 

 

 

Title:

 

 

 

 

 

 

 

 

 

 

[                    ],

 

 

  as Issuing Lender

 

 

 

 

 

 

 

 

 

 

By

 

 

 

Title:

 

 

 

 

 

 

 

 

 

 

BARCLAYS BANK PLC,

 

 

  as Swingline Lender

 

 

 

 

 

 

 

 

 

 

By

 

 

 

Title:](5)

 

 

 


(4) To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement.

 

(5) To be added only if the consent of the Borrower, the Issuing Lender or the Swingline Lender, as applicable, is required by the terms of the Credit Agreement and, in the case of the Borrower, has not been deemed to have been given.

 

3



 

ANNEX 1

 

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

 

1.  Representations and Warranties .

 

1.1   Assignor .  The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim, (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and (iv) it is not a “Defaulting Lender”, as such term is defined in the Credit Agreement; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of Holdings or any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by Holdings or any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

 

1.2.  Assignee .  The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it satisfies the requirements, if any, specified in the Credit Agreement that are required to be satisfied by it in order to acquire the Assigned Interest and become a Lender, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 6.1 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, and (v) if it is a Non-US Lender, attached to this Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor 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 decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations that by the terms of the Loan Documents are required to be performed by it as a Lender.

 

2.  Payments .  From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts that have accrued to but excluding the Effective Date and to the Assignee for amounts that have accrued from and after the Effective Date.

 

3.  General Provisions .  This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns.  This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument.  Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and

 



 

Assumption.  This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.

 


 

Exhibit 1

to Assignment and Assumption

 

AFFILIATE LENDER ASSIGNMENT AND ASSUMPTION

 

This Lender Affiliate Assignment and Assumption (this “ Assignment and Assumption ”) is dated as of the Effective Date set forth below and is entered into by and between [ Insert name of Assignor ] (the “ Assignor ”) and [ Insert name of Assignee ] (the “ Assignee ”).  Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the “ Credit Agreement ”), receipt of a copy of which is hereby acknowledged by the Assignee.  The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

 

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent (as identified below) as contemplated below (i) all of the Assignor’s rights and obligations as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including any letters of credit, guarantees, and swingline loans included in such facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as, the “ Assigned Interest ”).  Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.

 

1.

 

Assignor:

 

 

 

 

 

 

 

 

2.

 

Assignee:

 

 

 

 

 

 

 

[and is a Non-Debt Fund Affiliate]

 

 

 

 

 

3.

 

Borrower:

 

Wesco Aircraft Hardware Corp.

 

 

 

 

 

4.

 

Administrative Agent:

 

BARCLAYS BANK PLC, as the administrative agent under the Credit Agreement (in such capacity, the “ Administrative Agent ”)

 

 

 

 

 

5.

 

Credit Agreement:

 

Credit Agreement dated as of April 7, 2011 among Wesco Holdings, Inc., Wesco Aircraft Hardware Corp., as the Borrower, the several banks and other financial institutions or entities from time to time parties to the Credit Agreement as lenders, Bank of America, N.A., as Syndication Agent, the Administrative Agent, Merrill Lynch, Pierce Fenner & Smith Incorporated (“ MLPFS ”), Key Bank, N.A. and Barclays Capital (“ Barclays Capital ”), the investment banking division of Barclays Bank PLC, as Joint Lead Arrangers, and MLFPS, Barclays Capital, J.P.

 



 

 

 

 

 

Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation and Royal Bank of Canada, as Joint Bookrunners.

 

 

 

 

 

6.

 

Assigned Interest:

 

 

 

Facility Assigned

 

Aggregate
Amount of
Commitment/Loans
for all Lenders*

 

Amount of
Commitment/Loans
Assigned*

 

Percentage
Assigned of
Commitment/Loans

 

 

 

$

 

 

$

 

 

 

%

 

 

$

 

 

$

 

 

 

%

 

 

$

 

 

$

 

 

 

%

 

7.

 

Trade Date:

 

 

 

 

 

 

 

8.

 

Effective Date:

 

                                 , 20     [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

 

 

 

 

 

 

 

The terms set forth in this Assignment and Assumption are hereby agreed to:

 

 

 

ASSIGNOR

 

 

[NAME OF ASSIGNOR]

 

 

 

 

 

 

 

 

By:

 

 

 

 

Title:

 

 

 

 

 

 

 

 

 

 

ASSIGNEE

 

 

[NAME OF ASSIGNEE]

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Title:

 



 

Consented to and Accepted:

 

 

 

 

 

BARCLAYS BANK PLC, as

 

 

  Administrative Agent

 

 

 

 

 

 

 

 

By:

 

 

 

 

Title:

 

 

 



 

ANNEX 1 TO AFFILIATE LENDER ASSIGNMENT AND ASSUMPTION

 

STANDARD TERMS AND CONDITIONS FOR

AFFILIATE LENDER ASSIGNMENT AND ASSUMPTION

 

1.                                        Representations and Warranties.

 

1.1.                               Assignor.  The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim, (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby, and (iv) it is not a “Defaulting Lender”, as such term is defined in the Credit Agreement; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of Holdings, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by Holdings, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

 

1.2.                               Assignee.  The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it is an Other Affiliate, (iii) this Assignment and Assumption is being made pursuant to an open market purchase, (iv) no Default has occurred or is continuing or would result from the consummation of the transactions contemplated by this Assignment and Assumption, (v) after giving effect to this Assignment and Assumption, the aggregate principal amount of all Term Loans held by all Other Affiliates (other than Debt Fund Affiliates) constitutes no more than 20% of the aggregate principal amount of all Loans then outstanding, (vi) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (vii) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 6.1 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, (viii) if it is a Non-US Lender, attached to this Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee, and (ix) it is not a “Defaulting Lender”, as such term is defined in the Credit Agreement; (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor 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 decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender; (c) hereby affirms the No Undisclosed Information Representation and (d) shall at all times be subject to the voting restrictions set forth in Section 10.1 of the Credit Agreement.  For the avoidance of doubt, Lenders shall not be permitted to assign Revolving Commitments or Revolving Loans to any Affiliate Lender.  The Assignee further acknowledges and agrees that it shall not have any right to (i) attend (including by telephone) any meeting or discussions (or portion thereof) among the Administrative Agent or any Lender to which representatives of the Borrower are not then present or (ii) receive any information or material prepared by the Administrative Agent or any Lender or any communication by or

 



 

among Administrative Agent and one or more Lenders, except to the extent such information or materials have been made available to the Borrower or its representatives.

 

2.                                        Payments.  From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignee whether such amounts have accrued prior to or on or after the Effective Date.  The Assignor and the Assignee shall make all appropriate adjustments in payments by the Administrative Agent for periods prior to the Effective Date or with respect to the making of this assignment directly between themselves.

 

3.                                        General Provisions.  This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns.  This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument.  Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption.  This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.

 



 

EXHIBIT F

 

FORM OF EXEMPTION CERTIFICATE

 

Reference is made to the Credit Agreement, dated as of April 7, 2011 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among Wesco Holdings, Inc. (“ Holdings ”), Wesco Aircraft Hardware Corp., as the Borrower, the several banks and other financial institutions or entities from time to time parties to the Credit Agreement as lenders, Bank of America, N.A., as Syndication Agent, Barclays Bank PLC, as Administrative Agent (in such capacity, the “ Administrative Agent ”), Collateral Agent and Documentation Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“ MLPFS ”), Key Bank, N.A. and Barclays Capital (“ Barclays Capital ”), the investment banking division of Barclays Bank PLC, as Joint Lead Arrangers, and MLFPS, Barclays Capital, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation and Royal Bank of Canada, as Joint Bookrunners.  Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

 

                                                 (the “ Non-US Lender ”) is providing this certificate pursuant to Section 2.20(d) of the Credit Agreement.  The Non-US Lender hereby represents and warrants that:

 

1.                                        The Non-US Lender is the sole record and beneficial owner of the Loans or the obligations evidenced by Note(s) in respect of which it is providing this certificate.

 

2.                                        The Non-US Lender is not a “bank” for purposes of Section 881(c)(3)(A) of the Code.  In this regard, the Non-US Lender further represents and warrants that:

 

(a)                                   the Non-US Lender is not subject to regulatory or other legal requirements as a bank in any jurisdiction; and

 

(b)                                  the Non-US Lender has not been treated as a bank for purposes of any tax, securities law or other filing or submission made to any Governmental Authority, any application made to a rating agency or qualification for any exemption from tax, securities law or other legal requirements;

 

3.                                        The Non-US Lender is not a 10-percent shareholder of the Borrower within the meaning of Section 881(c)(3)(B) of the Code; and

 

4.                                        The Non-US Lender is not a controlled foreign corporation receiving interest from a related person within the meaning of Section 881(c)(3)(C) of the Code.

 



 

IN WITNESS WHEREOF, the undersigned has duly executed this certificate.

 

 

 

[NAME OF NON-US LENDER]

 

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

 

Date:

 

 

 

 



 

EXHIBIT G

 

FORM OF SOLVENCY CERTIFICATE

 

Pursuant to Section 5.1(c) of the Credit Agreement, dated as of April 7, 2011 (the “ Credit Agreement ”; unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement), among Wesco Holdings, Inc. (“ Holdings ”), Wesco Aircraft Hardware Corp., as the Borrower, the several banks and other financial institutions or entities from time to time parties to the Credit Agreement as lenders, Bank of America, N.A., as Syndication Agent, Barclays Bank PLC, as Administrative Agent, Collateral Agent and Documentation Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“ MLPFS ”), Key Bank, N.A. and Barclays Capital (“ Barclays Capital ”), the investment banking division of Barclays Bank PLC, as Joint Lead Arrangers, and MLFPS, Barclays Capital, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation and Royal Bank of Canada, as Joint Bookrunners, the undersigned hereby certifies that he is the duly elected and acting Chief Financial Officer of Holdings and that as such he is authorized to execute and deliver this Solvency Certificate on behalf of Holdings.

 

Holdings further certifies that Holdings and its Restricted Subsidiaries, on a consolidated basis, are Solvent after giving effect to the initial extensions of credit to be made on the Closing Date.

 

[signature page follows]

 



 

IN WITNESS WHEREOF ,  the undersigned has caused this Solvency Certificate to be executed as of this [    ] day of April, 2011.

 

 

 

WESCO HOLDINGS, INC.

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

 

Title:

Chief Financial Officer

 


 

EXHIBIT H

 

FORM OF JOINDER AGREEMENT

 

JOINDER AGREEMENT, dated as of [                        , 201    ] (the “ Joinder Agreement ” or this “ Agreement ”), by and among [NEW LENDERS] (each, a “ New Lender ” and, collectively, the “ New Lenders ”), WESCO AIRCRAFT HARDWARE CORP., a California corporation (the “ Borrower ”), and BARCLAYS BANK PLC, as administrative agent (in such capacity, the “ Administrative Agent ”).

 

RECITALS:

 

WHEREAS , reference is hereby made to the Credit Agreement, dated as of April 7, 2011 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among Wesco Holdings, Inc. (“ Holdings ”), Wesco Aircraft  Hardware Corp., as the Borrower, the several banks and other financial institutions or entities from time to time parties to the Credit Agreement as lenders, Bank of America, N.A., as Syndication Agent, the Administrative Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“ MLPFS ”), Key Bank, N.A. and Barclays Capital (“ Barclays Capital ”), the investment banking division of Barclays Bank PLC, as Joint Lead Arrangers, and MLFPS, Barclays Capital, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation and Royal Bank of Canada, as Joint Bookrunners (capitalized terms used but not defined herein having the meaning provided in the Credit Agreement); and

 

WHEREAS , subject to the terms and conditions of the Credit Agreement, the Borrower may establish New Term Loan Commitments or increase Dollar Revolving Commitments by, among other things, entering into one or more Joinder Agreements with New Lenders;

 

NOW, THEREFORE , in consideration of the premises and agreements, provisions and covenants herein contained, the parties hereto agree as follows:

 

I.                                          Each New Lender party hereto hereby agrees to commit to provide its New Term Loan Commitment or Dollar Revolving Commitments, as set forth on Schedule A annexed hereto, on the terms and subject to the conditions set forth below:

 

II.                                      Each New Lender (i) confirms that it has received a copy of the Credit Agreement and the other Loan Documents, together with copies of the financial statements referred to therein and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Agreement; (ii) agrees that it will, independently and without reliance upon the Administrative Agent, any other New Lender or any other Lender or Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) appoints and authorizes the Administrative Agent and/or the Collateral Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Loan Documents as are delegated to the Administrative Agent and the Collateral Agent, respectively, by the terms thereof, together with such powers as are reasonably incidental thereto; and (iv) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a New Lender.

 

III.                                  Each New Lender hereby agrees to make its respective Commitment on the following terms and conditions:

 



 

1.                                        Applicable Margin . The Applicable Margin for each New Term Loan shall mean, as of any date of determination, a percentage per annum as set forth below:

 

[INSERT PRICING]

 

2.                                        Principal Payments .  The Borrower shall make principal payments on the New Term Loan in installments on the dates and in the amounts set forth below:

 

(A)
Payment
Date

 

(B)
Scheduled
Repayment of New Term
Loans

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

 

 

3.                                        Voluntary and Mandatory Prepayments .  Scheduled installments of principal of the New Term Loans set forth above shall be reduced in connection with any optional [or mandatory] prepayments of the New Term Loans in accordance with Section[s] 2.11 [and 2.12] of the Credit Agreement respectively.

 

4.                                    Proposed Borrowing .  This Agreement represents the Borrower’s request to borrow New Term Loans or increase Dollar Revolving Commitments from the New Lenders as follows (the “ Proposed Borrowing ”):

 

SECTION 1. Business Day of Proposed Borrowing:                            ,               

 

SECTION 2. Amount of Proposed Borrowing:  $                           

 

SECTION 3. Interest rate option:

a.                ABR Loan(s)

 



 

b.          Eurocurrency Loan(s) with an initial Interest Period of        months

 

5.                                        [ New Lenders .  Each New Lender acknowledges and agrees that upon its execution of this Agreement and the making of New Term Loans or Dollar Revolving Loans, such New Lender shall become a “Lender” under, and for all purposes of, the Credit Agreement and the other Loan Documents, and shall be subject to and bound by the terms thereof, and shall perform all the obligations of and shall have all rights of a Lender thereunder.](1)

 

6.                                        Credit Agreement Governs .  Except as set forth in this Agreement, the New Term Loans and/or the Dollar Revolving Loans, as applicable, shall otherwise be subject to the provisions of the Credit Agreement and the other Loan Documents.

 

7.                                        Holdings’ Certifications .  By its execution of this Agreement, the undersigned officer, to the best of his or her knowledge, and Holdings hereby certify that:

 

i.                                           The representations and warranties in or pursuant to the Loan Documents are true and correct in all material respects on and as of the date hereof to the same extent as though made on and as of the date hereof, except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties were true and correct in all material respects on and as of such earlier date;

 

ii.                                        No Default or Event of Default has occurred and is continuing as of the date hereof after giving effect to the proposed Borrowing contemplated hereby; and

 

8.                                        Notice .  For purposes of the Credit Agreement, the initial notice address of each New Lender shall be as set forth below its signature below.

 

9.                                        Non-US Lenders .  For each New Lender that is a Non-US Lender, delivered herewith to the Administrative Agent are such forms, certificates or other evidence with respect to United States federal income tax withholding matters as such New Lender may be required to deliver to Administrative Agent pursuant to subsection 2.20(d) of the Credit Agreement.

 

10.                                  Recordation of the New Loans .  Upon execution and delivery hereof, the Administrative Agent will record the New Loans made by each New Lender in the Register.

 

11.                                  Amendment, Modification and Waiver .  This Agreement may not be amended, modified or waived except as provided by Section 10.1 of the Credit Agreement.

 

12.                                  Entire Agreement .  This Agreement, the Credit Agreement and the other Loan Documents constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and verbal, among the parties or any of them with respect to the subject matter hereof.

 

13.                                GOVERNING LAW.  THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL

 


(1)  Insert bracketed language if the lending institution is not already a Lender.

 



 

BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

14.                                  Severability .  Any term or provision of this Agreement that is invalid or unenforceable in any jurisdiction shall, as to that 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 jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable.

 

15.                                  Counterparts .  This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement.

 

[signature pages follow]

 



 

IN WITNESS WHEREOF , each of the undersigned has caused its duly authorized officer to execute and deliver this Joinder Agreement as of [                              ,           ].

 

 

[NAME OF NEW LENDER]

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

Notice Address:

 

 

 

Attention:

 

 

 

Telephone:

 

 

 

Facsimile:

 

 

 

 

 

 

 

 

 

WESCO HOLDINGS, INC.

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

 

 

 

WESCO AIRCRAFT HARDWARE CORP.

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 



 

Consented to by:

 

BARCLAYS BANK PLC, as
Administrative Agent

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 



 

SCHEDULE A
TO JOINDER AGREEMENT

 

Name of New Lender

 

Type of Commitment

 

Amount

 

[                 ]

 

[New Term Loan] [Dollar Revolving] Commitment

 

$

 

 

 



 

EXHIBIT I

 

FORM OF LENDER ADDENDUM

 

Reference is made to the Credit Agreement dated as of April 7, 2011 (as amended, amended and restated, extended, supplemented, or otherwise modified or replaced from time to time, the “ Credit Agreement ”) among Wesco Holdings, Inc., a Delaware corporation (“ Holdings ”), Wesco Aircraft Hardware Corp., a California corporation (the “ Borrower ”), the lenders party thereto from time to time, Bank of America, N.A., as Syndication Agent, Barclays Bank PLC, as Administrative Agent (in such capacity, the “ Administrative Agent ”), Collateral Agent  and Documentation Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“ MLPFS ”), Key Bank, N.A. and Barclays Capital (“ Barclays Capital ”), the investment banking division of Barclays Bank PLC, as Joint Lead Arrangers, and MLFPS, Barclays Capital, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation and Royal Bank of Canada, as Joint Bookrunners. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

 

Upon execution and delivery of this Lender Addendum by the parties hereto as provided in Section 10.20 of the Credit Agreement, the undersigned hereby becomes a Lender under the Credit Agreement having the Commitments set forth beneath its signature hereto, effective as of the Closing Date.

 

THIS LENDER ADDENDUM SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

 

This Lender Addendum may be executed by one or more of the parties hereto on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.  Delivery of an executed signature page hereof by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.

 



 

IN WITNESS WHEREOF, the parties hereto have caused this Lender Addendum to be duly executed and delivered by their proper and duly authorized officers as of this      day of April, 2011.

 

 

[INSERT LENDER NAME]

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

[Revolving] [Tranche A] [Tranche B] Commitment:  $                        

 


 

EXHIBIT J

 

AUCTION PROCEDURES

 

This outline of auction procedures (the “ Auction Procedures ”)  is intended to summarize certain basic terms of the modified Dutch auction procedures pursuant to and in accordance with the terms and conditions of Section 10.6(g) of the Credit Agreement, of which this Exhibit J  is a part.  It is not intended to be a definitive statement of all of the terms and conditions of a modified Dutch auction, the definitive terms and conditions for which shall be set forth in the applicable Auction Procedures set for each Auction (the “ Offer Documents ”).  None of the Administrative Agent, the Auction Manager and any other Agent, or any of their respective affiliates, makes any recommendation pursuant to the Offer Documents as to whether or not any Term Lender of any Class should sell its Term Loans of any Class to Holdings or any of its Subsidiaries pursuant to the Offer Documents, nor shall the decision by the Administrative Agent, the Auction Manager or any other Agent (or any of their affiliates) in its capacity as a Term Lender be deemed to constitute such a recommendation.  Each Term Lender should make its own decision on whether to sell any of its Term Loans and, if it decides to do so, the principal amount of and price to be sought for such Term Loans.  In addition, each Term Lender should consult its own attorney, business advisor or tax advisor as to legal, business, tax and related matters concerning this Auction  and the Offer Documents.  Capitalized terms not otherwise defined in this Exhibit have the meanings assigned to them in the Credit Agreement.

 

Summary.   Holdings or any of its Subsidiaries may conduct one or more modified Dutch auctions in order to purchase all or any portion of the Term Loans of any Class (each, an “ Auction ”) pursuant to the procedures described herein.

 

Notice Procedures.   In connection with each Auction, Holdings or the applicable Subsidiary will provide notification to the Auction Manager (for distribution to the Term Lenders of the applicable Class) of the Term Loans that will be the subject of the Auction (an “ Auction Notice ”).  Each Auction Notice shall contain (i) the maximum principal amount of Term Loans of the applicable Class Holdings or the applicable Subsidiary is willing to purchase in the Auction (the “ Auction Amount ”), which shall be no less than $20,000,000 or an integral multiple of $1,000,000 in excess of thereof; (ii) the range of discounts to par (the “ Discount Range ”), expressed as a range of prices per $1,000 (in increments of $5), at which Holdings or the applicable Subsidiary would be willing to purchase Term Loans in the Auction; and (iii) the date on which the Auction will conclude, on which date Return Bids (as defined below) will be due by 1:00 p.m. New York time, as such date and time may be extended (such time, the “ Expiration Time ”) for a period not exceeding three Business Days upon notice by Holdings or the applicable Subsidiary to the Auction Manager received not less than 24 hours before the original Expiration Time.  An Auction shall be regarded as a “Failed Auction” in the event that either (x) Holdings or the applicable Subsidiary withdraws such Auction in accordance with the terms hereof or (y) the Expiration Time occurs with no Qualifying Bids (as defined below) having been received.  In the event of a Failed Auction, Holdings or the applicable Subsidiary shall not be permitted to deliver a new Auction Notice prior to the date occurring [five (5)] Business Days after such withdrawal or Expiration Time, as the case may be.

 

Reply Procedures.   In connection with any Auction, each Term Lender holding Term Loans of the applicable Class wishing to participate in such Auction shall, prior to the Expiration Time, provide the Auction Manager with a notice of participation (the “ Return Bid ”, in the form included in the Offer Document), which shall specify (i) a discount to par expressed as a price per $1,000 (in increments of $5) of Term Loans (the “ Reply Price ”) within the Discount Range and (ii) the principal amount of Term Loans of such Class, in an amount not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof, that such Term Lender is willing to offer for sale at its Reply Price (the “ Reply Amount ”);

 



 

provided , that such Term Lender may submit a Reply Amount that is less than the minimum amount and/or incremental amount requirements described above only if the Reply Amount comprises the entire amount of Term Loans of the applicable Class held by such Term Lender.  Each Term Lender of the applicable Class may only submit one Return Bid per Auction.  In addition to the Return Bid, the participating Term Lender must execute and deliver, to be held by the Auction Manager, an Affiliate Assignment Agreement.  Neither Holdings nor any of its Subsidiary will purchase any Term Loans at a price that is outside of the applicable Discount Range, nor will any Return Bids (including any component bids specified therein) submitted at a price that is outside such applicable Discount Range be considered in any calculation of the Applicable Threshold Price (as defined below).

 

Acceptance Procedures.   Based on Reply Prices and Reply Amounts received by the Auction Manager, the Auction Manager, in consultation with Holdings or the applicable Subsidiary, will calculate the lowest purchase price (the “ Applicable Threshold Price” ) for the Auction within the Discount Range for the Auction that will allow Holdings or the applicable Subsidiary to complete the Auction by purchasing the full Auction Amount (or such lesser amount of Term Loans of the applicable Class for which Holdings or the applicable Subsidiary has received Qualifying Bids (as defined below)).  Holdings or the applicable Subsidiary shall purchase Term Loans of the applicable Class from each Term Lender whose Return Bid is within the Discount Range and contains a Reply Price that is equal to or less than the Applicable Threshold Price (each, a “ Qualifying Bid ”). All Term Loans of the applicable Class included in Qualifying Bids received at a Reply Price lower than the Applicable Threshold Price will be purchased at the applicable Reply Price and shall not be subject to proration.

 

Proration Procedures.   All Term Loans offered in Return Bids constituting Qualifying Bids at the Applicable Threshold Price will be purchased at the Applicable Threshold Price; provided that if the aggregate principal amount of all Term Loans for which Qualifying Bids have been submitted in any given Auction at the Applicable Threshold Price would exceed the remaining portion of the Auction Amount (after deducting all Term Loans to be purchased below the Applicable Threshold Price), Holdings or the applicable Subsidiary shall purchase the Term Loans for which the Qualifying Bids submitted were at the Applicable Threshold Price ratably based on such Term Lenders’ Tranche A Term Percentages, Tranche B Term Percentages or New Tranche Term Percentages, as the case may and in an aggregate amount equal to the amount necessary to complete the purchase of the Auction Amount.

 

Notification Procedures.   The Auction Manager will calculate the Applicable Threshold Price and post the Applicable Threshold Price and proration factor onto an internet site (including an IntraLinks, SyndTrak or other electronic workspace) in accordance with the Auction Manager’s standard dissemination practices by 4:00 p.m. New York time on the same Business Day as the date the Return Bids were due.  The Auction Manager will insert the principal amount of Term Loans of the applicable Class to be assigned and the applicable settlement date into each applicable Affiliate Assignment Agreement received in connection with a Qualifying Bid.  Upon request of the submitting Term Lender, the Auction Manager will promptly return any Affiliate Assignment Agreement received in connection with a Return Bid that is not a Qualifying Bid.

 

Additional Procedures.   Once initiated by an Auction Notice, Holdings or the applicable Subsidiary may withdraw an Auction only in the event that, as of such time, no Qualifying Bid has been received by the Auction Manager.  Furthermore, in connection with any Auction, upon submission by a Term Lender of a Return Bid, such Term Lender will not have any withdrawal rights. Any Return Bid delivered to the Auction Manager may not be modified, revoked, terminated or cancelled by a Term Lender.  However, an Auction may become void if the conditions to the purchase of Term Loans by Holdings or the applicable Subsidiary required by the terms and conditions of Section 10.6(g)(iii) of the Credit Agreement are not met.  The purchase price in respect of each Auction shall be paid by Holdings or the applicable Subsidiary directly to the respective assigning Term Lender on a settlement date as determined by the Auction Manager in consultation with Holdings or the applicable Subsidiary (which shall be no later than ten (10) Business Days or such longer period as may be agreed after the date Return

 



 

Bids are due).  Holdings or the applicable Subsidiary shall execute each applicable Affiliate Assignment Agreement received in connection with a Qualifying Bid.

 

All questions as to the form of documents and validity and eligibility of Term Loans that are the subject of an Auction will be determined by the Auction Manager, in consultation with Holdings or the applicable Subsidiary, which determination will be final and binding.  The Auction Manager’s interpretation of the terms and conditions of the Offer Document, in consultation with Holdings or the applicable Subsidiary, will be final and binding.

 

None of the Administrative Agent, the Auction Manager, any other Agent or any of their respective affiliates assumes any responsibility for the accuracy or completeness of the information concerning Holdings or any of its Subsidiaries, each other Loan Party, or any of their affiliates (whether contained in the Offer Documents or otherwise) or for any failure to disclose events that may have occurred and may affect the significance or accuracy of such information.

 

This Exhibit J shall not require Holdings or any of its Subsidiaries to initiate any Auction.

 



 

EXHIBIT K-1

 

NOTICE OF TERM LOAN BORROWING

 

April [    ], 2011

 

Barclays Bank PLC,

as Administrative Agent for the

Term Lenders party to the Credit Agreement

referred to below

 

Attention:

 

Ladies and Gentlemen:

 

The undersigned refers to the Credit Agreement dated as of April 7, 2011 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among Wesco Holdings, Inc., Wesco Aircraft  Hardware Corp., as the Borrower, the several banks and other financial institutions or entities from time to time parties to the Credit Agreement as lenders, Bank of America, N.A., as Syndication Agent, Barclays Bank PLC, as Administrative Agent, Collateral Agent and Documentation Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“ MLPFS ”), Key Bank, N.A. and Barclays Capital (“ Barclays Capital ”), the investment banking division of Barclays Bank PLC, as Joint Lead Arrangers, and MLFPS, Barclays Capital, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation and Royal Bank of Canada, as Joint Bookrunners.  Terms defined in the Credit Agreement are used herein as defined therein.

 

The undersigned hereby requests a Term Loan borrowing under the Credit Agreement (the “ Proposed Borrowing ”), as follows:

 

(1)                                   The Business Day of the Proposed Borrowing is April [    ], 2011.

 

(2)                                   The Proposed Borrowing is to be comprised of [ABR Loans][Eurocurrency Loans, having an Interest Period of [    ] months duration].

 

(3)                                   The aggregate amount of the Proposed Borrowing is [$               of Tranche A Term Loans and $           of Tranche B Term Loans] [$                    ].

 

(4)                                   The account of the undersigned to which the proceeds of the Proposed Borrowing are to be made available is as follows:

 

Bank Name:

Bank Address:

ABA Number:

Account Number:

Attention:

Reference:

 



 

The undersigned hereby represents and warrants that, as of the date of this Notice of Borrowing and the date of the Proposed Borrowing, (i) each of the representations and warranties made by any Loan Party in or pursuant to the Loan Documents shall be true and correct in all material respects, in each case except to the extent that such representations and warranties relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date and (ii) at the time of and immediately after giving effect to such Proposed Borrowing no Default or Event of Default shall have occurred and be continuing.

 

 

 

Very truly yours,

 

 

 

WESCO AIRCRAFT HARDWARE CORP.

 

 

 

 

 

By:

 

 

  Name:

 

 

  Title:

 

 



 

EXHIBIT K-2

 

NOTICE OF REVOLVING BORROWING

 

[                ], 201[   ]

 

Barclays Bank PLC,

as Administrative Agent for the

Revolving Lenders party to the Credit Agreement

referred to below

 

Attention:

 

Ladies and Gentlemen:

 

The undersigned refers to the Credit Agreement dated as of April 7, 2011 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among Wesco Holdings, Inc., Wesco Aircraft  Hardware Corp., as the Borrower, the several banks and other financial institutions or entities from time to time parties to the Credit Agreement as lenders, Bank of America, N.A., as Syndication Agent, Barclays Bank PLC, as Administrative Agent, Collateral Agent and Documentation Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“ MLPFS ”), Key Bank, N.A. and Barclays Capital (“ Barclays Capital ”), the investment banking division of Barclays Bank PLC, as Joint Lead Arrangers, and MLFPS, Barclays Capital, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation and Royal Bank of Canada, as Joint Bookrunners.  Terms defined in the Credit Agreement are used herein as defined therein.

 

The undersigned hereby requests a Borrowing under the Credit Agreement (the “ Proposed Borrowing ”), as follows:

 

(1)                                   The Business Day of the Proposed Borrowing is                            , 201  .

 

(2)                                   The Currency of the Proposed Borrowing is                       .

 

(3)                                   The Proposed Borrowing is to be comprised of [ABR Loans] [Eurocurrency Loans with an Interest Period of [              ] months’ duration].

 

(4)                                   The aggregate amount of the Proposed Borrowing is [U.S. $                     of Dollar Revolving Loans] [and] [U.S. $                     of Multicurrency Revolving Loans].

 

(5)                                   The account of the undersigned to which the proceeds of the Proposed Borrowing are to be made available is as follows:

 

Bank Name:

Bank Address:

ABA Number:

Account Number:

Attention:

Reference:

 

The undersigned hereby represents and warrants that, as of the date of this Notice of Borrowing and the date of the Proposed Borrowing (i) each of the representations and warranties made by any Loan Party in or pursuant to the Loan Documents shall be true and correct in all material respects, in each case except to the extent that such representations and warranties relate to an earlier date, in which

 



 

case such representations and warranties shall be true and correct in all material respects as of such earlier date; and (ii) at the time of and immediately after giving effect to such Proposed Borrowing, no Default or Event of Default has occurred and is continuing.

 

 

 

Very truly yours,

 

 

 

WESCO AIRCRAFT HARDWARE CORP.

 

 

 

 

 

By:

 

 

  Name:

 

 

  Title:

 

 


 

EXHIBIT L

 

FORM OF PREPAYMENT OPTION NOTICE

 

[Tranche B Term Lender] [New Term Lender] party to the Credit Agreement

Referred to below

 

Attention of

Telecopy No.

 

Ladies and Gentlemen:

 

Reference is made to the Credit Agreement dated as of April 7, 2011 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among Wesco Holdings, Inc., Wesco Aircraft  Hardware Corp. (the “ Borrower ”), the several banks and other financial institutions or entities from time to time parties to the Credit Agreement as lenders, Bank of America, N.A., as Syndication Agent, Barclays Bank PLC, as Administrative Agent (in such capacity, the “ Administrative Agent ”), Collateral Agent and Documentation Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“ MLPFS ”), Key Bank, N.A. and Barclays Capital (“ Barclays Capital ”), the investment banking division of Barclays Bank PLC, as Joint Lead Arrangers, and MLFPS, Barclays Capital, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation and Royal Bank of Canada, as Joint Bookrunners.  Terms defined in the Credit Agreement are used herein as defined therein.

 

The Administrative Agent hereby gives notice of an offer of prepayment made by the Borrower pursuant to Section 2.12(f) of the Credit Agreement in the Prepayment Amount for the [Tranche B Term Loans] [New Term Loans].  Amounts applied to prepay the [Tranche B Term Loans] [name of Tranche of New Term Loans] shall be applied pro rata to the [Tranche B Term Loans] [name of Tranche of New Term Loans] held by you.  The portion of the Prepayment Amount to be allocated to the [Tranche B Term Loans] [name of Tranche of New Term Loans] held by you and the date on which such prepayment will be made to you (should you elect to receive such prepayment) are set forth below:

 

(A)                               Total Prepayment Amount for the [Tranche B Term Loans]

[New Term Loans]:

 

(B)                                 Portion of Prepayment Amount for the

[Tranche B Term Loans] [New Term Loans]

to be received by you:

 

(C)                                 Prepayment Date (10 Business Days after the
date of this Prepayment Option Notice)
(the “ Mandatory Prepayment Date ”):

 

IF YOU DO NOT WISH TO RECEIVE ALL OF THE  PREPAYMENT AMOUNT FOR THE [TRANCHE B TERM LOANS] [NAME OF TRANCHE OF NEW TERM LOANS] TO BE ALLOCATED TO YOU ON THE MANDATORY PREPAYMENT DATE, please sign this notice in the space provided below and indicate the percentage of the Prepayment Amount for the [Tranche B Term Loans] [New Term Loans] otherwise payable that you do not wish to receive.  Please return this notice as so completed via telecopy to the attention of the Administrative Agent at [                        ] no later than 5:00pm, New York City time , one Business Day after receipt of this notice, at Telecopy No. [                      ].

 



 

IF YOU DO NOT RETURN THIS NOTICE YOU WILL RECEIVE 100% OF THE PREPAYMENT AMOUNT FOR THE [TRANCHE B TERM LOANS] [NAME OF TRANCHE OF NEW TERM LOANS] ALLOCATED TO YOU ON THE MANDATORY PREPAYMENT DATE.

 

[signature page follows]

 



 

 

BARCLAYS BANK PLC,

 

as Administrative Agent and as Collateral

 

Agent

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

 

NAME OF [TRANCHE B TERM LENDER] [NEW TERM LENDER]:

 

 

 

 

By:

 

 

Name:

Title:

 

 

 

Percentage of Prepayment Amount

 

Declined:       %

 

 



 

EXHIBIT M

 

NOTICE OF CONTINUATION/CONVERSION

 

[                ], 201    

 

Barclays Bank PLC,

as Administrative Agent for the

Lenders party to the Credit Agreement

referred to below

 

Attention:               

 

Ladies and Gentlemen:

 

Reference is made to the Credit Agreement dated as of April 7, 2011 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among Wesco Holdings, Inc., Wesco Aircraft  Hardware Corp. (the “ Borrower ”), the several banks and other financial institutions or entities from time to time parties to the Credit Agreement as lenders, Bank of America, N.A., as Syndication Agent, Barclays Bank PLC, as Administrative Agent, Collateral Agent and Documentation Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“ MLPFS ”), Key Bank, N.A. and Barclays Capital (“ Barclays Capital ”), the investment banking division of Barclays Bank PLC, as Joint Lead Arrangers, and MLFPS, Barclays Capital, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation and Royal Bank of Canada, as Joint Bookrunners.  Terms defined in the Credit Agreement are used herein as defined therein.

 

Pursuant to Section 2.13 of the Credit Agreement, the Borrower hereby requests the continuation or conversion of Loans under the Credit Agreement as follows:

 

1.  Tranche A Term Loans:

 

$ [      ,      ,      ]

 

Eurocurrency Loans to be continued with Interest Period of [        ] month(s)

 

 

 

$ [      ,      ,      ]

 

ABR Loans to be converted to Eurocurrency Loans with Interest Period of [        ] month(s)

 

 

 

$ [      ,      ,      ]

 

Eurocurrency Loans to be converted to ABR Loans

 

2.  Tranche B Term Loans:

 

$ [      ,      ,      ]

 

Eurocurrency Loans to be continued with Interest Period of [        ] month(s)

 

 

 

$ [      ,      ,      ]

 

ABR Loans to be converted to Eurocurrency Loans with Interest Period of          month(s)

 

 

 

$ [      ,      ,      ]

 

Eurocurrency Loans to be converted to ABR Loans

 

3. Dollar Revolving Loans:

 

$ [      ,      ,      ]

 

Eurocurrency Loans to be continued with Interest Period of [        ] month(s)

 

 

 

$ [      ,      ,      ]

 

ABR Loans to be converted to Eurocurrency Loans with Interest Period of          month(s)

 



 

$ [      ,      ,      ]

 

Eurocurrency Loans to be converted to ABR Loans

 

The Borrower hereby certifies that as of the date hereof, no event has occurred and is continuing or would result from the consummation of the conversion and/or continuation contemplated hereby that would constitute an Event of Default or a Default.

 

 

Very truly yours,

 

 

 

WESCO AIRCRAFT HARDWARE INC.

 

 

 

 

 

By:

 

 

Name:

 

Title:

 




Exhibit 10.2

 

EXECUTION VERSION

 

 

 

GUARANTEE AND COLLATERAL AGREEMENT

 

made by

 

WESCO HOLDINGS, INC.

 

and

 

WESCO AIRCRAFT HARDWARE CORP.,
as Borrower,

 

and the Subsidiary Guarantors party hereto

 

in favor of

 

BARCLAYS BANK PLC,
as Collateral Agent

 

Dated as of April 7, 2011

 

 

 



 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

SECTION 1.

DEFINED TERMS

1

1.1

Definitions

1

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

7

2.5

Guarantee Absolute and Unconditional

7

2.6

Reinstatement

8

2.7

Payments

8

 

 

 

SECTION 3.

GRANT OF SECURITY INTEREST

8

3.1

Grant of First Priority Security Interests

8

 

 

 

SECTION 4.

REPRESENTATIONS AND WARRANTIES

10

4.1

Representations in Credit Agreement

10

4.2

Title; No Other Liens

10

4.3

Names; Jurisdiction of Organization; Chief Executive Office

10

4.4

Pledged Securities

10

4.5

Intellectual Property

11

 

 

 

SECTION 5.

COVENANTS

11

5.1

Covenants in Credit Agreement

11

5.2

Investment Property

11

5.3

Commercial Tort Claims

11

 

 

 

SECTION 6.

REMEDIAL PROVISIONS

11

6.1

Certain Matters Relating to Receivables

11

6.2

Communications with Grantors; Grantors Remain Liable

12

6.3

Pledged Securities

12

6.4

Intellectual Property

13

6.5

Proceeds to be Turned Over To Collateral Agent

13

6.6

Application of Proceeds

14

6.7

Code and Other Remedies

14

6.8

Private Sales

15

6.9

Deficiency

15

 

 

 

SECTION 7.

THE COLLATERAL AGENT

15

7.1

Collateral Agent’s Appointment as Attorney-in-Fact, etc.

15

7.2

Duty of Collateral Agent

17

7.3

Execution of Financing Statements

17

7.4

Authority of Collateral Agent

17

 

 

 

SECTION 8.

MISCELLANEOUS

17

8.1

Amendments in Writing

17

 

i



 

8.2

Notices

17

8.3

No Waiver by Course of Conduct; Cumulative Remedies

18

8.4

Enforcement Expenses; Indemnification

18

8.5

Successors and Assigns

18

8.6

Set-Off

18

8.7

Counterparts

18

8.8

Severability

19

8.9

Section Headings

19

8.10

Integration

19

8.11

GOVERNING LAW

19

8.12

Submission To Jurisdiction; Waivers

19

8.13

Acknowledgements

19

8.14

Additional Grantors

20

8.15

Releases

20

8.16

WAIVER OF JURY TRIAL

20

 

 

 

SCHEDULES

 

 

 

 

 

Schedule 1

Notice Addresses

 

Schedule 2

Investment Property

 

Schedule 3

Legal Name, Jurisdictions of Organization and Chief Executive Offices

 

Schedule 4

Intellectual Property

 

 

 

 

ANNEXES

 

 

 

 

 

Annex I

Assumption Agreement

 

Annex II

Acknowledgement and Consent

 

 

ii



 

GUARANTEE AND COLLATERAL AGREEMENT

 

GUARANTEE AND COLLATERAL AGREEMENT, dated as of April 7, 2011, made by each of the signatories hereto, in favor of BARCLAYS BANK PLC, as Collateral Agent (in such capacity, the “ Collateral Agent ”) for the banks and other financial institutions or entities (the “ Lenders ”) from time to time parties to the Credit Agreement, dated as of April 7, 2011 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among Wesco Holdings, Inc., a Delaware corporation (“ Holdings ”), Wesco Aircraft Hardware Corp., a California corporation (the “ Borrower ”), the Lenders party thereto, Barclays Bank PLC, as Administrative Agent (in such capacity, the “ Administrative Agent ”), the Collateral Agent, Bank of America, N.A., as Syndication Agent, Merrill Lynch, Pierce Fenner & Smith Incorporated (“ MLPFS ”), Key Bank, N.A. and Barclays Capital (“ Barclays Capital ”), the investment banking division of Barclays Bank PLC, as Joint Lead Arrangers and MLFPS, Barclays Capital, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation and Royal Bank of Canada, as Joint Bookrunners.

 

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 Borrower upon the terms and subject to the conditions set forth therein;

 

WHEREAS, the Borrower is a member of an affiliated group of companies that includes each other Grantor (as defined below);

 

WHEREAS, the proceeds of the extensions of credit under the Credit Agreement will be used in part to enable the Borrower to make valuable transfers to one or more of the other Grantors in connection with the operation of their respective businesses;

 

WHEREAS, the Borrower 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; and

 

WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective extensions of credit to the Borrower under the Credit Agreement that the Grantors shall have executed and delivered this Agreement to the Collateral Agent for the ratable benefit of the Administrative Agent, the Collateral Agent and the other Secured Parties;

 

NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent, the Collateral Agent and the other Secured Parties to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrower thereunder, each Grantor hereby agrees with the Collateral Agent, for the ratable benefit of the Lenders, as follows:

 

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 are used herein as defined in the New York UCC: “ Accession ”, “ Account ”, “ As-Extracted Collateral ”, “ Chattel Paper ”, “ Commercial Tort Claim ”, “ Document ”, “ Equipment ”, “ Farm Products ”, “ Fixture ”, “ General Intangible ”, “ Goods ”, “ Instrument ”, “ Inventory ”, “ Letter-of-Credit Right ”, “ Securities Account ” and “ Supporting Obligations ”.

 



 

(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.

 

Borrower ”:  Wesco Aircraft Hardware Corp.

 

Borrower Credit Agreement Obligations ”:  the collective reference to the unpaid principal of and interest on the Loans, the Reimbursement Obligations and all other obligations and liabilities of the Borrower (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 the Borrower, 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 other Secured Party, 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 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, to the Collateral Agent or to the other Secured Parties that are required to be paid by the Borrower pursuant to the terms of any of the foregoing agreements).

 

Borrower Hedge Agreement Obligations ”:  the collective reference to all obligations and liabilities of the Borrower and its Subsidiaries (including, without limitation, interest accruing at the then applicable rate provided in any Specified Hedge Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) to any Lender or any Affiliate of any Lender (or any Lender or any Affiliate thereof at the time such Specified Hedge Agreement was entered into), 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, any Specified Hedge Agreement 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 relevant Lender or Affiliate thereof that are required to be paid by the Borrower and/or its Subsidiaries, as the case may be, pursuant to the terms of any Specified Hedge Agreement).

 

Borrower Obligations ”:  the collective reference to (i) the Borrower Credit Agreement Obligations and (ii) the Borrower Hedge Agreement Obligations, but only to the extent that, and only so long as, the Borrower Credit Agreement Obligations are secured and guaranteed pursuant hereto.

 

Collateral ”:  as defined in Section 3.1.

 

Collateral Account ”:  any collateral account established by the Collateral Agent as provided in Section 6.1 or 6.6.

 

Copyright Licenses ”:  all written agreements naming any Grantor as licensor or licensee (including, without limitation, those listed in Schedule 4 ), granting any right under any Copyright, including, without limitation, the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright.

 

2



 

Copyrights ”:  (i) all copyrights arising under the laws of the United States, whether registered or unregistered and whether published or unpublished (including, without limitation, those listed in Schedule 4 ), 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.

 

Deposit Account ”:  as defined in the Uniform Commercial Code of any applicable jurisdiction and, in any event, including, without limitation, any demand, time, savings, passbook or like account maintained with a depositary institution.

 

Excluded Capital Stock ”:  (a) any Capital Stock with respect to which, in the reasonable judgment of the Administrative Agent (confirmed by notice to the Borrower), (i) the cost of pledging such Capital Stock in favor of the Secured Parties under the Security Documents shall be excessive in view of the benefits to be obtained by the Lenders therefrom or (ii) would result in adverse tax consequences, (b) solely in the case of any pledge of Capital Stock of any Foreign Subsidiary or any Foreign Subsidiary Holding Company to secure the Obligations, any Capital Stock of any class of such Foreign Subsidiary or such Foreign Subsidiary Holding Company in excess of 65% of the outstanding Capital Stock of such class (such percentage to be adjusted by mutual agreement (not to be unreasonably withheld) upon any change in law as may be required to avoid adverse U.S. federal income tax consequences to Holdings or any Subsidiary), (c) the Capital Stock of any Domestic Subsidiary that is a direct or indirect Subsidiary of a Foreign Subsidiary or a Foreign Subsidiary Holding Company, (d) any Capital Stock to the extent the pledge thereof would violate any applicable Requirement of Law, (e) the Capital Stock of any Special Purpose Entity, any Immaterial Subsidiary (for so long as such Subsidiary remains an Immaterial Subsidiary) or any Unrestricted Subsidiary, (f) in the case of any Capital Stock of any Subsidiary that is subject of a Lien permitted under Section 7.3(g) of the Credit Agreement securing Indebtedness permitted under Section 7.2(t) or (u) of the Credit Agreement any Capital Stock of each such Subsidiary to the extent that (i) a pledge thereof to secure the Obligations is prohibited by any applicable Contractual Obligations (other than customary non-assignment provisions which are ineffective under the Uniform Commercial Code) or (ii) any Contractual Obligation prohibits such a pledge without the consent of the other party; provided that this clause (ii) shall not apply if (A) such other party is a Loan Party or a wholly-owned Subsidiary or (B) consent has been obtained to consummate such pledge and for so long as such Contractual Obligation or replacement or renewal thereof is in effect or (iii) a pledge thereof to secure the Obligations would give any other party to a Contractual Obligation the right to terminate its obligations thereunder (other than customary non-assignment provisions which are ineffective under the Uniform Commercial Code or other applicable law); provided that this clause (iii) shall not apply if such other party is a Loan Party or a wholly-owned Subsidiary and (g) the Capital Stock of any non-wholly owned Subsidiary that would otherwise be required to become a Guarantor pursuant to the requirements of Section 6.8(c) of the Credit Agreement.

 

Foreign Subsidiary Voting Stock ”:  the voting Capital Stock of (i) any Foreign Subsidiary that is a Restricted Subsidiary or (ii) any Domestic Subsidiary, substantially all of the assets of which consist of the Capital Stock of one or more Foreign Subsidiaries.

 

Grantors ”:  the collective reference to each signatory hereto (other than the Collateral Agent) together with any other entity that may become a party hereto as provided herein.

 

Guarantor Obligations ”:  with respect to any Guarantor, all obligations and liabilities of such Guarantor which may arise under or in connection with this Agreement (including, without limitation, Section 2) 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

 

3



 

Administrative Agent, to the Collateral Agent or to the other Secured Parties 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 Holdings and the Subsidiary Guarantors that may become a party hereto as provided herein.

 

Intellectual Property ”:  the collective reference to all rights, priorities and privileges relating to intellectual property, arising under United States, 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.

 

Intercompany Note ”:  any promissory note evidencing loans made by any Grantor to Holdings or any of its Subsidiaries.

 

Investment Property ”:  the collective reference to (i) all “investment property” as such term is defined in Section 9-102(a)(49) of the New York UCC (other than any Excluded Capital Stock excluded from the definition of “Pledged Stock”) and (ii) whether or not constituting “investment property” as so defined, all Pledged Securities.

 

Issuers ”:  the collective reference to each issuer of a Pledged Security.

 

Liens ”:  as defined in Section 3.1.

 

New York UCC ”:  the Uniform Commercial Code from time to time in effect in the State of New York.

 

Obligations ”:  (i) in the case of the Borrower, the Borrower Obligations and (ii) in the case of each Guarantor, its Guarantor Obligations.

 

Patent License ”:  all written agreements 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 4 .

 

Patents ”:  (i) all letters patent of the United States, all reissues and extensions thereof, and all goodwill associated therewith, including, without limitation, any of the foregoing referred to in Schedule 4 , (ii) all applications for letters patent of the United States and all continuations and continuations in part thereof, including, without limitation, any of the foregoing referred to in Schedule 4 , and (iii) all rights to obtain any reissues or extensions of the foregoing.

 

Pledged Notes ”:  all promissory notes listed on Schedule 2 , all Intercompany Notes at any time issued to any Grantor in excess of $5,000,000 (or Intercompany Notes which, in the aggregate, are in excess of $5,000,000) and all other promissory notes issued to or held by any Grantor in excess of $5,000,000 (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 collective reference to (i) the shares of Capital Stock listed on Schedule 2 and (ii) any other shares, stock certificates, options, interests or rights of any nature

 

4



 

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 other than Excluded Capital Stock; provided that in no event shall more than 65% of the total outstanding Foreign Subsidiary Voting Stock be required to be pledged hereunder.

 

Proceeds ”:  all “proceeds” as such term is defined in Section 9-102(a)(64) of the New York UCC and, in any event, shall include, without limitation, all dividends or other income from the Investment Property, collections thereon or distributions or payments with respect thereto.

 

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.

 

Trademark License ”:  all written agreements 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 4 .

 

Trademarks ”:  (i) all trademarks, trade names, corporate names, company names, business names, domain 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 (except for “intent to use” applications for trademark or service mark registrations), whether in the United States Patent and Trademark Office or in any similar office or agency of the United States or any State thereof, and all United States common-law rights related thereto, including, without limitation, any of the foregoing referred to in Schedule 4 , and (ii) the right to obtain all renewals thereof.

 

Vehicles ”:  all aircrafts, cars, trucks, trailers, construction and earth moving equipment and other vehicles covered, in each case, 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 co ntext 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 Administrative Agent, the Collateral Agent, the other Secured Parties and their respective permitted successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Borrower when due (whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations.

 

5



 

(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).

 

(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 Administrative Agent, the Collateral Agent or any other Secured Party 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 (other than contingent or indemnification obligations not then due), no Letter of Credit (that is not cash collateralized or backstopped to the reasonable satisfaction of the Issuing Lender or purchasing Lender, as applicable, in respect thereof) shall be outstanding and the Commitments shall have been terminated, notwithstanding that from time to time during the term of the Credit Agreement the Borrower may be free from any Borrower Obligations, provided that any Guarantor shall be released from its guarantee contained in this Section 2 as provided in Section 8.15.

 

(e)   No payment (other than payment in full) made by the Borrower, any of the Guarantors, any other guarantor or any other Person or received or collected by the Administrative Agent, the Collateral Agent or any other Secured Party from the Borrower, 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 shall have been paid in full (other than contingent or indemnification obligations not then due), no Letter of Credit (that is not cash collateralized or backstopped to the reasonable satisfaction of the Issuing Lender or purchasing Lender, as applicable, in respect thereof) shall be outstanding and the Commitments shall have been terminated, provided that that any Guarantor shall be released from its guarantee contained in this Section 2 as provided in Section 8.15.

 

2.2            Right of Contribution .  Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment.  Each 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 Guarantor to the Administrative Agent, the Collateral Agent and the other Secured Parties, and each Guarantor shall remain liable to the Administrative Agent, the Collateral Agent and the other Secured Parties for the full amount guaranteed by such 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 Administrative Agent, the Collateral Agent or any other Secured Party, no Guarantor shall be entitled to be subrogated to any of the rights of the Administrative Agent, the Collateral Agent or any other Secured Party against the Borrower or any other Guarantor or any collateral security or guarantee or right of offset held by the Administrative Agent, the Collateral Agent or any other Secured Party for the payment of the Borrower Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrower or any other

 

6


 

 

Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Administrative Agent, the Collateral Agent and the other Secured Parties by the Borrower on account of the Borrower Obligations shall have been paid in full (other than contingent or indemnification obligations not then due), no Letter of Credit (that is not cash collateralized or backstopped to the reasonable satisfaction of the Issuing Lender or purchasing Lender, as applicable, in respect thereof) shall be outstanding and the Commitments shall have been terminated.  If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of such Borrower Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Administrative Agent, the Collateral Agent and the other Secured Parties, 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.

 

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 Administrative Agent, the Collateral Agent or any other Secured Party may be rescinded by the Administrative Agent, the Collateral Agent or such other Secured Party 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 Administrative Agent, the Collateral Agent or any other Secured Party, 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 Administrative Agent (or the Required Lenders or, if so specified in the Credit Agreement, all Lenders or the Majority Facility Lenders in respect of any Facility) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Administrative Agent, the Collateral Agent or any other Secured Party for the payment of the Borrower Obligations may be sold, exchanged, waived, surrendered or released.  Neither the Administrative Agent, the Collateral Agent nor any other Secured Party 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 Administrative Agent, the Collateral Agent or any other Secured Party 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 the Borrower and any of the Guarantors, on the one hand, with respect to the Loan Documents and the Administrative Agent, the Collateral Agent and the other Secured Parties, 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 the Borrower or any of the Guarantors with respect to the Borrower Obligations.  Each Guarantor understands and agrees that, to the fullest extent permitted by applicable law, the guarantee of such Guarantor 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 Administrative Agent or any Lender, (b) any defense, set-off or

 

7



 

counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Borrower or any other Person against the Administrative Agent, the Collateral Agent or any other Secured Party, or (c) any other circumstance whatsoever (other than a defense of payment or performance) (with or without notice to or knowledge of the Borrower or any Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Borrower from the Borrower Obligations, or of such Guarantor under the guarantee of such Guarantor 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 Administrative Agent, the Collateral Agent or any other Secured Party 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 the Borrower, 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 Administrative Agent, the Collateral Agent or any other Secured Party to make any such demand, to pursue such other rights or remedies or to collect any payments from the Borrower, 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 the Borrower, any other Guarantor or any other Person or any such collateral security, guarantee or right 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 Administrative Agent, the Collateral Agent or any other Secured Party 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 Administrative Agent, the Collateral Agent or any other Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower 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, the 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 Administrative Agent without set-off or counterclaim in Dollars at the Funding Office.

 

SECTION 3.            GRANT OF SECURITY INTEREST

 

3.1            Grant of First Priority Security Interests .  Each Grantor hereby grants to the Collateral Agent, for the ratable benefit of the Secured Parties, a security interest (“ Liens ”) 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 “ 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 Obligations:

 

(a)   all Accounts;

 

(b)   all Chattel Paper;

 

(c)   all Deposit Accounts;

 

(d)   all Documents;

 

(e)   all Equipment;

 

8



 

(f)   all Fixtures;

 

(g)   all General Intangibles;

 

(h)   all Goods not covered by the other clauses of this Section 3;

 

(i)   all Instruments, including the Pledged Notes;

 

(j)   all Intellectual Property;

 

(k)   all Inventory;

 

(l)   all Investment Property;

 

(m)   all other tangible and intangible personal property not otherwise described above;

 

(n)   all books and records pertaining to the Collateral; and

 

(o)   to the extent not otherwise included, all Proceeds, Supporting Obligations and products of any of the Collateral 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;

 

provided , however , that notwithstanding any of the other provisions set forth in this Section 3.1, this Agreement shall not constitute a grant of a security interest in (i) any leasehold interest in real property (and any Fixtures relating thereto) and any Fixtures relating to any owned real property to the extent that the Collateral Agent is not entitled to a security interest with respect to such owned real property under the terms of the Credit Agreement, (ii) any Vehicles and all Proceeds thereof, (iii) any property to the extent that such grant of a security interest is prohibited by any Requirements of Law of a Governmental Authority, requires a consent not obtained of any Governmental Authority pursuant to such Requirement of Law or is prohibited by, or constitutes a breach or default under or results in the termination of or requires any consent not obtained under, any contract, license, agreement, instrument (including any permitted liens, leases and licenses) or other document evidencing or giving rise to such property or, in the case of any Investment Property, any Pledged Security, any applicable shareholder or similar agreement, except to the extent that such Requirement of Law or the term in such contract, license, agreement, instrument or other document or shareholder or similar agreement providing for such prohibition, breach, default or termination or requiring such consent is ineffective under applicable law, (iv) any Collateral that constitutes Equipment subject to a certificate of title statute, Farm Products, Accessions, Letter of Credit Rights, Commercial Tort Claims and As-Extracted Collateral, (v) any Collateral to the extent the granting of such security interest would result in adverse tax consequences as reasonably determined by the Administrative Agent, or as to which the Administrative Agent reasonably determines that the burden or cost of obtaining a security interest or perfection thereof is excessive when compared to the benefit to the Secured Parties of the security afforded thereby (in each case as confirmed by written notice to the Borrower) and (vi) Excluded Capital Stock.  It is hereby understood and agreed that any Property described in the preceding proviso, and any Property that is otherwise expressly excluded from clauses (a) through (o) above, shall be excluded from the definition of “Collateral”.

 

Notwithstanding anything to the contrary contained in the foregoing or otherwise in this Agreement, no Grantor shall be required to (x) enter into control agreements with respect to, or otherwise perfect any security interest by “control” over, securities accounts, deposit accounts, other bank accounts, cash and cash equivalents and accounts related to the clearing, payment processing and similar operations of Holdings and its Restricted Subsidiaries, or (y) take any action in any jurisdiction (other than in the

 

9



 

United States of America, any state thereof and the District of Columbia) to perfect any security interest in Capital Stock of Foreign Subsidiaries.

 

SECTION 4.            REPRESENTATIONS AND WARRANTIES

 

To induce the Administrative Agent, the Collateral Agent and the Secured Parties to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrower, each Guarantor and each Grantor hereby represents and warrants to each of the Administrative Agent, the Collateral Agent and each other Secured Party that:

 

4.1            Representations in Credit Agreement .  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 in all material respects, and each of the Administrative Agent, the Collateral Agent and each other Secured Party 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 Holdings’ or the Borrower’s knowledge shall, for the purposes of this Section 4.1, be deemed to be a reference to such Guarantor’s knowledge.

 

4.2            Title; No Other Liens .  Except as otherwise permitted under Section 7.3 of the Credit Agreement, such Grantor owns or has rights in each item of the Collateral free and clear of any and all Liens or claims of others.  Except as otherwise permitted under Section 7.3 of the Credit Agreement, 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 financing statements that have been filed without the consent of the Grantor.  For the avoidance of doubt, it is understood and agreed that any Grantor may, as part of its business, grant licenses to third parties to use Intellectual Property owned, licensed or developed by a Grantor.  For purposes of this Agreement and the other Loan Documents, such licensing activity shall not constitute a “Lien” on such Intellectual Property.  Each of the Administrative Agent, the Collateral Agent and each Lender understands that any such licenses may be exclusive to the applicable licensees, and such exclusivity provisions may limit the ability of the Administrative Agent to utilize, sell, lease, license or transfer the related Intellectual Property or otherwise realize value from such Intellectual Property  pursuant hereto.

 

4.3            Names; Jurisdiction of Organization; Chief Executive Office .  On the date hereof, such Grantor’s full and correct legal name, jurisdiction of organization, identification number from the jurisdiction of organization (if any), the location of such Grantor’s chief executive office specified on Schedule 3 .

 

4.4            Pledged Securities .  On the date hereof, the shares of Pledged Stock pledged by such Grantor hereunder:

 

(a)    with respect to the shares of Pledged Stock issued by the Borrower and any other Restricted Subsidiary, have been duly authorized, validly issued and are fully paid and non-assessable, to the extent such concepts are applicable; and

 

(b)   constitute all the issued and outstanding shares of all classes of the Capital Stock of each Issuer owned by such Grantor or, in the case of Foreign Subsidiary Voting Stock, 65% of the outstanding Foreign Subsidiary Voting Stock of each relevant Issuer.

 

10



 

4.5            Intellectual Property .

 

(a)   Schedule 4 lists all material Intellectual Property owned by such Grantor in its own name on the date hereof.

 

(b)   Except as set forth in Schedule 4 , on the date hereof, none of the material Intellectual Property is the subject of any licensing or franchise agreement pursuant to which such Grantor is the licensor or franchisor.

 

SECTION 5.            COVENANTS

 

Each Guarantor and each Grantor covenants and agrees with the Administrative Agent, the Collateral Agent and the other Secured Parties that, from and after the date of this Agreement until the Obligations shall have been paid in full (other than contingent and indemnification obligations not yet due and owing), no Letter of Credit (that is not cash collateralized or backstopped to the reasonable satisfaction of the Issuing Lender or purchasing Lender, as applicable, in respect thereof) shall be outstanding and the Commitments shall have been 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            Investment Property .  In the case of each Grantor which is an Issuer, such Issuer agrees that (a) 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 and (b) the terms of Sections 6.3(c) and 6.8 shall apply to it, mutatis mutandis, with respect to all actions that may be required of it pursuant to Section 6.3(c) or 6.8 with respect to the Pledged Securities issued by it.

 

SECTION 6.            REMEDIAL PROVISIONS

 

6.1            Certain Matters Relating to Receivables .

 

(a)   At any time during the continuance of an Event of Default, upon the Collateral Agent’s reasonable request at the expense of the relevant Grantor, such Grantor shall cause independent public accountants or others reasonably 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.

 

(b)   If required by the Collateral Agent at any time after the occurrence and during the continuance of an Event of Default under Section 8(a) or 8(f) of the Credit Agreement, 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 Administrative Agent, the Collateral Agent and the other Secured Parties only as provided in Section 6.6, and (ii) until so turned over, shall be held by such Grantor in trust for the Administrative Agent, the Collateral Agent and the other Secured Parties, 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.

 

11



 

(c)   If an Event of Default has occurred and is continuing and at the Collateral Agent’s request, each Grantor shall deliver to the Collateral Agent all documents evidencing, and relating to, the agreements and transactions which gave rise to the Receivables, including, without limitation, all orders, invoices and shipping receipts.

 

6.2            Communications with Grantors; Grantors Remain Liable .

 

(a)   Upon the request of the Collateral Agent at any time after the occurrence and during the continuance of an Event of Default under Section 8(a) or 8(f) of the Credit Agreement, each Grantor shall notify obligors on the Receivables that the Receivables have been assigned to the Collateral Agent for the ratable benefit of the Administrative Agent, the Collateral Agent and the other Secured Parties and that payments in respect thereof shall be made directly to the Collateral Agent.

 

(b)   Anything herein to the contrary notwithstanding, each Grantor shall remain liable under 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.  Neither the Administrative Agent, the Collateral Agent nor any other Secured Party 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 Administrative Agent, the Collateral Agent or any other Secured Party of any payment relating thereto, nor shall the Administrative Agent, the Collateral Agent or any other Secured Party 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 Securities .  (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 and other distributions paid in respect of the Pledged Stock and all payments made in respect of the Pledged Notes to the extent permitted in the Credit Agreement, and to exercise all voting and corporate rights with respect to the Pledged Securities.

 

(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) unless otherwise provided in the Credit Agreement, 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 the order set forth in Section 6.6, 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 reasonably determine), all without liability (except liabilities resulting from gross negligence or willful misconduct of the Collateral Agent) except to

 

12



 

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 unless the Collateral Agent has given notice of its intent to exercise as set forth above.

 

(c)   Each Grantor hereby authorizes and instructs each Issuer of any Pledged Securities pledged by such Grantor hereunder to comply with any instruction received by it from the Administrative 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.

 

6.4            Intellectual Property .

 

(i)             For the purpose of enabling the Collateral Agent to exercise rights and remedies under Section 6 at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, and for no other purpose, each Grantor hereby grants to the Collateral Agent, to the extent assignable, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to such Grantor), subject in the case of Trademarks, to sufficient rights to quality control and inspection in favor of such Grantor to avoid the risk of invalidation of said Trademarks, to use, assign, license or sublicense any of the Intellectual Property constituting Collateral now owned or hereafter acquired by such Grantor, wherever the same may be located.

 

(ii)            Notwithstanding anything contained herein to the contrary, but subject to the provisions of Section 7.5 of the Credit Agreement that limit the rights of the Grantors to dispose of their property, notwithstanding the foregoing but subject to the Collateral Agent’s exercise of its rights and remedies under Section 6, the Grantors will be permitted to exploit, use, enjoy, protect, license, sublicense, assign, sell, dispose of or take other actions with respect to the Intellectual Property in the ordinary course of the business of the Grantors.  In furtherance of the foregoing, so long as no Event of Default shall have occurred and be continuing, the Collateral Agent shall from time to time, upon the request of the respective Grantor (through the Borrower), execute and deliver any instruments, certificates or other documents, in the form so requested, that such Grantor (through the Borrower) shall have certified are appropriate in its judgment to allow it to take any action permitted above (including relinquishment of the license provided pursuant to clause (i) immediately above as to any specific Intellectual Property).  Further, upon the payment in full in cash of all of the Obligations (other than contingent or indemnification obligations not then due) and cancellation or termination of all Commitments and Letters of Credit (that are not cash collateralized or backstopped  to the reasonable satisfaction of the Issuing Lender or purchasing Lender, as applicable, in respect thereof) or earlier expiration of this Agreement or release of the Collateral, the Collateral Agent shall grant back to the Grantors the license granted pursuant to clause (i) immediately above.  The exercise of rights and remedies under Section 6 by the Collateral Agent shall not terminate the rights of the holders of any licenses or sublicenses theretofore granted by the Grantors in accordance with the first sentence of this clause (ii).

 

6.5            Proceeds to be Turned Over To Collateral Agent .  If an Event of Default shall occur and be continuing and the Loans shall have been accelerated pursuant to Section 8 of the Credit Agreement, 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 Administrative Agent, the Collateral Agent and the other Secured Parties, segregated from other funds of such Grantor, and shall, promptly 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

 

13



 

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 Administrative Agent, the Collateral Agent and the other Secured Parties) shall continue to be held as collateral security for all of the Obligations and shall not constitute payment thereof until applied as provided in Section 6.6.

 

6.6            Application of Proceeds .  If an Event of Default shall have occurred and be continuing and the Loans shall have been accelerated pursuant to Section 8 of the Credit Agreement, at any time at the Collateral Agent’s election, the Collateral Agent may apply all or any part of Proceeds constituting Collateral and any proceeds of the guarantee set forth in Section 2, in payment of the Obligations, and shall make any such application in the following order:

 

First , to pay incurred and unpaid reasonable, out-of-pocket fees and expenses of the Agents 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 Obligations, pro rata among the Administrative Agent, the Collateral Agent and the other Secured Parties (and any affiliates thereof which are party to any Specified Hedge Agreement) according to the amounts of the Obligations then due and owing and remaining unpaid to each of them; and

 

Third , any balance of such Proceeds remaining after the Obligations shall have been paid in full (other than contingent or indemnification obligations not then due), no Letter of Credit (that is not cash collateralized or backstopped to the reasonable satisfaction of the Issuing Lender or purchasing Lender, as applicable, in respect thereof) shall be outstanding and the Commitments shall have been terminated, shall be paid over to the Borrower or to whomever shall be lawfully entitled to receive the same.

 

6.7            Code and Other Remedies .  If an Event of Default shall occur and be continuing, the Collateral Agent, on behalf of itself, the Administrative Agent and the other Secured Parties, 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 or notices otherwise provided in the Loan Documents) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived unless otherwise provided in the Loan Documents), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith, subject to pre-existing rights and licenses, 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 Administrative Agent, the Collateral Agent or any other Secured Party 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 Administrative Agent, the Collateral Agent or any other Secured Party 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 Section

 

14



 

6.6, after deducting all reasonable costs and expenses of every kind actually 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 Administrative Agent, the Collateral Agent and the other Secured Parties 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, and only after such application and after the payment by the Collateral Agent of any other amount required by any provision of law, including, without limitation, Section 9-615(a)(3) of the New York UCC, need the Collateral Agent account for the surplus, if any, to any Grantor.  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.

 

6.8            Private Sales.   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.

 

6.9            Deficiency .  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 reasonable fees and disbursements of any attorneys employed by the Collateral Agent 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 ( provided , that 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):

 

(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;

 

15



 

(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 reasonably request to evidence the Administrative Agent’s, the Collateral Agent’s and the other Secured Parties’ security interest 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 6.7 or 6.8, 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 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) subject to pre-existing rights and licenses, assign any Copyright, Patent or Trademark (along with the goodwill of the business to which any such Copyright, Patent or Trademark pertains), for such term or terms, on such conditions, and in such manner, as the Collateral Agent shall in its reasonable discretion determine; and (8) subject to pre-existing rights and licenses, 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 Administrative Agent’s, the Collateral Agent’s and the other Secured Parties’ security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do.

 

(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 give such Grantor written notice of such failure to perform or comply and if such Grantor fails to perform or comply within three (3) Business Days of receiving such notice (or if the Collateral Agent reasonably determines that irreparable harm to the Collateral or to the security interest of the Collateral Agent hereunder could result prior to the end of such three-Business Day period), then the Collateral Agent may perform or comply, or otherwise cause performance or compliance, with such agreement.

 

(c)   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.

 

16


 

 

7.2            Duty of Collateral Agent .  To the extent permitted by law, 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.  None of the Administrative Agent, the Collateral Agent, any other Secured Party or 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 Administrative Agent, the Collateral Agent and the other Secured Parties hereunder are solely to protect the Administrative Agent’s, the Collateral Agent’s and the other Secured Parties’ interests in the Collateral and shall not impose any duty upon the Administrative Agent, the Collateral Agent or any other Secured Party to exercise any such powers.  The Administrative Agent, the Collateral Agent and the other Secured Parties 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 or that of their directors, officers, employees or agents.

 

7.3            Execution of Financing Statements .  Pursuant to any 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.  Each Grantor authorizes the Collateral Agent to use the collateral description “all personal property”, “all assets” or any similar phrase in any such financing statements.  Notwithstanding anything herein or in any other Loan Document to the contrary, the delivery of control agreements with respect to any Deposit Accounts, Securities Accounts and Commodities Accounts shall not be required.

 

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 among the Administrative Agent, the Collateral Agent and the other Secured Parties, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Collateral Agent and the Grantors, the Collateral Agent shall be conclusively presumed to be acting as agent for the Administrative Agent, the Collateral Agent and the other Secured Parties 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.

 

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 .  All notices, requests and demands to or upon the Collateral Agent or any Grantor hereunder shall be effected in the manner provided for in Section 10.2 of the Credit 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 .

 

17



 

8.3            No Waiver by Course of Conduct; Cumulative Remedies .  Neither the Administrative Agent, the Collateral Agent nor any other Secured Party 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 Administrative Agent, the Collateral Agent or any other Secured Party, 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 Administrative Agent, the Collateral Agent or any other Secured Party 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, the Collateral Agent or such other Secured Party 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 .  Each Guarantor agrees to pay, and to save the Administrative Agent, the Collateral Agent and the other Secured Parties harmless from, any and all out-of-pocket 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 to the extent the Borrower would be required to do so pursuant to Section 10.5 of the Credit Agreement.  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 Administrative Agent, the Collateral Agent and the other Secured Parties 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 (it being understood that Dispositions permitted under the Credit Agreement shall not be subject to this proviso).

 

8.6            Set-Off .  Each Grantor hereby irrevocably authorizes the Administrative Agent, the Collateral Agent and each other Secured Party 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 the extent permitted by applicable law, upon any amount becoming due and payable by each Grantor (whether at the stated maturity, by acceleration or otherwise after the expiration of any applicable grace periods) to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final but excluding trust accounts), 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 Administrative Agent, the Collateral Agent or such other Secured Party to or for the credit or the account of such Grantor.  Each of the Administrative Agent, the Collateral Agent and each other Secured Party shall notify such Grantor promptly of any such set-off made by it and the application made by it of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application.

 

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 or electronic (i.e., “pdf”) transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

 

18



 

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 Administrative Agent, the Collateral Agent and the other Secured Parties with respect to the subject matter hereof and thereof.

 

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 party hereto 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 of America 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 Administrative Agent, the Collateral Agent nor any other Secured Party has any fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement or

 

19



 

any of the other Loan Documents, and the relationship between the Grantors, on the one hand, and the Administrative Agent, the Collateral Agent and the other Secured Parties, 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 Administrative Agent, the Collateral Agent and the other Secured Parties or among the Grantors and the Administrative Agent, the Collateral Agent and the other Secured Parties.

 

8.14          Additional Grantors .  Each Restricted Subsidiary of Holdings that is required to become a party to this Agreement pursuant to Section 6.8 of the Credit Agreement shall become a Guarantor and a Grantor for all purposes of this Agreement upon execution and delivery by such Restricted Subsidiary of an Assumption Agreement in the form of Annex I hereto.

 

8.15          Releases .

 

(a)   At such time as the Loans, the Reimbursement Obligations and the other Obligations (other than Borrower Hedge Agreement Obligations and contingent or indemnification obligations not then due) shall have been paid in full in cash, the Commitments shall have been terminated and no Letter of Credit (that is not cash collateralized or backstopped to the reasonable satisfaction of the Issuing Lender or purchasing Lender, as applicable, in respect thereof) shall be outstanding, the Collateral shall be automatically 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 automatically 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 Lien granted under this Agreement on such Collateral shall be automatically released, and 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 to evidence the release of the Liens created hereby on such Collateral.  A Guarantor shall be automatically released from its obligations hereunder in the event that all the Capital Stock of such Guarantor shall be sold, transferred or otherwise disposed of in a transaction permitted by the Credit Agreement, or upon the designation of such Guarantor as an Unrestricted Subsidiary as permitted under the Credit Agreement, and the Collateral Agent, at the request and sole expense of the Borrower, shall execute and deliver to the Borrower all releases or other documents reasonably necessary or desirable to evidence the release of such obligations.

 

(c)   Liens on Collateral created hereunder shall be released and obligations of Guarantors and Grantors hereunder shall terminate as set forth in Section 10.16  of the Credit Agreement.

 

8.16          WAIVER OF JURY TRIAL .  EACH GRANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, EACH OF THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT AND EACH LENDER, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS

 

20



 

AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

 

21



 

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.

 

 

BARCLAYS BANK PLC, as Collateral Agent

 

 

 

 

 

By:

/s/ Craig J. Malloy

 

Name: Craig J. Malloy

 

Title: Director

 



 

 

WESCO AIRCRAFT HARDWARE CORP.

 

 

 

 

 

By:

/s/ Gregory A. Hann

 

Name: Gregory A. Hann

 

Title: Chief Financial Officer

 

 

 

 

 

WESCO HOLDINGS, INC.

 

 

 

 

 

By:

/s/ Gregory A. Hann

 

Name: Gregory A. Hann

 

Title: Chief Financial Officer

 

23



 

Schedule 1

 

NOTICE ADDRESSES OF GUARANTORS

 


 

 

Schedule 2

 

DESCRIPTION OF INVESTMENT PROPERTY

 

Pledged Stock:

 

Issuer

 

Class of Stock

 

Stock Certificate No.

 

No. of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pledged Notes:

 

Issuer

 

Payee

 

Principal Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Schedule 3

 

LEGAL NAME, LOCATION OF JURISDICTION OF ORGANIZATION AND CHIEF EXECUTIVE OFFICE

 

Grantor

 

Jurisdiction of
Organization

 

Location of Chief
Executive Office

 

Location of 
Jurisdiction where 
any Financing
Statement naming
such Grantor is on
File

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Schedule 4

 

COPYRIGHTS AND COPYRIGHT LICENSES

 

PATENTS AND PATENT LICENSES

 

TRADEMARKS AND TRADEMARK LICENSES

 



 

Annex I to
Guarantee and Collateral Agreement

 

ASSUMPTION AGREEMENT, dated as of                       , 200  , made by                                                       (the “ Additional Grantor ”), in favor of Barclays Bank PLC, as collateral agent (in such capacity, the “ Collateral Agent ”) for the banks and other financial institutions or entities (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, Wesco Holdings, Inc. (“ Holdings ), Wesco Aircraft Hardware Corp., (the “ Borrower ”), the Lenders, Barclays Bank PLC, as Administrative Agent and Collateral Agent (in such capacity, the “ Collateral Agent ”), have entered into that certain Credit Agreement, dated as of April 7, 2011 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”);

 

WHEREAS, in connection with the Credit Agreement, the Borrower and certain of its Affiliates (other than the Additional Grantor) have entered into the Guarantee and Collateral Agreement, dated as of April 7, 2011 (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 Administrative Agent, the Collateral Agent and 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 8.14 of the Guarantee and Collateral Agreement, hereby becomes a party to the Guarantee and Collateral Agreement as a Guarantor and a Grantor thereunder with the same force and effect as if originally named therein as a Guarantor and a Grantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Guarantor and a Grantor thereunder.  The information set forth in Annex 1-A hereto is hereby added to the information set forth in the Schedules to the Guarantee and Collateral Agreement.  The Additional Grantor hereby represents and warrants, to the extent applicable, that each of the representations and warranties contained in Section 4 of the Guarantee and Collateral Agreement is true and correct on and as of the date hereof (after giving effect to this Assumption Agreement) as if made on and as of such date.

 

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:

 

2



 

Annex I-A to
Assumption Agreement

 

Supplement to Schedule 1

 

Supplement to Schedule 2

 

Supplement to Schedule 3

 

Supplement to Schedule 4

 



 

Annex II to
Guarantee and Collateral Agreement

 

ACKNOWLEDGMENT AND CONSENT

 

The undersigned hereby acknowledges receipt of a copy of the Guarantee and Collateral Agreement dated as of April 7, 2011 (the “ Agreement ”), made by the Grantors parties thereto for the benefit of Barclays Bank PLC, as Collateral Agent.  The undersigned agrees for the benefit of the Administrative Agent, 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 terms of Sections 6.3(c) and 6.8 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(c) or 6.8 of the Agreement.

 

 

[NAME OF ISSUER]

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

Address for Notices:

 

 

 

 

 

 

 

 

 

Fax:

 


 



Exhibit 10.10

 

WESCO HOLDINGS, INC.

EQUITY INCENTIVE PLAN

STOCK OPTION AGREEMENT

 

GRANT NOTICE

 

Unless otherwise defined herein, the terms defined in the Equity Incentive Plan of Wesco Holdings, Inc. (the “ Plan ”) shall have the same defined meanings in this Stock Option Agreement, which includes the terms in this Grant Notice (the “ Grant Notice ”), Appendix A attached hereto, and Appendix B attached hereto (collectively, the “ Agreement ”).

 

You have been granted an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Agreement, as follows:

 

Name of Optionee:

Total Number of Shares

 

Subject to the Option:

 

Exercise Price per Share:                                                                                                                                                                 $

 

Total Exercise Price on Grant Date:                                                                                                          $

 

Grant Date:

 

Type of Option:                                                                    Incentive Stock Option

 

Final Expiration Date:

 

Vesting Schedule:

This Option will vest and become exercisable in accordance with the vesting schedule set forth in Appendix A , depending on the classification of the Option as follows:

 

 

 

Time Options:

[                ] Shares Subject to the Option

 

 

 

 

Performance Options:

[                ] Shares Subject to the Option

 

Your signature below indicates your agreement and understanding that this Option is subject to all of the terms and conditions contained in the Agreement (including this Grant Notice, Appendix A and Appendix B to the Agreement, and the Plan).  ACCORDINGLY, PLEASE BE SURE TO READ ALL OF APPENDIX A AND APPENDIX B, WHICH CONTAIN THE SPECIFIC TERMS AND CONDITIONS OF THIS OPTION.

 

WESCO HOLDINGS, INC.

 

OPTIONEE

 

 

 

 

 

 

By

 

 

 

 

Name:

 

[                            ]

 

Title:

 

 

 

2



 

APPENDIX A TO STOCK OPTION AGREEMENT

 

ARTICLE I.
GRANT OF OPTION

 

Section 1.1              Grant of Option .  The Company hereby grants to the Optionee the Option to purchase any part or all of an aggregate of the Shares set forth in the Grant Notice pursuant to which this Appendix is attached, upon the terms and conditions set forth in the Plan and this Agreement (including the Grant Notice, this Appendix, and Appendix B ).  The Optionee hereby agrees that except as required by law, he or she will not disclose to any Person other than the Optionee’s spouse and/or tax or financial advisor (if any) the grant of the Option or any of the terms or provisions hereof without the prior approval of the Administrator, and the Optionee agrees that, in the discretion of the Administrator, the Option shall terminate and any unexercised portion of such Option (whether or not then exercisable) shall be forfeited if the Optionee violates the non-disclosure provisions of this Section 1.1.

 

Section 1.2              Option Subject to Plan .  The Option granted hereunder is subject to the terms and provisions of the Plan, including without limitation, Article V and Article VIII thereof.

 

Section 1.3              Option Price .  The Exercise Price of the Shares covered by the Option shall be the Exercise Price per Share as set forth in the Grant Notice (without commission or other charge).

 

Section 1.4              Special Tax Consequences .  The Optionee acknowledges that, to the extent that the aggregate Fair Market Value of Common Stock with respect to which “incentive stock options” (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code), including the Option, are exercisable for the first time by the Optionee during any calendar year (under the Plan and under all other plans permitting the issuance of Incentive Stock Options, as such plans are sponsored by the Company, any Subsidiary, or any parent corporation thereof (within the meaning of Section 422 of the Code)) exceeds $100,000, such Options shall be treated as not qualifying under Section 422 of the Code but rather shall be taxed as Non-Qualified Stock Options.  The Optionee further acknowledges that the rule set forth in the preceding sentence shall be applied by taking all options into account in the order in which they were granted.  For purposes of these rules, the Fair Market Value of Common Stock shall be determined as of the time the option with respect to such Common Stock is granted.

 

ARTICLE II.
VESTING SCHEDULE; EXERCISABILITY

 

Section 2.1              Vesting and Exercisability of Time Options .

 

(a)           Vesting.   Except as provided below, the Time Options shall become vested and exercisable, so long as the Optionee remains continuously a Service Provider from the date hereof through each applicable date set forth below, as follows:

 

(i)            [    ]% of the Time Options shall become vested and exercisable on [                  ];

 

(ii)           [    ]% of the Time Options shall become vested and exercisable on [                  ];

 

(iii)          [    ]% of the Time Options shall become vested and exercisable on [                  ];

 

3



 

(iv)          [    ]% of the Time Options shall become vested and exercisable on [                  ]; and

 

(v)           [    ]% of the Time Options shall become vested and exercisable on [                  ].

 

(b)           Liquidity Event Vesting.  All Time Options shall become fully vested and exercisable immediately prior to the effective date of the first Liquidity Event.

 

Section 2.2              Vesting and Exercisability of Performance Options .

 

(a)           Performance Based Vesting.  Subject to the provisions set forth below, the Performance Options shall vest and become exercisable as follows:  [    ]% of the Performance Options shall vest and become exercisable on the last day of each Fiscal Year [      ] through [      ] (each, an “ Applicable Year ”) if, in each case, on such date (or within 120 days thereafter), the Administrator determines that the following conditions are met (such vesting, the “ Yearly Performance Based Vesting ”):

 

(i)            If EBITDA for the Applicable Year equals or exceeds the EBITDA Target for the Applicable Year, then one-half of such installment (consisting of [    ]% of the Performance Options) shall become vested and exercisable (“ EBITDA Vesting ”); and

 

(ii)           If the Cash Flow for the Applicable Year equals or exceeds the Cash Flow Target for such Applicable Year, then the remaining one-half of such installment (consisting of [    ]% of the Performance Options) shall become vested and exercisable (“ Cash Flow Vesting ”).

 

(b)           Catch-up Vesting.  Except as provided below, the Performance Options which would otherwise fail to become vested and exercisable in accordance with Section 2.2(a) shall be eligible for vesting in accordance with this Section 2.2(b).

 

(i)            If EBITDA for the Applicable Year is less than the EBITDA Target through the end of such Applicable Year but at least 90% of the EBITDA Target through the end of such Applicable Year (the “ EBITDA Missed Year ”), that portion of the Performance Options that was subject to EBITDA Vesting with respect to the EBITDA Missed Year shall become exercisable on the last day of the Fiscal Year following the EBITDA Missed Year (the “ EBITDA Cumulative Catch Up Year ”) if, on such date (or within 120 days thereafter), the Administrator determines that in the EBITDA Cumulative Catch Up Year: (A) EBITDA equals or exceeds the EBITDA Target for the EBITDA Cumulative Catch Up Year; and (B) the Cumulative EBITDA equals or exceeds the Cumulative EBITDA Target for the EBITDA Cumulative Catch Up Year.

 

(ii)           If the Cash Flow for the Applicable Year is less than the Cash Flow Target through the end of such Applicable Year but at least 90% of the Cash Flow Target through the end of such Applicable Year (the “ Cash Flow Missed Year ”), that portion of the Performance Options that was subject to Cash Flow Vesting with respect to the Cash Flow Missed Year shall become exercisable on the last day of the Fiscal Year following the Cash Flow Missed Year (the “ Cash Flow Cumulative Catch Up Year ”) if, on such date (or within 120 days thereafter), the Administrator determines that in the Cash Flow Cumulative Catch Up Year: (A) Cash Flow equals or exceeds the Cash Flow Target for the Cash Flow Cumulative Catch Up Year; and (B) the Cumulative Cash Flow equals or exceeds the Cumulative Cash Flow Target for the Cash Flow Cumulative Catch Up Year.

 

4



 

(iii)          Notwithstanding anything to the contrary in this Section 2.2(b), in no event shall more than [    ]% of the Performance Options vest and become exercisable with respect to any Applicable Year as a result of this Section 2.2(b).

 

(c)           Liquidity Event Vesting.  Upon the occurrence of the first Liquidity Event, the following shall, immediately prior to the effective date of such Liquidity Event, automatically become vested and exercisable in full:  the Performance Options that have not yet, as of such Liquidity Event, become eligible for Yearly Performance Based Vesting, if and only if the Cumulative EBITDA and Cumulative Cash Flow for the Fiscal Year in which the Liquidity Event occurs (which Cumulative EBITDA and Cumulative Cash Flow shall not be reduced by any expenses that the Administrator reasonably determines are directly related to the Liquidity Event, including without limitation any investment banking fees payable as a result of the Liquidity Event) equals or exceeds the Cumulative EBITDA Target and Cumulative Cash Flow Target (reduced on a pro-rata basis with respect to the portion of the Cumulative EBITDA Target and Cumulative Cash Flow Target attributable to the portion of the Fiscal Year remaining after the Liquidity Event occurs if the Liquidity Event occurs on a date other than the last day of such Fiscal Year) for the Fiscal Year in which such Liquidity Event occurs.

 

(d)           Discretionary Vesting .  The Administrator in its sole discretion may accelerate the vesting of any portion of the Option, including any portion of the Performance Options that does not otherwise vest pursuant to this Section 2.2.

 

Section 2.3              Administrator Determination of Targets .  The Administrator shall make the determination as to whether the respective EBITDA Targets, Cumulative EBITDA Targets, Cash Flow and Cumulative Cash Flow Targets, have been met, and shall determine the extent, if any, to which the Option has become exercisable, on any such date as the Committee in its sole discretion shall determine; provided, however, that with respect to each Fiscal Year such date shall not be later than the 120th day following the end of such Fiscal Year.

 

Section 2.4              No Vesting of Options .  Notwithstanding anything to the contrary in this Agreement, any portion of the Option that has not become vested pursuant to Sections 2.1 or 2.2 on or prior to the date of the Optionee’s termination of service as a Service Provider shall be forfeited and shall not thereafter become vested or exercisable; provided, however, that any portion of the Option that was scheduled to vest or may vest under a catch-up vesting provision based on the achievement of performance goals at the end of the fiscal year prior to the year of such termination of service as a Service Provider (the “ Final Performance Options ”) shall remain outstanding if the Administrator has not determined whether the performance goals have been achieved for the fiscal year in question, unless the Optionee is terminated for Cause, until the date that the Administrator determines whether such performance goals have been achieved for the fiscal year in question; provided, further, that the Final Performance Options shall in no event become vested and exercisable unless it is determined by the Administrator that such performance goals were actually achieved for the fiscal year in question (a “ Final Performance Goal Determination ”).  The Final Performance Options that do not become vested and exercisable shall be forfeited on the date of the Final Performance Goal Determination and the Final Performance Options that become vested and exercisable shall remain exercisable as provided in Section 2.6.

 

Section 2.5              Exercisability of the Option .   The Optionee shall not have the right to exercise the Option until the date the applicable portion of the Option becomes vested pursuant to Sections 2.1, 2.2, or 2.4.  The date that the applicable portion of the Option becomes exercisable is referred to herein as the “ Exercise Commencement Date .”  Subject to Section 8.1 of the Plan, following the Exercise Commencement Date, the applicable portion of the Option shall remain exercisable until it becomes unexercisable under Section 2.6.  Once the Option becomes unexercisable, it shall be forfeited immediately.

 

5



 

Section 2.6              Expiration of Option .

 

(a)           The Option may not be exercised to any extent by anyone after the first to occur of the following events:

 

(i)            The Final Expiration Date;

 

(ii)           Except for such longer period of time as the Administrator may otherwise approve, in the event of a termination of the Optionee’s service as a Service Provider for any reason other than Cause, death or Disability, the later of (i) thirty (30) days following the date of the Optionee’s termination of service as a Service Provider for any reason other than Cause, death or Disability, or (ii) with respect to any Final Performance Options, thirty (30) days following the Final Performance Goal Determination, in which case such Final Performance Options may become Non-Qualified Stock Options;

 

(iii)          Except as the Administrator may otherwise approve, the date of the Optionee’s termination of service as a Service Provider for Cause; or

 

(iv)          Except for such longer period of time as the Administrator may otherwise approve, twelve (12) months following the Optionee’s termination of service as a Service Provider by reason of the Optionee’s death or Disability.

 

(b)           The Company may exercise its Repurchase Right (as defined in Section 2.9) regardless of whether the Optionee continues to have a right to exercise the Options under this Section 2.6.

 

(c)           For the purposes of the Plan and this Agreement, the date of the Optionee’s termination of service as a Service Provider shall be the last day of the Optionee’s service to the Company as a Service Provider, as determined by the Administrator, whether such day is selected by agreement with the Optionee or unilaterally by the Company or its Subsidiary and whether with or without advance notice.  For the avoidance of doubt, no period of notice that is given or that ought to have been given to the Optionee under applicable law in respect of such termination of service as a Service Provider will be utilized in determining entitlement under the Plan, the Stockholders Agreement or this Agreement.  Any action by the Company or its Subsidiary taken in accordance with the terms of the Plan and this Agreement as set out aforesaid shall be deemed to fully and completely satisfy any liability or obligation of the Company or its Subsidiary to the Optionee in respect of the Plan or this Agreement arising from or in connection with the Optionee’s termination of service as a Service Provider, including in respect of any period of notice given or that ought to have been given under applicable law in respect of such termination of service as a Service Provider.

 

Section 2.7              Partial Exercise .  Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable.

 

Section 2.8              Exercise of Option .  The exercise of the Option shall be governed by the terms of this Agreement and the terms of the Plan, including, without limitation, the provisions of Article V of the Plan.

 

Section 2.9              Repurchase Right .

 

(a)           Upon the Optionee’s termination of service as a Service Provider, the Company shall have the right and option to repurchase (the “ Repurchase Right ”) all or any portion of the Shares received

 

6



 

by the Optionee upon exercise of the Option, which Shares were held by the Optionee or any Permitted Transferee at the time of the Optionee’s termination of service as a Service Provider, at the Repurchase Price specified below for a period beginning on the date of the Optionee’s termination of service as a Service Provider and ending on the later of (i) seven (7) months following the date on which the Option is no longer exercisable pursuant to Section 2.6 and (ii) seven (7) months following the date of the Optionee’s termination of service as a Service Provider (the “ Repurchase Period ”).

 

(b)           The per Share purchase price of the Shares subject to the Repurchase Right (the “ Repurchase Price ”) shall be:

 

(i)            With respect to the repurchase of Shares in connection with the Optionee’s termination of service as a Service Provider for Cause, the Repurchase Price shall be the lesser of the Exercise Price or the Fair Market Value of such Shares on the date that the Company elects to effect its Repurchase Right in accordance with Section 2.9(c).

 

(ii)           With respect to the repurchase of Shares in connection with the Optionee’s termination of service as a Service Provider for any reason other than for Cause, including voluntary departures, death, Disability or termination without Cause, the Repurchase Price shall be the Fair Market Value of such Shares on the date the Company elects to effect its Repurchase Right in accordance with Section 2.9(c).

 

(iii)          Notwithstanding the foregoing, if the Company exercises its Repurchase Right with respect to an Optionee who holds Common Stock (including the Shares received by the Optionee upon exercise of the Option, or any other shares) with an aggregate Fair Market Value of at least $250,000 (before giving effect to the Repurchase Right), the Company may, in its sole discretion, pay the Repurchase Price in three (3) equal installments commencing on the date that the Repurchase Right is effected and payable annually thereafter.  Any payment of the Repurchase Price made pursuant to this Section 2.9(b)(iii) shall be made pursuant to a promissory note with a term not in excess of two years and accruing interest at the prime rate advertised in the Wall Street Journal on the date the Repurchase Right is effected, compounded annually.  Notwithstanding anything herein to the contrary, no payment shall be made under this Section 2.9(b), or under any promissory note issued by the Company pursuant to this Section 2.9(b)(iii), that would cause the Company to violate any law, or any rights or preference of preferred stockholders of the Company, any banking agreement or loan or other financial covenant or cause default of any senior indebtedness of the Company, regardless of when such agreement, covenant or indebtedness was created, incurred or assumed.  Any payment under this Section 2.9(b) that would cause such violation or default shall result in an extension of the Repurchase Period set forth in Section 2.9(a), in the sole discretion of the Board, until such payment shall no longer cause any such violation or default and at which time the Repurchase Right may be exercised.  The Repurchase Right shall terminate upon the closing of the Company’s initial public offering or upon consummation of a Corporate Event, in either case as a result of which shares of the Company (or successor entity) of the same class as the Shares are registered under Section 12 of the Exchange Act.

 

(c)           The Company shall effect the Repurchase Right (if so elected) by delivering or mailing to the Optionee (and/or, if applicable, any Permitted Transferees) written notice within the Repurchase Period, specifying a date within such Repurchase Period on which the Repurchase Right shall be effected and the number of Shares as to which the Repurchase Right is being exercised.  Upon such notification, the Optionee and any Permitted Transferees shall promptly surrender to the Company any certificates representing the Shares being purchased, together with a duly executed stock power for the transfer of such Shares to the Company, free and clear of any liens or encumbrances.  Subject to Section 2.9(b)(iii)

 

7



 

above, upon the Company’s receipt of the certificates from the Optionee or any Permitted Transferees, the Company shall deliver to him, her or them a check for the Repurchase Price of the Shares being purchased, provided, however, that the Company may pay the Repurchase Price for such Shares by offsetting and canceling any indebtedness then owed by the Optionee to the Company or any Affiliate.  The Repurchase Right specified herein shall survive and remain in effect as to the Shares received by the Optionee upon exercise of the Option following any Corporate Event, except as provided in Section 2.9(b)(iii).

 

Section 2.10            Manner of Exercise; Tax Withholding .

 

(a)           Unless determined otherwise by the Administrator, as a condition to the exercise of the Option, the Optionee shall (i) notify the Company at least thirty (30) days prior to exercise and no earlier than ninety days prior to exercise that the Optionee intends to exercise, and (ii) concurrently with the exercise of the Option, execute the Stockholders Agreement, unless the Optionee has already executed the Stockholders Agreement.  This Section 2.10(a) shall not apply if the Shares underlying the Option are registered on Form S-8.

 

(b)           To the extent permitted by law or the applicable listing rules, if any, the Optionee may pay for the Shares with respect to which such Option or portion of such Option is exercised through (i) payment in cash; (ii) with the consent of the Administrator, the delivery of Shares which are owned by the Optionee, duly endorsed for transfer to the Company with a Fair Market Value on the date of delivery equal to the aggregate Exercise Price of the exercised portion of the Option; (iii) with the consent of the Administrator, through the surrender of Shares then issuable upon exercise of the Option having a Fair Market Value on the date of the exercise of the Option equal to the aggregate Exercise Price of the exercised portion of the Option; or (iv) with the consent of the Administrator, delivery of a notice that the Optionee has placed a market sell order with a broker with respect to Shares then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate Exercise Price; provided, that payment of such proceeds is then made to the Company upon settlement of such sale.

 

(c)           The Optionee shall make appropriate arrangements for the payment to the Company (or its Subsidiary, as applicable) of all amounts which the Company (or its Subsidiary, as applicable) is required to withhold under applicable law in connection with the exercise of the Option.  With the consent of the Administrator and subject to any applicable legal conditions or restrictions, the Company shall, upon the Optionee’s request, withhold from the Shares otherwise issuable to the Optionee upon the exercise of the Option or any portion thereof a number of whole Shares having a Fair Market Value, determined as of the date of exercise, not in excess of the minimum of tax required to be withheld by law (or such lower amount as may be necessary to avoid variable award accounting).  Any adverse consequences to the Optionee arising in connection with the Share withholding procedure set forth in the preceding sentence shall be the sole responsibility of the Optionee.

 

ARTICLE III.
OTHER PROVISIONS

 

Section 3.1              Optionee Representation; Not a Contract of Service .  The Optionee hereby represents that the Optionee’s execution of this Agreement and participation in the Plan is voluntary and that the Optionee has in no way been induced to enter into this Agreement in exchange for or as a requirement of the expectation of service with the Company or any of its Subsidiaries.  Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue as a Service Provider or shall interfere with or restrict in any way the rights of the Company or its Subsidiaries, which are hereby expressly reserved, to discharge the Optionee at any time for any reason whatsoever, with or without Cause except pursuant

 

8



 

to an employment or consulting agreement executed by and between the Company and the Optionee and approved by the Board.

 

Section 3.2              Notification of Disposition .  To the extent the transfer of Shares is permitted under the Plan, this Agreement and the Stockholders Agreement, the Optionee shall give prompt notice to the Company of any disposition or other transfer of any Shares acquired under this Agreement if such disposition or transfer is made (a) within two (2) years from the date hereof with respect to such Shares or (b) within one (1) year after the date the Optionee acquired such Shares hereunder.  Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by the Optionee in such disposition or other transfer.

 

Section 3.3              Shares Subject to Plan and Stockholders Agreement; Restrictions on the Transfer of Options and Common Stock .  The Optionee acknowledges that this Option and any Shares acquired upon exercise of the Option are subject to the terms of the Plan and the Stockholders Agreement including, without limitation, the restrictions set forth in Sections 5.6 and 5.7 of the Plan.

 

Section 3.4              Adjustments in EBITDA and Cash Flow Targets .  The EBITDA Targets (including the Cumulative EBITDA Targets) and the Cash Flow Targets (including the Cumulative Cash Flow Targets) specified in Appendix B (collectively the “ Financial Targets ”) are based upon (i) certain revenue and expense assumptions about the future business of the Company, (ii) a management model prepared by the Company for the projected financial performance of the Company, which incorporates the desired internal rate of return on the investment by the Principal Stockholders in debt and equity securities or instruments of the Company and its Subsidiaries, and (iii) the continued application of accounting policies used by the Company as of the date the Option is granted.  Accordingly, in the event that, after such date, the Administrator determines, in its sole discretion, that any acquisition or disposition of any business by the Company, any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, any unusual or nonrecurring transactions or events affecting the Company, or the financial statements of the Company, or change in applicable laws, regulations, or changes in generally accepted accounting principles applicable to, or the accounting policies used by, the Company occurs such that an adjustment is determined by the Administrator to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available with respect to the Option, then the Administrator shall in good faith and in such manner as it may deem equitable, adjust the Financial Targets to reflect the projected effect of such transaction(s) or event(s) on the Financial Targets.

 

Section 3.5              Construction .  This Agreement shall be administered, interpreted and enforced under the laws of the state of Delaware.

 

Section 3.6              Conformity to Securities Laws .  The Optionee acknowledges that the Plan is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated thereunder by the Securities and Exchange Commission, including without limitation Rule 16b-3.  Notwithstanding anything herein to the contrary, the Plan, the Stockholders Agreement and this Agreement shall be administered, and the Option is granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations.  To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

 

9



 

Section 3.7              Stockholder Approval .

 

(a)           Except as otherwise provided in subsection (b) below, in the event that it shall be determined that any right to receive the Option, payment or other benefit under this Agreement (including, without limitation, the acceleration of the vesting and/or exercisability of the Option and taking into account the effect of this Section) to or for the benefit of the Optionee (the “ Payments ”), would not be deductible, in whole or part when aggregated with any other right, payment or benefit to or for the Optionee under all other agreements or benefit plans of the Company, by the Company or the Person making such payment or distribution or providing such right or benefit as a result of Section 280G of the Code, then, to the extent necessary to make the Payments deductible to the maximum extent possible (but only to such extent and after taking into account any reduction in the Payments relating to Section 280G of the Code under any other plan, arrangement or agreement), the Option held by the Optionee or any other right, payment or benefit under this Agreement shall not become exercisable, vested or paid.  For purposes of determining whether any of the Payments would not be deductible as a result of Section 280G of the Code and the amount of such disallowed deduction, all Payments will be treated as “parachute payments” within the meaning of Section 280G of the Code, and all “parachute payments” in excess of the “base amount” (as defined under Section 280G(b)(3) of the Code) shall be treated as nondeductible, unless and except to the extent that in the opinion of a nationally recognized accounting firm selected by the Company (the “ Accountants ”), such Payments (in whole or in part) either do not constitute “parachute payments,” including by reason of Section 280G(b)(4) of the Code, or are otherwise not subject to disallowance as a deduction.  All determinations required to be made under this subsection (a), including whether and which of the Payments are required to be reduced, the amount of such reduction and the assumptions to be utilized in arriving at such determination, shall be made by the Accountants, provided that such determinations shall be based upon “substantial authority” within the meaning of Section 6662 of the Code.

 

(b)           Notwithstanding any other provision of this Agreement, the provisions of subsection (a) above shall not apply to reduce the Payments if the Payments that would otherwise be nondeductible under Section 280G of the Code are disclosed to and approved by the Company’s stockholders in accordance with Section 280G(b)(5)(B) of the Code and the 280G Regulations.

 

(c)           The Company shall use its commercially reasonable best efforts to prepare and deliver to its stockholders the disclosure required by Section 280G(b)(5)(B) of the Code with respect to the Payments and to obtain the approval of the Company’s stockholders pursuant to subsection (b) above.

 

Section 3.8              Amendment, Suspension and Termination .  The Option may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator or the Board, provided that, except as provided by Section 8.1 of the Plan, neither the amendment, modification, suspension nor termination of this Agreement (including the Grant Notice) shall, without the consent of the Optionee, materially alter or impair any rights or obligations under the Option.

 

ARTICLE IV.
DEFINITIONS

 

Whenever the following terms are used in this Agreement (including the Grant Notice), they shall have the meaning specified below unless the context clearly indicates to the contrary.  Capitalized terms used in this Agreement and not defined below shall have the meaning given such terms in the Plan.  The singular pronoun shall include the plural, where the context so indicates.

 

Section 4.1              280G Regulations .  “280G Regulations” means the regulation codified at 26 C.F.R. § 1.280G-1.

 

10



 

Section 4.2              Cash Flow; Cumulative Cash Flow .  “Cash Flow” for a given Fiscal Year shall mean (i) net cash provided by the operating activities of the Company and its subsidiaries in such Fiscal Year less (ii) the net cash used in the investing activities of the Company and its subsidiaries in such Fiscal Year, in each case of clause (i) and (ii), as reflected on the Company’s audited consolidated financial statements for such Fiscal Year.  “Cumulative Cash Flow” as of a given date shall mean the total Cash Flow from and after [                    ] through such date.

 

Section 4.3              Cash Flow Target; Cumulative Cash Flow Target .  “Cash Flow Target” and “Cumulative Cash Flow Target” for any given year shall be as set forth in Appendix B of this Agreement, subject to the provisions of Section 3.4.

 

Section 4.4              Company .  “Company” shall mean Wesco Holdings, Inc., a Delaware corporation.

 

Section 4.5              EBITDA .  “EBITDA” for a given Fiscal Year shall mean consolidated earnings of the Company and its consolidated subsidiaries before interest, taxes, depreciation, amortization, stock-option based and other equity-based compensation expenses, management, transaction and similar fees paid to the Principal Stockholders or their Affiliates, as reflected on the Company’s audited consolidated financial statements for such Fiscal Year, but adjusting for certain extraordinary and non-recurring items as determined by the Administrator.   “Cumulative EBITDA” as of a given date shall mean the total EBITDA from and after [                    ] through such date.

 

Section 4.6              EBITDA Target .  “EBITDA Target” and “Cumulative EBITDA Target” for any given year shall be as set forth in Appendix B of this Agreement, subject to the provisions of Section 3.4.

 

Section 4.7              Effective Date .  “Effective Date” shall mean September 29, 2006.

 

Section 4.8              Exercise Price .  “Exercise Price” shall mean the per Share price set forth in the Grant Notice.

 

Section 4.9              Fiscal Year .  “Fiscal Year” shall mean the fiscal year of the Company, as in effect from time to time.

 

Section 4.10            Final Expiration Date .  “Final Expiration Date” shall mean the date set forth in the Grant Notice.

 

Section 4.11            Grant Date .  “Grant Date” shall be the date set forth in the Grant Notice.

 

Section 4.12            Grant Notice .  “Grant Notice” shall mean the Grant Notice referred to in Section 1.1 of this Agreement, which Grant Notice is for all purposes a part of the Agreement.

 

Section 4.13            Liquidity Event .  “Liquidity Event” shall mean either (a) the consummation of the sale, transfer, conveyance or other disposition in one or a series of transactions, of the equity securities of the Company or its successor held, directly or indirectly, by all of the Principal Stockholders in exchange for cash, or in the case of any transaction resulting in the exchange for consideration other than cash (“non-cash consideration”) the receipt of cash upon the disposition of such non-cash consideration, such that immediately following such transaction or disposition (or series of related transactions or dispositions), the total number of all equity securities held, directly or indirectly, by all of the Principal Stockholders and any Affiliate of any Principal Stockholders is, in the aggregate, less than 30% of the total number of equity securities (as such securities may be adjusted for the occurrence of a corporate event) held, directly or indirectly, by all of the Principal Stockholders and any Affiliate of any Principal Stockholders as of the Effective Date; or (b) the consummation of the sale, lease, transfer, conveyance or other disposition (other

 

11



 

than by way of merger, equity purchase or consolidation), in one or a series of transactions, of all or substantially all of the assets of the Company, or the Company and its subsidiaries taken as a whole, to any “person ” (as such term is defined in Section 13(d)(3) of the Exchange Act) other than to any Principal Stockholders or an Affiliate of any Principal Stockholders.

 

Section 4.14 Performance Options .  “Performance Option(s)” shall mean the portion of the Option designated as Performance Options in the Grant Notice.

 

Section 4.15            Permitted Transferee .  “Permitted Transferee” shall have the meaning given such term under the Stockholders Agreement.

 

Section 4.16            Option .  “Option” shall mean the option to purchase Common Stock granted under this Agreement.

 

Section 4.17            Optionee .  “Optionee” shall be the Person designated as such in the Grant Notice.

 

Section 4.18            Plan .  “Plan” shall mean the Equity Incentive Plan of Wesco Holdings, Inc.

 

Section 4.19            Time Options .  “Time Options” shall mean the portion of the Option designated as Time Options in the Grant Notice.

 

***

 

12



 

APPENDIX B TO STOCK OPTION AGREEMENT

 

EBITDA AND CASH FLOW TARGETS

 

(US$ Millions)

 

As of the end of the fiscal year

 

Performance Measure

 

2007

 

2008

 

2009

 

2010

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA Target

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative EBITDA Target

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual Cash Flow Target

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative Cash Flow Target

 

 

 

 

 

 

 

 

 

 

 

 

13




Exhibit 10.11

[For Independent Directors]

 

WESCO HOLDINGS, INC.

EQUITY INCENTIVE PLAN

STOCK OPTION AGREEMENT

 

GRANT NOTICE

 

Unless otherwise defined herein, the terms defined in the Equity Incentive Plan of Wesco Holdings, Inc. (the “ Plan ”) shall have the same defined meanings in this Stock Option Agreement, which includes the terms in this Grant Notice (the “ Grant Notice ”) and Appendix A attached hereto (collectively, the “ Agreement ”).

 

You have been granted an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Agreement, as follows:

 

Name of Optionee:

 

Total Number of Shares

Subject to the Option:

 

Exercise Price per Share:                                                                                                                                                                 $

 

Total Exercise Price on Grant Date:                                                                                                          $

 

Grant Date:

 

Type of Option:                                                                                                                                                                                                            Non-Qualified Stock Option

 

Final Expiration Date:

 

Vesting Schedule:

This Option will vest and become exercisable in accordance with the vesting schedule set forth in Section 2.1 of Appendix A .

 

Your signature below indicates your agreement and understanding that this Option is subject to all of the terms and conditions contained in the Agreement (including this Grant Notice, Appendix A to the Agreement, and the Plan).  ACCORDINGLY, PLEASE BE SURE TO READ ALL OF APPENDIX A, WHICH CONTAINS THE SPECIFIC TERMS AND CONDITIONS OF THIS OPTION.

 

WESCO HOLDINGS, INC.

 

OPTIONEE

 

 

 

 

 

 

By

 

 

 

 

Name:

 

 

 

Title:

 

 

 

2



 

APPENDIX A TO STOCK OPTION AGREEMENT

 

ARTICLE I.
GRANT OF OPTION

 

Section 1.1              Grant of Option .  The Company hereby grants to the Optionee the Option to purchase any part or all of an aggregate of the Shares set forth in the Grant Notice pursuant to which this Appendix is attached, upon the terms and conditions set forth in the Plan and this Agreement (including the Grant Notice and this Appendix).  The Optionee hereby agrees that except as required by law, he or she will not disclose to any Person other than the Optionee’s spouse and/or tax or financial advisor (if any) the grant of the Option or any of the terms or provisions hereof without the prior approval of the Administrator, and the Optionee agrees that, in the discretion of the Administrator, the Option shall terminate and any unexercised portion of such Option (whether or not then exercisable) shall be forfeited if the Optionee violates the non-disclosure provisions of this Section 1.1.

 

Section 1.2              Option Subject to Plan .  The Option granted hereunder is subject to the terms and provisions of the Plan, including without limitation, Article V and Article VIII thereof.

 

Section 1.3              Option Price .  The Exercise Price of the Shares covered by the Option shall be the Exercise Price per Share as set forth in the Grant Notice (without commission or other charge).

 

ARTICLE II.
VESTING SCHEDULE; EXERCISABILITY

 

Section 2.1              Vesting and Exercisability of the Option .

 

(a)           Vesting.   Except as provided below, the Option shall become vested and exercisable, so long as the Optionee remains continuously an Independent Director from the date hereof through each applicable date set forth below, as follows:

 

(i)            20% of the Options shall become vested and exercisable on [                      ];

 

(ii)           20% of the Options shall become vested and exercisable on [                      ];

 

(iii)          20% of the Options shall become vested and exercisable on [                      ];

 

(iv)          20% of the Options shall become vested and exercisable on [                      ]; and

 

(v)           20% of the Options shall become vested and exercisable on [                      ].

 

(b)           Liquidity Event Vesting.  The Option shall become fully vested and exercisable immediately prior to the effective date of the first Liquidity Event.

 

(c)           Discretionary Vesting .  The Administrator in its sole discretion may accelerate the vesting of any portion of the Option that does not otherwise vest pursuant to this Section 2.1.

 

Section 2.2              No Vesting of Options .  Notwithstanding anything to the contrary in this Agreement, any portion of the Option that has not become vested pursuant to Section 2.1 on or prior to the date of the

 

3



 

Optionee’s termination of service as an Independent Director shall be forfeited and shall not thereafter become vested or exercisable.

 

Section 2.3              Exercisability of the Option .   The Optionee shall not have the right to exercise the Option until the date the applicable portion of the Option becomes vested pursuant to Section 2.1.  The date that the applicable portion of the Option becomes exercisable is referred to herein as the “ Exercise Commencement Date .”  Subject to Section 8.1 of the Plan, following the Exercise Commencement Date, the applicable portion of the Option shall remain exercisable until it becomes unexercisable under Section 2.4.  Once the Option becomes unexercisable, it shall be forfeited immediately.

 

Section 2.4              Expiration of the Option .

 

(a)           The Option may not be exercised to any extent by anyone after the first to occur of the following events:

 

(i)            The Final Expiration Date;

 

(ii)           Except for such longer period of time as the Administrator may otherwise approve, the thirtieth (30) day following the date of the Optionee’s termination of service as an Independent Director for any reason other than Cause, death or Disability;

 

(iii)          Except as the Administrator may otherwise approve, the date of the Optionee’s termination of service as an Independent Director for Cause; or

 

(iv)          Except for such longer period of time as the Administrator may otherwise approve, the expiration of twelve (12) months following the Optionee’s termination of service as an Independent Director by reason of the Optionee’s death or Disability.

 

(b)           The Company may exercise its Repurchase Right (as defined in Section 2.7) regardless of whether the Optionee continues to have a right to exercise the Option under this Section 2.4.

 

(c)           For the purposes of the Plan and this Agreement, the date of the Optionee’s termination of service as an Independent Director shall be the last day of the Optionee’s service to the Company as an Independent Director, as determined by the Administrator, whether such day is selected by agreement with the Optionee or unilaterally by the Company or its Subsidiary and whether with or without advance notice.  For the avoidance of doubt, no period of notice that is given or that ought to have been given to the Optionee under applicable law in respect of such termination of service as an Independent Director will be utilized in determining entitlement under the Plan, the Stockholders Agreement or this Agreement.  Any action by the Company or its Subsidiary taken in accordance with the terms of the Plan and this Agreement as set out aforesaid shall be deemed to fully and completely satisfy any liability or obligation of the Company or its Subsidiary to the Optionee in respect of the Plan or this Agreement arising from or in connection with the Optionee’s termination of service as an Independent Director, including in respect of any period of notice given or that ought to have been given under applicable law in respect of such termination of service as an Independent Director.

 

Section 2.5              Partial Exercise .  Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable.

 

4



 

Section 2.6              Exercise of Option .  The exercise of the Option shall be governed by the terms of this Agreement and the terms of the Plan, including, without limitation, the provisions of Article V of the Plan.

 

Section 2.7              Repurchase Right .

 

(a)           Upon the Optionee’s termination of service as a Service Provider, the Company shall have the right and option to repurchase (the “ Repurchase Right ”) all or any portion of the Shares received by the Optionee upon exercise of the Option, which Shares were held by the Optionee or any Permitted Transferee at the time of the Optionee’s termination of service as a Service Provider, at the Repurchase Price specified below for a period beginning on the date of the Optionee’s termination of service as a Service Provider and ending on the later of (i) seven (7) months following the date on which the Option is no longer exercisable pursuant to Section 2.4 and (ii) seven (7) months following the date of the Optionee’s termination of service as a Service Provider (the “ Repurchase Period ”).

 

(b)           The per Share purchase price of the Shares subject to the Repurchase Right (the “ Repurchase Price ”) shall be:

 

(i)            With respect to the repurchase of Shares in connection with the Optionee’s termination of service as a Service Provider for Cause, the Repurchase Price shall be the lesser of the Exercise Price or the Fair Market Value of such Shares on the date that the Company elects to effect its Repurchase Right in accordance with Section 2.7(c).

 

(ii)           With respect to the repurchase of Shares in connection with the Optionee’s termination of service as a Service Provider for any reason other than for Cause, including voluntary departures, death, Disability or termination without Cause, the Repurchase Price shall be the Fair Market Value of such Shares on the date the Company elects to effect its Repurchase Right in accordance with Section 2.7 (c).

 

(iii)          Notwithstanding the foregoing, if the Company exercises its Repurchase Right with respect to an Optionee who holds Common Stock (including the Shares received by the Optionee upon exercise of the Option, or any other shares) with an aggregate Fair Market Value of at least $250,000 (before giving effect to the Repurchase Right), the Company may, in its sole discretion, pay the Repurchase Price in three (3) equal installments commencing on the date that the Repurchase Right is effected and payable annually thereafter.  Any payment of the Repurchase Price made pursuant to this Section 2.7(b)(iii) shall be made pursuant to a promissory note with a term not in excess of two years and accruing interest at the prime rate advertised in the Wall Street Journal on the date the Repurchase Right is effected, compounded annually.  Notwithstanding anything herein to the contrary, no payment shall be made under this Section 2.7(b), or under any promissory note issued by the Company pursuant to this Section 2.7(b)(iii), that would cause the Company to violate any law, or any rights or preference of preferred stockholders of the Company, any banking agreement or loan or other financial covenant or cause default of any senior indebtedness of the Company, regardless of when such agreement, covenant or indebtedness was created, incurred or assumed.  Any payment under this Section 2.7(b) that would cause such violation or default shall result in an extension of the Repurchase Period set forth in Section 2.7(a), in the sole discretion of the Board, until such payment shall no longer cause any such violation or default and at which time the Repurchase Right may be exercised.  The Repurchase Right shall terminate upon the closing of the Company’s initial public offering or upon consummation of a Corporate Event, in either case as a result of which shares of the Company (or successor entity) of the same class as the Shares are registered under Section 12 of the Exchange Act.

 

5



 

(c)           The Company shall effect the Repurchase Right (if so elected) by delivering or mailing to the Optionee (and/or, if applicable, any Permitted Transferees) written notice within the Repurchase Period, specifying a date within such Repurchase Period on which the Repurchase Right shall be effected and the number of Shares as to which the Repurchase Right is being exercised.  Upon such notification, the Optionee and any Permitted Transferees shall promptly surrender to the Company any certificates representing the Shares being purchased, together with a duly executed stock power for the transfer of such Shares to the Company, free and clear of any liens or encumbrances.  Subject to Section 2.7(b)(iii) above, upon the Company’s receipt of the certificates from the Optionee or any Permitted Transferees, the Company shall deliver to him, her or them a check for the Repurchase Price of the Shares being purchased, provided, however, that the Company may pay the Repurchase Price for such Shares by offsetting and canceling any indebtedness then owed by the Optionee to the Company or any Affiliate.  The Repurchase Right specified herein shall survive and remain in effect as to the Shares received by the Optionee upon exercise of the Option following any Corporate Event, except as provided in Section 2.7(b)(iii).

 

Section 2.8              Manner of Exercise; Tax Withholding .

 

(a)           Unless determined otherwise by the Administrator, as a condition to the exercise of the Option, the Optionee shall (i) notify the Company at least thirty (30) days prior to exercise and no earlier than ninety days prior to exercise that the Optionee intends to exercise, and (ii) concurrently with the exercise of the Option, execute the Stockholders Agreement, unless the Optionee has already executed the Stockholders Agreement.  This Section 2.8(a) shall not apply if the Shares underlying the Option are registered on Form S-8.

 

(b)           To the extent permitted by law or the applicable listing rules, if any, the Optionee may pay for the Shares with respect to which such Option or portion of such Option is exercised through (i) payment in cash; (ii) with the consent of the Administrator, the delivery of Shares which are owned by the Optionee, duly endorsed for transfer to the Company with a Fair Market Value on the date of delivery equal to the aggregate Exercise Price of the exercised portion of the Option; (iii) with the consent of the Administrator, through the surrender of Shares then issuable upon exercise of the Option having a Fair Market Value on the date of the exercise of the Option equal to the aggregate Exercise Price of the exercised portion of the Option; or (iv) with the consent of the Administrator, delivery of a notice that the Optionee has placed a market sell order with a broker with respect to Shares then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate Exercise Price; provided, that payment of such proceeds is then made to the Company upon settlement of such sale.

 

(c)           The Optionee shall make appropriate arrangements for the payment to the Company (or its Subsidiary, as applicable) of all amounts which the Company (or its Subsidiary, as applicable) is required to withhold under applicable law in connection with the exercise of the Option.  With the consent of the Administrator and subject to any applicable legal conditions or restrictions, the Company shall, upon the Optionee’s request, withhold from the Shares otherwise issuable to the Optionee upon the exercise of the Option or any portion thereof a number of whole Shares having a Fair Market Value, determined as of the date of exercise, not in excess of the minimum of tax required to be withheld by law (or such lower amount as may be necessary to avoid variable award accounting).  Any adverse consequences to the Optionee arising in connection with the Share withholding procedure set forth in the preceding sentence shall be the sole responsibility of the Optionee.

 

6



 

ARTICLE III.
OTHER PROVISIONS

 

Section 3.1              Optionee Representation; Not a Contract of Service .  The Optionee hereby represents that the Optionee’s execution of this Agreement and participation in the Plan is voluntary and that the Optionee has in no way been induced to enter into this Agreement in exchange for or as a requirement of the expectation of service with the Company or any of its Subsidiaries.  Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue as an Independent Director (or otherwise as a Service Provider) or shall interfere with or restrict in any way the rights of the Company, its Subsidiaries, or their respective stockholders to increase or decrease at any time the fees due to the Optionee as an Independent Director.

 

Section 3.2              Shares Subject to Plan and Stockholders Agreement; Restrictions on the Transfer of Options and Common Stock .  The Optionee acknowledges that this Option and any Shares acquired upon exercise of the Option are subject to the terms of the Plan and the Stockholders Agreement including, without limitation, the restrictions set forth in Sections 5.6 and 5.7 of the Plan.

 

Section 3.3              Construction .  This Agreement shall be administered, interpreted and enforced under the laws of the state of Delaware.

 

Section 3.4              Conformity to Securities Laws .  The Optionee acknowledges that the Plan is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated thereunder by the Securities and Exchange Commission, including without limitation Rule 16b-3.  Notwithstanding anything herein to the contrary, the Plan, the Stockholders Agreement and this Agreement shall be administered, and the Option is granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations.  To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

 

Section 3.5              Stockholder Approval .

 

(a)           Except as otherwise provided in subsection (b) below, in the event that it shall be determined that any right to receive the Option, payment or other benefit under this Agreement (including, without limitation, the acceleration of the vesting and/or exercisability of the Option and taking into account the effect of this Section) to or for the benefit of the Optionee (the “ Payments ”), would not be deductible, in whole or part when aggregated with any other right, payment or benefit to or for the Optionee under all other agreements or benefit plans of the Company, by the Company or the Person making such payment or distribution or providing such right or benefit as a result of Section 280G of the Code, then, to the extent necessary to make the Payments deductible to the maximum extent possible (but only to such extent and after taking into account any reduction in the Payments relating to Section 280G of the Code under any other plan, arrangement or agreement), the Option held by the Optionee or any other right, payment or benefit under this Agreement shall not become exercisable, vested or paid.  For purposes of determining whether any of the Payments would not be deductible as a result of Section 280G of the Code and the amount of such disallowed deduction, all Payments will be treated as “parachute payments” within the meaning of Section 280G of the Code, and all “parachute payments” in excess of the “base amount” (as defined under Section 280G(b)(3) of the Code) shall be treated as nondeductible, unless and except to the extent that in the opinion of a nationally recognized accounting firm selected by the Company (the “ Accountants ”), such Payments (in whole or in part) either do not constitute “parachute payments,” including by reason of Section 280G(b)(4) of the Code, or are otherwise not subject to disallowance as a deduction.  All determinations required to be made under this subsection (a), including whether and which of the Payments are required to be reduced, the amount of

 

7



 

such reduction and the assumptions to be utilized in arriving at such determination, shall be made by the Accountants, provided that such determinations shall be based upon “substantial authority” within the meaning of Section 6662 of the Code.

 

(b)           Notwithstanding any other provision of this Agreement, the provisions of subsection (a) above shall not apply to reduce the Payments if the Payments that would otherwise be nondeductible under Section 280G of the Code are disclosed to and approved by the Company’s stockholders in accordance with Section 280G(b)(5)(B) of the Code and the 280G Regulations.

 

(c)           The Company shall use its commercially reasonable best efforts to prepare and deliver to its stockholders the disclosure required by Section 280G(b)(5)(B) of the Code with respect to the Payments and to obtain the approval of the Company’s stockholders pursuant to subsection (b) above.

 

Section 3.6              Amendment, Suspension and Termination .  The Option may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator, provided that, except as provided by Section 8.1 of the Plan, neither the amendment, modification, suspension nor termination of this Agreement (including the Grant Notice) shall, without the consent of the Optionee, materially alter or impair any rights or obligations under the Option.

 

8



 

ARTICLE IV.
DEFINITIONS

 

Whenever the following terms are used in this Agreement (including the Grant Notice), they shall have the meaning specified below unless the context clearly indicates to the contrary.  Capitalized terms used in this Agreement and not defined below shall have the meaning given such terms in the Plan.  The singular pronoun shall include the plural, where the context so indicates.

 

Section 4.1              280G Regulations .  “280G Regulations” means the regulation codified at 26 C.F.R. § 1.280G-1.

 

Section 4.2              Cause .  “Cause” shall mean (a) the Board’s determination that the Optionee failed to substantially perform his duties as an Independent Director (other than any such failure resulting from the Optionee’s Disability); (b) the Optionee’s willful misconduct, negligence or a breach of fiduciary duty that, in each case or in the aggregate, results in material harm to Wesco Aircraft Hardware Corp, a California corporation (“Wesco”) or any of its Affiliates; (c) the Optionee’s willful and material breach of this Agreement or the bylaws of Wesco; (d) the Optionee’s conviction, plea of no contest, plea of nolo contendere , or imposition of unadjudicated probation for any felony or crime involving moral turpitude; (e) the Optionee’s unlawful use (including being under the influence) or possession of illegal drugs on Wesco’s premises or while performing the Optionee’s duties and responsibilities to Wesco or any of its Affiliates; or (f) the Optionee’s commission of an act of fraud, embezzlement, or misappropriation, in each case, against Wesco or any of its Affiliates.

 

Section 4.3              “ Company ” shall mean Wesco Holdings, Inc., a Delaware corporation.

 

Section 4.4              Effective Date .  “Effective Date” shall mean September 29, 2006.

 

Section 4.5              Exercise Price .  “Exercise Price” shall mean the per Share price set forth in the Grant Notice.

 

Section 4.6              Fiscal Year .  “Fiscal Year” shall mean the fiscal year of the Company, as in effect from time to time.

 

Section 4.7              Final Expiration Date .  “Final Expiration Date” shall mean the date set forth in the Grant Notice.

 

Section 4.8              Grant Date .  “Grant Date” shall be the date set forth in the Grant Notice.

 

Section 4.9              Grant Notice .  “Grant Notice” shall mean the Grant Notice referred to in Section 1.1 of this Agreement, which Grant Notice is for all purposes a part of the Agreement.

 

Section 4.10            Liquidity Event .  “Liquidity Event” shall mean either (a) the consummation of the sale, transfer, conveyance or other disposition in one or a series of transactions, of the equity securities of the Company or its successor held, directly or indirectly, by all of the Principal Stockholders in exchange for cash, or in the case of any transaction resulting in the exchange for consideration other than cash (“non-cash consideration”) the receipt of cash upon the disposition of such non-cash consideration, such that immediately following such transaction or disposition (or series of related transactions or dispositions), the total number of all equity securities held, directly or indirectly, by all of the Principal Stockholders and any Affiliate of any Principal Stockholders is, in the aggregate, less than 30% of the total number of

 

9



 

equity securities (as such securities may be adjusted for the occurrence of a corporate event) held, directly or indirectly, by all of the Principal Stockholders and any Affiliate of any Principal Stockholders as of the Effective Date; or (b) the consummation of the sale, lease, transfer, conveyance or other disposition (other than by way of merger, equity purchase or consolidation), in one or a series of transactions, of all or substantially all of the assets of the Company, or the Company and its subsidiaries taken as a whole, to any “person “ (as such term is defined in Section 13(d)(3) of the Exchange Act) other than to any Principal Stockholders or an Affiliate of any Principal Stockholders.

 

Section 4.11            Option .  “Option” shall mean the option to purchase Common Stock granted under this Agreement.

 

Section 4.12            Optionee .  “Optionee” shall be the Person designated as such in the Grant Notice.

 

Section 4.13            Permitted Transferee .  “Permitted Transferee” shall have the meaning given such term under the Stockholders Agreement.

 

Section 4.14            Plan .  “Plan” shall mean the Equity Incentive Plan of Wesco Holdings, Inc.

 

10




Exhibit 10.12

 

WESCO HOLDINGS, INC.

 

AMENDED AND RESTATED EQUITY INCENTIVE PLAN

 

RESTRICTED STOCK UNIT AGREEMENT

 

GRANT NOTICE

 

Unless otherwise defined herein, the terms defined in the Amended and Restated Equity Incentive Plan of Wesco Holdings, Inc., as amended from time to time (the “ Plan ”), shall have the same defined meanings in this Restricted Stock Unit Agreement, which includes the terms in this Grant Notice (the “ Grant Notice ”) and Appendix A attached hereto (collectively the “ Agreement ”).  This Agreement shall become effective on December 31, 2008.

 

You have been granted Restricted Stock Units (the “ RSUs ”), subject to the terms and conditions of the Plan and this Agreement.

 

Participant:

 

[                          ]

 

 

 

Grant Date:

 

September 29, 2006

 

 

 

Total Number of RSUs:

 

[                 ]

 

 

 

Type of Shares Subject to Distribution:

 

Class B Common Stock

 

 

 

Vesting Schedule:

 

The RSUs shall vest on September 29, 2009, subject to the Participant remaining an Employee through such date and subject to the terms of this Agreement.

 

Your signature below indicates your agreement and understanding that the RSUs are subject to all of the terms and conditions contained in this Agreement, including this Grant Notice, Appendix A to the Grant Notice, and the Plan.  ACCORDINGLY, PLEASE BE SURE TO READ ALL OF APPENDIX A, WHICH CONTAINS THE SPECIFIC TERMS AND CONDITIONS OF THE RSUS.  This Agreement amends and restates your prior Restricted Stock Unit Agreement in its entirety and you shall not be entitled to any other Restricted Stock Units from the Company.

 

WESCO HOLDINGS, INC.:

 

PARTICIPANT:

 

 

 

By:

 

 

By:

 

Print Name:

 

 

Print Name:

 

Title:

 

 

 

 

 

A-1



 

APPENDIX A

 

TO THE RESTRICTED STOCK UNIT AGREEMENT

 

Pursuant to this Agreement and the Plan, the Company has awarded to the Participant the number of RSUs set forth in the Grant Notice.  This Agreement shall become effective on December 31, 2008.

 

ARTICLE I.

 

GENERAL

 

1.1           Incorporation of Terms .  The RSUs and the shares of Common Stock distributed to the Participant pursuant to Section 2.3 (the “ Shares ”) are subject to the terms and conditions of the Plan and the Stockholders Agreement of Wesco Holdings, Inc., dated as of July 23, 2006, by and among Falcon Aerospace Holdings, LLC, a Delaware limited liability company, and the other parties thereto (the “ Stockholders Agreement ”), which terms and conditions are incorporated herein by reference.  In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.

 

ARTICLE II.

 

AWARD OF RESTRICTED STOCK UNITS

 

2.1           Award of RSUs .  As set forth in the Grant Notice, the Company has granted the Participant RSUs.  Each RSU represents the right to receive one Share.  However, unless and until the RSUs have vested, the Participant will have no right to the payment of any Shares subject thereto.  Prior to the actual payment of any Shares, such RSUs will represent an unsecured obligation of the Company, payable only from the general assets of the Company.

 

2.2           Vesting of RSUs .  The Participant will vest in the RSUs in accordance with the vesting schedule set forth in the Grant Notice; provided , that in the event that the Participant incurs a Termination of Employment prior to vesting in the RSUs, the Participant’s right to vest in the RSUs and to receive the Shares related thereto will terminate effective as of the date of such Termination of Employment, and the Participant will have no further rights to such RSUs or the related Shares.  For purposes of this Agreement, “ Termination of Employment ” shall mean the time when the engagement of the Participant as an Employee is terminated for any reason, with or without cause, including, but not by way of limitation, by resignation, discharge, death or retirement.  The Administrator, in its absolute discretion, shall determine the effect of all matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Employment.  For the avoidance of doubt, in the event that the Participant experiences a Termination of Employment after vesting in the RSUs in accordance with the schedule set forth in the Grant Notice, but prior to the occurrence of a Distribution Date, then the Participant will still be entitled to receive a distribution of the Shares subject to the RSUs on the occurrence of a Distribution Date.

 

2.3           Distribution of Shares .

 

(a)           Conditions to Distribution.  Prior to the vesting of the RSUs in accordance with Section 2.2, no Shares shall be distributed to the Participant under this Agreement; provided, however, if a Change in Control occurs prior to the vesting of the RSUs in accordance with Section 2.2, then the Shares shall be distributed to the Participant under this Agreement immediately prior to the time of the

 

A-2



 

Change in Control unless the Administrator delays the Distribution Date until the RSUs are vested, in which case such Shares shall be distributed within thirty (30) days following the vesting date notwithstanding Section 2.3(b).

 

(b)           Timing of Distribution.  After the RSUs have vested in accordance with Section 2.2, the Company shall distribute any Shares (whether in book entry form or otherwise) owing to the Participant under such RSUs on the earliest of the following dates, subject to Section 2.6 (each, a “ Distribution Date ”):

 

(i)            the date of a Change in Control, but immediately prior to the time of the Change in Control; and

 

(ii)           September 28, 2012.

 

2.4           Legend .  Certificates representing Shares distributed pursuant to this Agreement shall, until all the restrictions in Section 2.8 lapse or shall have been removed and new certificates are distributed, bear the following legend (or such other legend as shall be determined by the Administrator):

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE SUBJECT TO REPURCHASE UNDER THE TERMS OF THAT CERTAIN RESTRICTED STOCK UNIT AGREEMENT, DATED [            , 200    ], BY AND BETWEEN WESCO HOLDINGS, INC. AND THE REGISTERED OWNER OF SUCH SHARES, AND SUCH SHARES MAY NOT BE, DIRECTLY OR INDIRECTLY, OFFERED, TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNDER ANY CIRCUMSTANCES, EXCEPT PURSUANT TO THE PROVISIONS OF SUCH AGREEMENT.”

 

2.5           Escrow .  The Secretary of the Company or such other escrow holder as the Administrator may appoint may retain physical custody of the certificates representing the Shares until all of the restrictions in Section 2.8 lapse or shall have been removed.

 

2.6           Tax Withholding; Conditions to Distribution of Certificates .  Notwithstanding any other provision of this Agreement (including without limitation Section 2.3):

 

(a)           The Participant is ultimately liable and responsible for all taxes owed in connection with the RSUs, regardless of any action the Company or any of its Subsidiaries takes with respect to any tax withholding obligations that arise in connection with the RSUs. Neither the Company nor any of its Subsidiaries makes any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding or vesting of the RSUs or the subsequent sale of Shares.  The Company and its Subsidiaries do not commit and are under no obligation to structure the RSUs to reduce or eliminate the Participant’s tax liability.

 

(b)           Prior to any tax withholding becoming due, the Participant must make arrangements satisfactory to the Administrator to satisfy such withholding and must satisfy such tax withholdings when due.  To the extent permitted by the Administrator, the Company (or the employing Subsidiary) will withhold a portion of the Shares subject to distribution from the RSUs that have an aggregate Fair Market Value sufficient to pay the minimum federal, state and local income, employment and any other applicable taxes required to be withheld by the Company or the employing Subsidiary with respect to the RSUs and the Shares distributed therefrom.  In addition and to the maximum extent permitted by law, the Company (or the employing Subsidiary) has the right to retain without notice from

 

A-3



 

salary or other amounts payable to the Participant, cash having a value sufficient to satisfy any tax withholding obligations that cannot be satisfied by the withholding of otherwise deliverable Shares.

 

(c)           The Company shall not be required to distribute or deliver any certificate or certificates for any Shares pursuant to Section 2.3 prior to the fulfillment of all of the following conditions:  (A) the admission of the Shares to listing on all stock exchanges on which such Shares are then listed; (B) the completion of any registration or other qualification of the Shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or other governmental regulatory body, which the Administrator shall, in its sole and absolute discretion, deem necessary and advisable; and (C) the obtaining of any approval or other clearance from any state or federal governmental agency that the Administrator shall, in its sole and absolute discretion, determine to be necessary or advisable.  Any Shares whose certificates are subject to a delay in distribution or delivery to the Participant resulting from clauses (A), (B) and (C) of this Section shall be deemed the “ Delayed Shares ”.  The Company shall distribute or deliver any Delayed Shares to the Participant at the earliest date upon which all conditions enumerated in clauses (A), (B) and (C) of this Section have been fulfilled, as reasonably anticipated by the Administrator.

 

2.7           Rights as Stockholder .  Neither the Participant nor any person claiming under or through the Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been distributed and recorded on the records of the Company or its transfer agents or registrars, and delivered to the Participant (including through electronic delivery to a brokerage account).  Except as otherwise provided herein, after such distribution, recordation and delivery, the Participant will have all the rights of a stockholder of the Company with respect to the receipt of dividends and distributions on such Shares.

 

2.8           Repurchase Right .

 

(a)           Upon the Participant’s Termination of Employment, any portion of the RSUs that is unvested as of the date of such Termination of Employment shall be forfeited, and the Company shall have the right and option to repurchase (the “ Repurchase Right ”), at the Repurchase Price specified below, all or any portion of the Shares that have been distributed pursuant to the RSUs on or prior to the date of such Termination of Employment, or that will be distributed pursuant to the RSUs on the occurrence of a Distribution Date after the date of such Termination of Employment, regardless of whether such Shares (or a portion thereof) are held by the Participant or a Permitted Transferee, but in no event shall the repurchase occur prior to the Distribution Date.  The Company may exercise the Repurchase Right for a period beginning on the date of the Participant’s Termination of Employment and ending on the later of (A) seven (7) months following the applicable Distribution Date, and (B) ninety (90) days following the date of the Participant’s Termination of Employment (the “ Repurchase Period ”).  For purposes of this Agreement, “ Permitted Transferee ” shall have the meaning given to such term under the Stockholders Agreement.

 

(b)           The per share purchase price of the Shares subject to the Repurchase Right (the “ Repurchase Price ”) shall be:

 

(i)            With respect to the repurchase of Shares in connection with a Termination of Employment involving the Participant’s termination of employment for Cause, the Repurchase Price shall be the lesser of the Fair Market Value of such Shares on the Grant Date or the date the Company elects to effect its Repurchase Right in accordance with Section 2.8(b)(iv).  For purposes of this Agreement, “ Cause ” shall mean: (A) the Board’s determination that the Participant failed to substantially perform his or her duties as an Employee (other than any such failure resulting from the

 

A-4



 

Participant’s Disability); (B) the Board’s determination that the Participant failed to carry out, or comply with, in any material respect any lawful and reasonable directive of the Board or the Participant’s immediate supervisor; (C) the Participant’s willful misconduct, negligence or a breach of fiduciary duty that, in each case or in the aggregate, results in material harm to Wesco Aircraft Hardware Corp, a California corporation (“ Wesco ”) or any of its Affiliates; (D) the Participant’s willful and material breach of this Agreement or the bylaws of Wesco; (E) the Participant’s conviction, plea of no contest, plea of nolo contendere , or imposition of unadjudicated probation for any felony or crime involving moral turpitude; (F) the Participant’s unlawful use (including being under the influence) or possession of illegal drugs on Wesco’s premises or while performing the Participant’s duties and responsibilities to Wesco or any of its Affiliates; or (G) the Participant’s commission of an act of fraud, embezzlement, or misappropriation, in each case, against Wesco or any of its Affiliates.  Notwithstanding the foregoing, if the Participant is a party to a written employment agreement with the Company or any of its Subsidiaries and such agreement contains a definition of cause, then “Cause” shall be as such term is defined in the applicable written employment agreement.

 

(ii)           With respect to the repurchase of Shares in connection with any Termination of Employment other than the termination of the Participant’s employment for Cause, including voluntary departures, death, Disability or termination without Cause, the Repurchase Price shall be the Fair Market Value of such Shares on the date the Company elects to effect its Repurchase Right in accordance with Section 2.8(b)(iv) .

 

(iii)          Notwithstanding the foregoing, if the Company exercises its Repurchase Right with respect to a Participant who holds Common Stock (including the Shares subject to distribution under this Agreement) with an aggregate Fair Market Value of at least $250,000 (before giving effect to the Repurchase Right), the Company may, in its sole discretion, pay the Repurchase Price in three equal installments commencing on the date that the Repurchase Right is effected and payable annually thereafter.  Any payment of the Repurchase Price made pursuant to this Section 2.8(b)(iii) shall be made pursuant to a promissory note with a term not in excess of two years and accruing interest at the prime rate advertised in the Wall Street Journal on the date the Repurchase Right is effected, compounded annually.  Notwithstanding anything herein to the contrary, no payment shall be made under this Section 2.8, or under any promissory note issued by the Company pursuant to this Section 2.8(b)(iii), that would cause the Company to violate any law, or any rights or preference of preferred stockholders of the Company, any banking agreement or loan or other financial covenant or cause default of any senior indebtedness of the Company, regardless of when such agreement, covenant or indebtedness was created, incurred or assumed.  Any payment under this Section 2.8 that would cause such violation or default shall result in an extension of the Repurchase Period set forth in Section 2.8(a), in the sole discretion of the Board, until such payment shall no longer cause any such violation or default and at which time the Repurchase Right may be exercised.  The Repurchase Right with respect to the Shares shall terminate upon the closing of an Initial Public Offering or upon consummation of a Corporate Event, in either case as a result of which shares of the Company (or successor entity) of the same class as the Shares are registered under Section 12 of the Exchange Act.

 

(iv)          The Company shall effect the Repurchase Right (if so elected) by delivering or mailing to the Participant (and/or, if applicable, any Permitted Transferees) written notice within the Repurchase Period, specifying a date within such period on which the Repurchase Right shall be effected and the number of Shares as to which the Repurchase Right is being exercised.  Upon such notification, the Participant and any Permitted Transferees shall promptly surrender to the Company any certificates representing the Shares being purchased, together with a duly executed stock power for the transfer of such Shares to the Company, free and clear of any liens or encumbrances.  Subject to Section 2.8(b)(iii) above, upon the Company’s receipt of the certificates from the Participant or any Permitted Transferees, the Company shall deliver to him, her or them a check for the Repurchase Price of the Shares

 

A-5



 

being purchased, provided , however , that the Company may pay the Repurchase Price for such Shares by offsetting and canceling any indebtedness then owed by the Participant to the Company or any Affiliate.  The Repurchase Right specified herein shall survive and remain in effect as to the Shares following any Corporate Event, except as provided in Section 2.8(b)(iii).

 

2.9           [Competition .

 

(a)           Having received the RSUs in connection with the transactions (the “ Transaction ”) contemplated by the Stock Purchase and Exchange Agreement and Agreement and Plan of Merger, dated July 23, 2006, by and among the Company, Wesco and certain other parties thereto, the Participant recognizes and agrees that in order to assure that the Participant devotes all of the Participant’s professional time and energy to the operations of Wesco while employed by Wesco, and that during and after such employment in order to adequately protect Wesco’s investment in its proprietary information and trade secrets and to protect such information and secrets and all other confidential information from disclosures to competitors and to protect Wesco from unfair competition, separate covenants not to compete, not to solicit, and not to recruit Wesco’s employees for the duration and scope set forth below, are necessary and desirable.  The Participant understands and agrees that the restrictions imposed in these covenants represent a fair balance of Wesco’s rights to protect its business and the Participant’s right to pursue employment.

 

(b)           The Participant shall not, during the period beginning on the Grant Date and ending on the later of the date (i) two (2) years following the Transaction, and (ii) one (1) year following the date of Participant’s Termination of Employment (the “ Non-Compete Period ”), directly or indirectly engage in, have any equity interest in, or manage or operate any person, firm, corporation, partnership or business (whether as a director, officer, employee, agent, representative, partner, security holder, consultant or otherwise) that engages in any business which competes with any Business (as defined below) of Wesco or any of its Affiliates anywhere in the world where Wesco conducts Business during the Non-Compete Period or has plans to conduct Business within twelve (12) months after the date thereof; provided , however , that the Participant shall be permitted to acquire a passive debt or equity interest in such a business provided such business has a class of publicly-traded securities and the securities directly or indirectly beneficially owned by the Participant do not represent more than two percent (2%) of the outstanding interest in such business.

 

(c)           During the Non-Compete Period, the Participant shall not, directly or indirectly, recruit or otherwise solicit or induce any employee, customer or supplier of Wesco (i) to terminate his, her or its employment or other arrangement with Wesco, (ii) to otherwise change his, her or its relationship with Wesco, or (iii) to establish any relationship with the Participant or any of his or her affiliates for any business purpose competitive with the Business of Wesco.

 

(d)           In the event any term of this Section 2.9 shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it will be interpreted to extend only over the maximum period of time for which it may be enforceable, over the maximum geographical area as to which it may be enforceable, or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action.

 

(e)           As used in this Section 2.9, (A) the term “ Wesco ” shall include Wesco and its direct or indirect parents, if any, and its Subsidiaries, and (B) the term “ Business ” shall mean (x) the business of inventory management services and the purchase and distribution of aerospace parts, machined parts, bearings, and fastener installation tooling, as such business may be expanded or altered  into reasonably related business activities by the Company during the period of Participant’s employment

 

A-6



 

with Wesco, and (y) any other business (or expansion of the Business described in the preceding clause (x)) that Wesco may commence during the Non-Compete Period or plans to commence within twelve (12) months after the date thereof as reflected in a capital expenditures budget, business plan, internal memoranda or other tangible evidence that such plans had been made during Participant’s employment, with respect to which the Participant has, or would be reasonably expected to have, material responsibilities or management authority.](1)

 

ARTICLE III.

 

OTHER PROVISIONS

 

3.1           RSUs Not Transferable .  No RSUs or any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means, whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect.

 

3.2           Not a Contract of Employment .  Nothing in this Agreement or in the Plan shall confer upon the Participant any right to continue to serve as an Employee or other Service Provider of the Company or any of its Subsidiaries.

 

3.3           Governing Law; Entire Agreement .   The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the laws that might be applied under principles of conflicts of laws.  This Agreement supersedes all other prior agreements you may have with respect to Restricted Stock Units of the Company and you shall not be entitled to any Shares from any prior Restricted Stock Unit agreement, except as provided herein.

 

3.4           Conformity to Securities Laws .  The Participant acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act, and any and all regulations and rules promulgated thereunder by the Securities and Exchange Commission.  Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Awards granted, only in such a manner as to conform to such laws, rules and regulations.  To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

 

3.5           Amendment, Suspension and Termination .  To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator , provided, that , except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall adversely affect the Award in any material way without the prior written consent of the Participant.

 

3.6           Notices .  Notices required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail, with postage and fees prepaid, addressed to the Participant to his or her address shown in the Company records, and to the Company at its principal executive office.

 


(1)  Not included for employees located in California.

 

A-7



 

3.7           Successors and Assigns .  The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company.  Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon the Participant and his or her heirs, executors, administrators, successors and assigns.

 

3.8           Lockup Provision .  The Participant and each Permitted Transferee shall agree, if requested by the Company and any underwriter engaged by the Company, not to sell or otherwise transfer or dispose of any securities of the Company (including, without limitation pursuant to Rule 144 under the Securities Act (or any successor or similar exemptive rule hereafter in effect)) held by them for such period following the effective date of any registration statement of the Company filed under the Securities Act as the Company or such underwriter shall specify reasonably and in good faith, not to exceed 180 days in the case of an Initial Public Offering or 90 days in the case of any other public offering.

 

3.9           Stockholder Approval .

 

(a)           Except as otherwise provided in subsection (b) below, in the event that it shall be determined that any right to receive the RSUs, any payment or other benefit under this Agreement (including, without limitation, the acceleration of the vesting of the RSUs and taking into account the effect of this Section) to or for the benefit of the Participant (the “ Payments ”), would not be deductible, in whole or part when aggregated with any other right, payment or benefit to or for the Participant under all other agreements or benefit plans of the Company, by the Company or the person making such payment or distribution or providing such right or benefit as a result of Section 280G of the Code, then, to the extent necessary to make the Payments deductible to the maximum extent possible (but only to such extent and after taking into account any reduction in the Payments relating to Section 280G of the Code under any other plan, arrangement or agreement), the RSUs held by the Participant or any other right, payment or benefit under this Agreement shall not become vested or paid.  For purposes of determining whether any of the Payments would not be deductible as a result of Section 280G of the Code and the amount of such disallowed deduction, all Payments will be treated as “parachute payments” within the meaning of Section 280G of the Code, and all “parachute payments” in excess of the “base amount” (as defined under Section 280G(b)(3) of the Code) shall be treated as nondeductible, unless and except to the extent that in the opinion of a nationally recognized accounting firm selected by the Company (the “ Accountants ”), such Payments (in whole or in part) either do not constitute “parachute payments,” including by reason of Section 280G(b)(4) of the Code, or are otherwise not subject to disallowance as a deduction.  All determinations required to be made under this subsection (a), including whether and which of the Payments are required to be reduced, the amount of such reduction and the assumptions to be utilized in arriving at such determination, shall be made by the Accountants, provided , that such determinations shall be based upon “substantial authority” within the meaning of Section 6662 of the Code.

 

(b)           Notwithstanding any other provision of this Agreement, the provisions of subsection (a) above shall not apply to reduce the Payments if the Payments that would otherwise be nondeductible under Section 280G of the Code are disclosed to and approved by the Company’s stockholders in accordance with Section 280G(b)(5)(B) of the Code and the regulations promulgated thereunder.

 

(c)           The Company shall use its commercially reasonable best efforts to prepare and deliver to its stockholders the disclosure required by Section 280G(b)(5)(B) of the Code with respect to the Payments and to obtain the approval of the Company’s stockholders pursuant to subsection (b) above.

 

A-8



 

ARTICLE IV.

 

DEFINITIONS

 

Whenever the following terms are used in this Agreement (including the Grant Notice), they shall have the meaning specified below unless the context clearly indicates to the contrary.  Capitalized terms used in this Agreement and not defined below shall have the meaning given such terms in the Plan.  The singular pronoun shall include the plural, where the context so indicates.

 

4.1           Effective Date .  “Effective Date” shall mean September 29, 2006.

 

4.2           Change in Control .  “Change in Control” means and includes each of the following, to the extent that it constitutes a “change in control event” within the meaning of Treasury Regulation 1.409A-3(i)(5):

 

(a)           A transaction or series of transactions (other than an offering of Stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or

 

(b)           The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

 

(i)            Which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

 

(ii)           After which no person or group beneficially owns voting securities representing 50%  or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this Section 4.2(b)(ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.

 

Notwithstanding anything in this Agreement to the contrary, a Change in Control shall not include any transaction (or series of transactions) enumerated in Section 4.2(a) or (b) in which less than 40% of the aggregate consideration for such transaction (or series of transactions) paid to holders of Class B Common Stock is in the form of cash.

 

A-9



 

4.3           Initial Public Offering .  “Initial Public Offering” means an initial public offering of Common Stock pursuant to a registration statement filed in accordance with the Securities Act.  For purposes of this Section 4.3, “ Common Stock ” means (i) the Class A common stock, par value $0.001 per share, of the Company (the “ Class A Common Stock ”), (ii) the Class B common stock, par value $0.001 per share, of the Company (the “ Class B Common Stock ”), or (iii) any securities into which Class A Common Stock or Class B Common Stock is hereafter converted or exchanged. For the avoidance of doubt, an Initial Public Offering shall not constitute a Change in Control.

 

A-10




Exhibit 10.13

 

[For Independent Directors]

 

AMENDED AND RESTATED EQUITY INCENTIVE PLAN

OF WESCO HOLDINGS, INC.

 

RESTRICTED STOCK AGREEMENT

 

GRANT NOTICE

 

Unless otherwise defined herein, the terms defined in the Amended and Restated Equity Incentive Plan of Wesco Holdings, Inc., as amended from time to time (the “ Plan ”), shall have the same defined meanings in this Restricted Stock Agreement, which includes the terms in this Grant Notice (the “ Grant Notice ”) and Appendix A attached hereto (collectively the “ Agreement ”).

 

You have been granted Restricted Stock, subject to the terms and conditions of the Plan and this Restricted Stock Agreement.

 

Participant:

 

 

 

 

 

Grant Date:

 

 

 

 

 

Total Number of Shares of Restricted Stock:

 

 

 

 

 

Type of Restricted Shares

 

Class B Common Stock

 

 

 

Vesting Schedule:

 

.

 

Your signature below indicates your agreement and understanding that the Restricted Stock is subject to all of the terms and conditions contained in this Restricted Stock Agreement, including the Grant Notice and Exhibit A, and the Plan.  ACCORDINGLY, PLEASE BE SURE TO READ ALL OF EXHIBIT A, WHICH CONTAINS THE SPECIFIC TERMS AND CONDITIONS OF THE RESTRICTED STOCK.

 

 

WESCO HOLDINGS, INC.:

 

PARTICIPANT:

 

 

 

By:

 

 

By:

 

Print Name:

 

 

Print Name:

 

Title:

 

 

 

 

 



 

APPENDIX A

 

TO THE RESTRICTED STOCK AGREEMENT

 

Pursuant to this Agreement, the Company has awarded to the Participant the number of shares of Restricted Stock under the Plan, as set forth in the Grant Notice.

 

ARTICLE I.

 

GENERAL

 

1.1           Definitions .  All capitalized terms used in this Agreement without definition shall have the meanings ascribed to them in the Plan and the Grant Notice.

 

1.2           Incorporation of Terms .  The Restricted Stock is subject to the terms and conditions of the Plan and the Stockholders Agreement of Wesco Holdings, Inc., dated as of July 23, 2006, by and among Falcon Aerospace Holdings, LLC, a Delaware limited liability company (“ Falcon Holdings ”), and the other parties thereto (the “ Stockholders Agreement ”), which are each incorporated herein by reference.  In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.

 

ARTICLE II.

 

AWARD OF RESTRICTED STOCK

 

2.1           Award of Restricted Stock .

 

(a)           Award .  As of the Grant Date, the Company issues to the Participant the number of shares of Restricted Stock set forth in the Grant Notice (the “ Award ”), in consideration of the Participant’s agreement to remain in the service of the Company or one of its Subsidiaries, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged.  Such shares of Restricted Stock, whether vested or unvested, shall sometimes be referred to herein as “ Shares .”

 

(b)           Book Entry Form; Certificates .  At the sole discretion of the Administrator, the Shares will be issued in either:  (i) uncertificated form, with the Shares recorded in the name of the Participant in the books and records of the Company’s transfer agent, with appropriate notations regarding the Restrictions set forth in Section 2.2(a) and the Repurchase Right set forth in Section 2.2(e), and upon the lapse or removal of all Restrictions and the Repurchase Right, the Company shall cause certificates representing the Shares to be issued to the Participant; or (ii) certificate form pursuant to the terms of Section 2.1(c).

 

(c)           Legend .  Certificates representing Shares issued pursuant to this Agreement shall bear such legend or legends as shall be determined by the Administrator.

 

(d)           Escrow .  The Secretary of the Company or such other escrow holder as the Administrator may appoint may retain physical custody of the certificates representing the Shares until the lapse or removal of all Restrictions and the Repurchase Right.

 

A-1



 

2.2           Restrictions .

 

(a)           Forfeiture .  Any portion of the Restricted Stock subject to the Award which has not vested pursuant to the Grant Notice as of the date the Participant incurs a Termination from Service (as such term is defined below) shall automatically be forfeited by the Participant on the date of such Termination of Service (as such term is defined below) without any additional consideration therefor and without any further action by the Company.  For purposes of this Agreement, the exposure to forfeiture under this Section 2.2(a) of the Restricted Stock subject to the Award shall be hereinafter referred to as the “ Restrictions .”

 

(b)           Vesting of the Restricted Stock and Lapse of Restrictions .  Subject to Section 2.2(a), the Restricted Stock subject to the Award shall vest and the Restrictions shall lapse in accordance with the vesting schedule set forth on the Grant Notice.  Prior to the date that the Restricted Stock subject to the Award vests in accordance with the vesting schedule set forth in the Grant Notice, such Restricted Stock shall not be vested and shall be subject to forfeiture in accordance with Section 2.2(a).  The Restrictions applicable to the Restricted Stock subject to the Award shall lapse when such Restricted Stock is no longer subject to forfeiture as set forth in this Section 2.2(b).

 

(c)           Taxes; Conditions to Issuance of Certificates .  Notwithstanding any other provision of this Agreement (including without limitation Section 2.1(b)):

 

(i)            The Participant is ultimately liable and responsible for all taxes owed in connection with the Restricted Stock. Neither the Company nor any of its Subsidiaries makes any representation or undertaking regarding the tax treatment of any award or vesting of the Restricted Stock or the subsequent sale of Shares.  The Company and its Subsidiaries do not commit and are under no obligation to structure the Award to reduce or eliminate the Participant’s tax liability.

 

(ii)           The Company shall not be required to issue or deliver any certificate or certificates for any Shares prior to the fulfillment of all of the following conditions:  (A) the admission of the Shares to listing on all stock exchanges on which such Shares are then listed; (B) the completion of any registration or other qualification of the Shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or other governmental regulatory body, which the Administrator shall, in its sole and absolute discretion, deem necessary and advisable; (C) the obtaining of any approval or other clearance from any state or federal governmental agency that the Administrator shall, in its absolute discretion, determine to be necessary or advisable; and (D) the lapse of any such reasonable period of time following the date all Restrictions lapse or are removed and the Repurchase Right lapses, as the Administrator may from time to time establish for reasons of administrative convenience.

 

(d)           Rights as Stockholder .  Except as otherwise provided herein, upon the Grant Date the Participant shall have all the rights of a stockholder with respect to the Shares, subject to the Restrictions and the Repurchase Right herein, including the right to receive any cash or stock dividends paid to or made with respect to the Shares.  To the extent the Participant has not already executed the Stockholders Agreement, the Participant shall execute the Stockholders Agreement at the time the Participant receives this Agreement.

 

A-2



 

(e)           Repurchase Right .

 

(i)            Upon the Participant’s Termination of Service, the Company shall have the right and option to repurchase (the “ Repurchase Right ”) all or any portion of the Restricted Stock held by the Participant or any Permitted Transferee at the time of the Termination of Service, at the Repurchase Price specified below for a period beginning on the date of the Participant’s Termination of Service and ending on the later of (A) seven (7) months following the Grant Date and (B) ninety (90) days following the date of the Participant’s Termination of Service (the “ Repurchase Period ”).  For purposes of this Agreement, “ Permitted Transferee ” shall have the meaning given such term under the Stockholders Agreement.  For purposes of this Agreement, “ Termination of Service ” shall mean the time when the engagement of the Participant as a Service Provider is terminated for any reason, with or without cause, including, but not by way of limitation, by resignation, discharge, death or retirement.  The Administrator, in its absolute discretion, shall determine the effect of all matters and questions relating to Termination of Service, including, but not by way of limitation, the question of whether a Termination of Service resulted from discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Service.

 

(ii)           The per share purchase price of the Shares subject to the Repurchase Right (the “ Repurchase Price ”) shall be:

 

(A)          With respect to the repurchase of Restricted Stock in connection with the Participant’s Termination of Service for Cause, the Repurchase Price shall be the lesser of the Fair Market Value of such Shares on the Grant Date or the date the Company elects to effect its Repurchase Right in accordance with Section 2.2(e)(iii).  For purposes of this Agreement, “ Cause ” shall mean: (1) the Board’s determination that the Participant failed to substantially perform his or her duties as a Director (other than any such failure resulting from the Participant’s Disability); (2) the Participant’s willful misconduct, negligence or a breach of fiduciary duty that, in each case or in the aggregate, results in material harm to Wesco Aircraft Hardware Corp, a California corporation (“ Wesco ”) or any of its Affiliates; (3) the Participant’s willful and material breach of this Agreement or the bylaws of  Wesco; (4) the Participant’s conviction, plea of no contest, plea of nolo contendere , or imposition of unadjudicated probation for any felony or crime involving moral turpitude; (5) the Participant’s unlawful use (including being under the influence) or possession of illegal drugs on Wesco’s premises or while performing the Participant’s duties and responsibilities to Wesco or any of its Affiliates; or (6) the Participant’s commission of an act of fraud, embezzlement, or misappropriation, in each case, against Wesco or any of its Affiliates.

 

(B)           With respect to the repurchase of Restricted Stock in connection with any Termination of Service other than the termination of the Participant’s service relationship for Cause, including voluntary departures, death, Disability or termination without Cause, the Repurchase Price shall be the Fair Market Value of such Shares on the date the Company elects to effect its Repurchase Right in accordance with Section 2.2(e)(iii).

 

(C)           Notwithstanding the foregoing, if the Company exercises its Repurchase Right with respect to a Participant who holds Common Stock (including Restricted Stock, or any other shares) with an aggregate Fair Market Value of at least $250,000 (before giving effect to the Repurchase Right), the Company may, in its sole discretion, pay the Repurchase Price in three equal installments commencing on the date that the Repurchase Right is effected and payable annually thereafter.  Any payment of the Repurchase Price made pursuant to this Section 2.2(e)(ii)(C) shall be made pursuant to a promissory note with a term not in excess of two years and accruing interest at the prime rate advertised in the Wall Street Journal on the date the Repurchase Right is effected, compounded annually.  Notwithstanding anything herein to the contrary, no payment shall be made under this Section 

 

A-3



 

2.2(e), or under any promissory note issued by the Company pursuant to this Section 2.2(e)(ii)(C), that would cause the Company to violate any law, or any rights or preference of preferred stockholders of the Company, any banking agreement or loan or other financial covenant or cause default of any senior indebtedness of the Company, regardless of when such agreement, covenant or indebtedness was created, incurred or assumed.  Any payment under this Section 2.2(e) that would cause such violation or default shall result in an extension of the Repurchase Period set forth in Section 2.2(e)(i), in the sole discretion of the Board, until such payment shall no longer cause any such violation or default and at which time the Repurchase Right may be exercised.  The Repurchase Right shall terminate upon the closing of the Company’s initial public offering or upon consummation of a Corporate Event, in either case as a result of which shares of the Company (or successor entity) of the same class as the Shares are registered under Section 12 of the Exchange Act.

 

(iii)          The Company shall effect the Repurchase Right (if so elected) by delivering or mailing to the Participant (and/or, if applicable, any Permitted Transferees) written notice within the Repurchase Period, specifying a date within such period on which the Repurchase Right shall be effected and the number of Shares as to which the Repurchase Right is being exercised.  Upon such notification, the Participant and any Permitted Transferees shall promptly surrender to the Company any certificates representing the Shares being purchased, together with a duly executed stock power for the transfer of such Shares to the Company, free and clear of any liens or encumbrances.  Subject to Section 2.2(e)(ii)(C) above, upon the Company’s receipt of the certificates from the Participant or any Permitted Transferees, the Company shall deliver to him, her or them a check for the Repurchase Price of the Shares being purchased, provided, however, that the Company may pay the Repurchase Price for such Shares by offsetting and canceling any indebtedness then owed by the Participant to the Company or any Affiliate.  The Repurchase Right specified herein shall survive and remain in effect as to the Restricted Stock following any Corporate Event, except as provided in Section 2.2(e)(ii)(C).

 

ARTICLE III.

 

OTHER PROVISIONS

 

3.1           Restricted Stock Not Transferable .  Until the Restricted Stock subject to the Award vests in accordance with the vesting schedule set forth on the Grant Notice and the satisfaction of all conditions set forth in Section 2.2(c), except as provided in the Stockholders Agreement, no shares of Restricted Stock or any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Participant or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect.

 

3.2           Not a Contract of Service .  Nothing in this Agreement or in the Plan shall confer upon the Participant any right to continue to serve as a Service Provider of the Company or any of its Subsidiaries.

 

3.3           Governing Law .   The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

 

3.4           Conformity to Securities Laws .  The Participant acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act, and any and all regulations and rules promulgated thereunder by the Securities and Exchange Commission.  Notwithstanding anything herein to the contrary, the Plan shall be administered,

 

A-4



 

and the Awards are granted, only in such a manner as to conform to such laws, rules and regulations.  To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

 

3.5           Amendment, Suspension and Termination .  To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator or the Board, provided, that, except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall adversely effect the Award in any material way without the prior written consent of the Participant.

 

3.6           Notices .  Notices required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail, with postage and fees prepaid, addressed to the Participant to his or her address shown in the Company records, and to the Company at its principal executive office.

 

3.7           Successors and Assigns .  The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company.  Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon the Participant and his or her heirs, executors, administrators, successors and assigns.

 

3.8           Lockup Provision .  The Participant and each Permitted Transferee shall agree, if requested by the Company and any underwriter engaged by the Company, not to sell or otherwise transfer or dispose of any securities of the Company (including, without limitation pursuant to Rule 144 under the Securities Act (or any successor or similar exemptive rule hereafter in effect)) held by them for such period following the effective date of any registration statement of the Company filed under the Securities Act as the Company or such underwriter shall specify reasonably and in good faith, not to exceed 180 days in the case of the Company’s initial public offering or 90 days in the case of any other public offering.

 

*  *  *  *  *

 

A-5




Exhibit 10.14

 

MANAGEMENT AGREEMENT

 

Management Agreement (this “ Agreement ”), dated as of September 29, 2006, by and between Wesco Holdings, Inc., a Delaware corporation (the “ Company ”), and TC Group, L.L.C., a Delaware limited liability company (“ Carlyle ”).

 

RECITALS:

 

WHEREAS, Carlyle, by and through its officers, employees, agents, representatives and affiliates, has expertise in the areas of corporate management, business strategy, investment, acquisitions and other matters relating to the business of the Company and its subsidiaries; and

 

WHEREAS, the Company desires to avail itself of the expertise of Carlyle in the aforesaid areas, in which it acknowledges the expertise of Carlyle.

 

AGREEMENT:

 

NOW, THEREFORE, in consideration of the foregoing recitals and the covenants and conditions herein set forth, the parties hereto agree as follows:

 

Section 1.                                             Appointment .

 

The Company hereby appoints Carlyle to render the advisory and consulting services described in Section 2 hereof for the term of this Agreement.

 

Section 2.                                             Services .

 

(a)                                   During the term of this Agreement, Carlyle shall render to the Company and its subsidiaries, by and through such of Carlyle’s officers, employees, agents, representatives and affiliates as Carlyle, in its sole discretion, shall designate, in cooperation with the Company’s executive officers, from time to time, advisory, consulting and other services (the “ Oversight Services ”) in relation to the operations of the Company and its subsidiaries, strategic planning, marketing and financial oversight and including, without limitation, advisory and consulting services in relation to the selection, retention and supervision of independent auditors, the selection, retention and supervision of outside legal counsel, the selection, retention and supervision of investment bankers or other financial advisors or consultants and the structuring and implementation of equity participation plans, employee benefit plans and other incentive arrangements for certain key executives of the Company and its subsidiaries.

 

(b)                                  It is acknowledged and agreed that, from time to time, Carlyle may be requested to perform services in addition to the Oversight Services, for which Carlyle shall be entitled to additional compensation, and it is expressly agreed that the Oversight Services shall not include investment banking services.

 

Section 3.                                             Fees .

 

In consideration of the performance of the Oversight Services contemplated by

 

1



 

Section 2(b) hereof, the Company agrees to pay to Carlyle an aggregate per annum fee not to exceed $1,000,000 (the “ Annual Fee ”).  The Annual Fee shall initially be fixed at $1,000,000, subject to adjustment in the future by the Company’s Board of Directors from time to time, subject to the cap set forth in the foregoing sentence.

 

Section 4.                                             Out-of-Pocket Expenses .

 

In addition to the compensation payable to Carlyle pursuant to Section 3 hereof, the Company shall, at the direction of Carlyle, pay directly, or reimburse Carlyle for, its reasonable Out-of-Pocket Expenses.  For the purposes of this Agreement, the term “ Out-of-Pocket Expenses ” shall mean the amounts actually paid by Carlyle in cash in connection with its performance of the Services, including, without limitation, reasonable (i) fees and disbursements (including underwriting fees) of any independent auditors, outside legal counsel, consultants, investment bankers, financial advisors and other independent professionals and organizations, (ii) costs of any outside services or independent contractors such as financial printers, couriers, business publications or similar services and (iii) transportation, per diem, telephone calls, word processing expenses or any similar expense.  All reimbursements for Out-of-Pocket Expenses shall be made promptly upon or as soon as practicable after presentation by Carlyle to the Company of the statement in connection therewith.

 

Section 5.                                             Indemnification .

 

The Company will indemnify and hold harmless Carlyle and its officers, employees, agents, representatives, members and affiliates (each being an “ Indemnified Party ”) from and against any and all losses, costs, expenses, claims, damages and liabilities (the “ Liabilities ”) to which such Indemnified Party may become subject under any applicable law, or any claim made by any third party, or otherwise, to the extent they relate to or arise out of the performance of the Services contemplated by this Agreement or the engagement of Carlyle pursuant to, and the performance by Carlyle of the Services contemplated by, this Agreement.  The Company will reimburse any Indemnified Party for all reasonable costs and expenses (including reasonable attorneys’ fees and expenses) as they are incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim for which the Indemnified Party would be entitled to indemnification under the terms of the previous sentence, or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party hereto, provided that, subject to the following sentence, the Company shall be entitled to assume its defense thereof at its own expense, with counsel satisfactory to such Indemnified Party in its reasonable judgment.  Any Indemnified Party may, at its own expense, retain separate counsel to participate in such defense, and in any action, claim or proceeding in which the Company, on the one hand, and an Indemnified Party, on the other hand, is, or is reasonably likely to become, a party, such Indemnified Party shall have the right to employ separate counsel at the Company’s expense and to control its own defense of such action, claim or proceeding if, in the reasonable opinion of counsel to such Indemnified Party, a conflict or potential conflict exists between the Company, on the one hand, and such Indemnified Party, on the other hand, that would make such separate representation advisable.  The Company agrees that it will not, without the prior written consent of the applicable Indemnified Party, settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated hereby (if any Indemnified Party is a party thereto or has been actually threatened

 

2



 

to be made a party thereto) unless such settlement, compromise or consent includes an unconditional release of the applicable Indemnified Party and each other Indemnified Party from all liability arising or that may arise out of such claim, action or proceeding.  Provided that the Company is not in breach of its indemnification obligations hereunder, no Indemnified Party shall settle or compromise any claim subject to indemnification hereunder without the consent of the Company.  The Company will not be liable under the foregoing indemnification provision (i) to the extent that any loss, claim, damage, liability, cost or expense is determined by a court, in a final judgment from which no further appeal may be taken, to have resulted solely from the gross negligence or willful misconduct of Carlyle or (ii) for any Liabilities incurred by a party to any agreement between or among any equity holders of the Company (including the Stock Purchase and Exchange Agreement and Agreement and Plan of Merger dated as of July 23, 2006, the Wesco Holdings, Inc. Stockholders Agreement dated as of September 29, 2006, or the Escrow Agreement dated as of September 29, 2006) to the extent such Liabilities result from claims, actions or proceedings that relate to or arise under any such agreement.  If an Indemnified Party is reimbursed hereunder for any expenses, such reimbursement of expenses shall be refunded to the extent it is finally judicially determined that the Liabilities in question resulted solely from the gross negligence or willful misconduct of Carlyle.

 

Section 6.                                             Termination .

 

This Agreement shall become effective on the date hereof and shall continue in effect until the date as of which Carlyle or one or more of its affiliates no longer collectively control, in the aggregate, at least 15% of the equity interests of the Company, or such earlier date as the Company and Carlyle may mutually agree.  The provisions of Sections 5, 7 and 8 and otherwise as the context so requires shall survive the termination of this Agreement.

 

Section 7.                                             Other Activities .

 

Nothing herein shall in any way preclude Carlyle or its officers, employees, agents, representatives, members or affiliates from engaging in any business activities or from performing services for its or their own account or for the account of others, including for the Company that may be in competition with the businesses conducted by the Company.

 

Section 8.                                             General .

 

(a)                                   No amendment or waiver of any provision of this Agreement, or consent to any departure by either party from any such provision, shall be effective unless the same shall be in writing and signed by the parties to this Agreement, and, in any case, such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

 

(b)                                  This Agreement and the rights of the parties hereunder may not be assigned without the prior written consent of the parties hereto; provided, however, that Carlyle may assign or transfer its duties or interests hereunder to a Carlyle affiliate at the sole discretion of Carlyle.

 

(c)                                   Any and all notices hereunder shall, in the absence of receipted hand delivery, be deemed duly given when mailed, if the same shall be sent by registered or certified

 

3



 

mail, return receipt requested, and the mailing date shall be deemed the date from which all time periods pertaining to a date of notice shall run.  Notices shall be addressed to the parties at the following addresses:

 

If to Carlyle:

 

TC Group, L.L.C.

 

 

1001 Pennsylvania Ave., NW

 

 

Suite 220 South

 

 

Washington DC, 20004-2505

 

 

Attention: Adam J. Palmer

 

 

Facsimile: (202) 347-9250

 

 

 

If to the Company:

 

Wesco Aircraft Hardware Corp.

 

 

27727 Avenue Scott

 

 

Valencia, CA 91355

 

 

Attention: Randy Snyder

 

(d)                                  This Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof, and shall supersede all previous oral and written (and all contemporaneous oral) negotiations, commitments, agreements and understandings relating hereto.

 

(e)                                   This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (without giving effect to the choice of law principles therein).  Each of the parties hereto (i) consents to submit itself to the personal jurisdiction of the Court of Chancery or other courts of the State of Delaware in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (ii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from such court, (iii) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than the Court of Chancery or other courts of the State of Delaware and (iv) to the fullest extent permitted by Law, consents to service being made through the notice procedures set forth in Section 8(c).  Each party hereto hereby agrees that, to the fullest extent permitted by Law, service of any process, summons, notice or document by U.S. registered mail to the respective addresses set forth in Section 8(c) shall be effective service of process for any suit or proceeding in connection with this Agreement or the transactions contemplated hereby.

 

(f)                                     This Agreement may be executed in two or more counterparts, and by different parties on separate counterparts.  Each set of counterparts showing execution by all parties shall be deemed an original, and shall constitute one and the same instrument.

 

(g)                                  The waiver by any party of any breach of this Agreement shall not operate as or be construed to be a waiver by such party of any subsequent breach.

 

4



 

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers or agents as set forth below.

 

 

 

TC GROUP, L.L.C.

 

 

 

 

 

By: TCG Holdings, L.L.C., its Managing Member

 

 

 

 

 

By:

/s/ Peter J. Clare

 

Name:

Peter J. Clare

 

Title:

Managing Director

 

 

 

 

 

WESCO HOLDINGS, INC.

 

 

 

 

 

By:

/s/ George Hess

 

 

Name:

George Hess

 

 

Title:

Authorized Signatory

 




Exhibit 10.15

 

 

 

 

 

 

 

 

 

AIR COMMERCIAL REAL ESTATE ASSOCIATION

 

STANDARD INDUSTRIAL/COMMERCIAL

 

SINGLE-TENANT LEASE — NET

 

 

 

(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)

 

 

1.           Basic Provisions (“Basic Provisions”).

 

1.1         Parties.  This Lease ( “Lease” ), dated for reference purposes on August 1, 2005, is made by and between WAFR, LLC, a California Limited Liability Company ( “Lessor” ) and Wesco Aircraft France, SAS ( “Lessee” ), (collectively the “Parties , or individually a “Party” ).

 

1.2         Premises.  That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known as 23 Avenue Georges Brassens, 31700 Blagnac, located in Haute Garonne, France, and generally described as (describe briefly the nature of the property and, if applicable, the “Project” , if the property is located within a Project) A building listed in the land registry as follows:  Sect. AI, No. 318, 23 Avenue Georges Brassens, HA 00, A 18, Ca 33 ( “Premises” ).  (See also Paragraph 2)

 

1.3         Term:  15 years and 5 months ( “Original Term” ) commencing August 1, 2005 ( “Commencement Date” ) and ending December 31, 2020 ( “Expiration Date” ).  (See also Paragraph 3)

 

1.4         Early Possession:  N/A ( “Early Possession Date” ).  (See also Paragraphs 3.2 and 3.3)

 

1.5         Base Rent:  8,000 EUR per month ( “Base Rent” ), payable on the first day of each month commencing August 1, 2005.  (See also Paragraph 4)

 

x If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.

 

1.6         Base Rent and Other Monies Paid Upon Execution:

 

(a)           Base Rent:  8,000 EUR for the period August, 2005.

 

(b)          Security Deposit:  40,000 EUR ( “Security Deposit” ).  (See also Paragraph 5)

 

(c)           Association Fees:  $                          for the period

 

(d)          Other :  $                for                                                                                          .

 

 

(e)           Total Due Upon Execution of this Lease:  48,000 EUR.

 

1.7         Agreed Use:  Distribution and light manufacturing.  (See also Paragraph 6)

 

1.8         Insuring Party.  Lessor is the “Insuring Party” unless otherwise stated herein.  (See also Paragraph 8)

 

1.9         Real Estate Brokers:  (See also Paragraph 15)

 

(a) Representation.  The following real estate brokers (the “Brokers” ) and brokerage relationships exist in this transaction (check applicable boxes):

 

o                                                                                                       represents Lessor exclusively ( “Lessor’s Broker” );

 

o                                                                                                       represents Lessee exclusively ( “Lessee’s Broker” ); or

 

o                                                                                                       represents both Lessor and Lessee ( “Dual Agency” ).

 

(b) Payment to Brokers.  Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their separate written agreement (or if there is no such agreement, the sum of            or           % of the total Base Rent) for the brokerage services rendered by the Brokers.

 

1.10       Guarantor.  The obligations of the Lessee under this Lease are to be guaranteed by

 

                                                                                                                      ( “Guarantor” ).  (See also Paragraph 37)

 

1.11       Attachments.  Attached hereto are the following, all of which constitute a part of this Lease:

 

x an Addendum consisting of Paragraphs 51 through         ;

 

o a plot plan depicting the Premises;

 

o a current set of the Rules and Regulations;

 

o a Work Letter;

 

o other (specify):

 

.

 

2.           Premises.

 

2.1         Letting.  Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease.  Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less.  Note:  Lessee is advised to verify the actual size prior to executing this Lease.

 

2.2         Condition.  Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs ( “Start Date” ), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems (“ HVAC” ), loading doors, sump pumps, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on said date and that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the “Building” ) shall be free of material defects.  If a non-compliance with said warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessor’s sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor’s expense.  The warranty periods shall be as follows:  (i) 6 months as to the HVAC systems, and (ii) 30 days as to the remaining systems and other elements of the Building.  If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee’s sole cost and expense.

 

2.3         Compliance.  Lessor warrants that the improvements on the Premises comply with the building codes, applicable laws, covenants or restrictions of record, regulations, and ordinances ( “Applicable Requirements” ) that were in effect at the time that each

 

 

1



 

improvement, or portion thereof, was constructed.  Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee’s use (see Paragraph 50), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee.  NOTE:  Lessee is responsible for determining whether or not the Applicable Requirements, and especially the zoning, are appropriate for Lessee’s intended use, and acknowledges that past uses of the Premises may no longer be allowed.  If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor’s expense.  If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee’s sole cost and expense.  If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building ( “Capital Expenditure” ), Lessor and Lessee shall allocate the cost of such work as follows:

 

(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months’ Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee’s termination notice that Lessor has elected to pay the difference between the actual cost thereof and an amount equal to 6 months’ Base Rent.  If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter.  Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

 

(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for such costs pursuant to the provisions of Paragraph 7.1(d); provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor’s termination notice that Lessee will pay for such Capital Expenditure.  If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor’s share of such costs have been fully paid.  If Lessee is unable to finance Lessor’s share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor.

 

(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements.  If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either:  (i) immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense.  Lessee shall not, however, have any right to terminate this Lease.

 

2.4         Acknowledgements.  Lessee acknowledges that:  (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Lessee’s intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor’s agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease.  In addition, Lessor acknowledges that:  (i) Brokers have made no representations, promises or warranties concerning Lessee’s ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor’s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

 

2.5         Lessee as Prior Owner/Occupant.  The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises.  In such event, Lessee shall be responsible for any necessary corrective work.

 

3.           Term.

 

3.1         Term.  The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.

 

3.2         Early Possession.  If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession.  All other terms of this Lease (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period.  Any such early possession shall not affect the Expiration Date.

 

3.3         Delay In Possession.  Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date.  If, despite said efforts, Lessor is unable to deliver possession by such date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease.  Lessee shall not, however, be obligated to pay Rent or perform its other obligations until Lessor delivers possession of the Premises and any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee.  If possession is not delivered within 60 days after the Commencement Date, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder.  If such written notice is not received by Lessor within said 10 day period, Lessee’s right to cancel shall terminate.  If possession of the Premises is not delivered within 120 days after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.

 

3.4         Lessee Compliance.  Lessor shall not be required to deliver possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5).  Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor’s election to withhold possession pending receipt of such evidence of insurance.  Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.

 

4.           Rent.

 

4.1         Rent Defined.  All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ( “Rent” ).

 

 

2



 

4.2         Payment.  Lessee shall cause payment of Rent to be received by Lessor in lawful money of France on or before the day on which it is due, without offset or deduction (except as specifically permitted in this Lease).  Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month.  Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing.  Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor’s rights to the balance of such Rent, regardless of Lessor’s endorsement of any check so stating.  In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of EUR25 in addition to any Late Charge and Lessor, at its option, may require all future payments to be made by Lessee to be by cashier’s check.  Payments will be applied first to accrued late charges and attorney’s fees, second to accrued interest, then to Base Rent and Operating Expense Increase, and any remaining amount to any other outstanding charges or costs.

 

4.3         Association Fees.  In addition to the Base Rent, Lessee shall pay to Lessor each month an amount equal to any owner’s association or condominium fees levied or assessed against the Premises.  Said monies shall be paid at the same time and in the same manner as the Base Rent.

 

5.           Security Deposit.  Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee’s faithful performance of its obligations under this Lease.  If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof.  If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease.  If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent.  Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor’s reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof.  If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor’s reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition.  Lessor shall not be required to keep the Security Deposit separate from its general accounts.  Within 14 days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within 30 days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor.  No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.

 

6.           Use.

 

6.1         Use.  Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose.  Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties.  Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises.  If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor’s objections to the change in the Agreed Use.

 

6.2         Hazardous Substances.

 

(a) Reportable Uses Require Consent.  The term “Hazardous Substance” as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either:  (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory.  Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof.  Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee’s expense) with all Applicable Requirements.  “Reportable Use” shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties.  Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor.  In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.

 

(b) Duty to Inform Lessor.  If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.

 

(c) Lessee Remediation.  Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee’s expense, comply with all Applicable Requirements and take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.

 

(d) Lessee Indemnification.  Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys’ and consultants’ fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party.  Lessee’s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.  No termination, cancellation or release agreement entered

 

 

3



 

into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.

 

(f) Investigations and Remediations.  Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to Lessee’s occupancy, unless such remediation measure is required as a result of Lessee’s use (including “Alterations”, as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment.  Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor’s agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor’s investigative and remedial responsibilities.

 

(g) Lessor Termination Option.  If a Hazardous Substance Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor’s rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor’s option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor’s desire to terminate this Lease as of the date 60 days following the date of such notice.  In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee’s commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater.  Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment.  In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available.  If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor’s notice of termination.

 

6.3         Lessee’s Compliance with Applicable Requirements.  Except as otherwise provided in this Lease, Lessee shall, at Lessee’s sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor’s engineers and/or consultants which relate in any manner to the such Requirements, without regard to whether such Requirements are now in effect or become effective after the Start Date.  Lessee shall, within 10 days after receipt of Lessor’s written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee’s compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements.

 

6.4         Inspection; Compliance.  Lessor and Lessor”s “Lender” (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease.  The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a Hazardous Substance Condition (see paragraph 9.1) is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination.  In addition, Lessee shall provide copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the receipt of a written request therefor.

 

7.           Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations.

 

7.1         Lessee’s Obligations.

 

(a) In General.  Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee’s Compliance with Applicable Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee’s sole expense, keep the Premises, Utility Installations (intended for Lessee’s exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee’s use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (interior and exterior), foundations, ceilings, roofs, roof drainage systems, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, or adjacent to the Premises.  Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below.  Lessee’s obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair.  Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition (including, e.g. graffiti removal) consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the exterior repainting of the Building.

 

(b) Service Contracts.  Lessee shall, at Lessee’s sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises:  (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drains, (vi) clarifiers (vii) basic utility feed to the perimeter of the Building, and (viii) any other equipment, if reasonably required by Lessor.  However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof.

 

(c) Failure to Perform.  If Lessee fails to perform Lessee’s obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days’ prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee’s behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly pay to Lessor a sum equal to 115% of the cost thereof.

 

(d) Replacement.  Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (ie. 1/144th of the cost per month).  Lessee shall pay interest on the unamortized balance at a rate that is commercially reasonable in the judgment of Lessor’s accountants.  Lessee may, however, prepay its obligation at any time.

 

 

4



 

7.2         Lessor’s Obligations.  Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee.  It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.

 

7.3         Utility Installations; Trade Fixtures; Alterations.

 

(a) Definitions.  The term “Utility Installations” refers to all floor and window coverings, air and/or vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises.  The term “Trade Fixtures” shall mean Lessee’s machinery and equipment that can be removed without doing material damage to the Premises.  The term “Alterations” shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion.  “Lessee Owned Alterations and/or Utility Installations” are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).

 

(b) Consent.  Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor’s prior written consent.  Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, will not affect the electrical, plumbing, HVAC, and/or life safety systems, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month’s Base Rent in the aggregate or a sum equal to one month’s Base Rent in any one year.  Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor.  Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor.  Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans.  Consent shall be deemed conditioned upon Lessee’s:  (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner.  Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials.  Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications.  For work which costs an amount in excess of one month’s Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee’s posting an additional Security Deposit with Lessor.

 

(c) Liens; Bonds.  Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic’s or materialmen’s lien against the Premises or any interest therein.  Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility.  If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof.  If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same.  If Lessor elects to participate in any such action, Lessee shall pay Lessor’s attorneys’ fees and costs.

 

7.4         Ownership; Removal; Surrender; and Restoration.

 

(a) Ownership.  Subject to Lessor’s right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises.  Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations.  Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.

 

(b) Removal.  By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease.  Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.

 

(c) Surrender; Restoration.  Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted.  “Ordinary wear and tear” shall not include any damage or deterioration that would have been prevented by good maintenance practice.  Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear.  Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee.  Lessee shall completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Premises, or if applicable, the Project) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements.  Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee.  Any personal property of Lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire.  The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.

 

8.           Insurance; Indemnity.

 

8.1         Payment For Insurance.  Lessee shall pay for all insurance required under Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of EUR 2,000,000 per occurrence.  Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term.  Payment shall be made by Lessee to Lessor within 10 days following receipt of an invoice.

 

8.2         Liability Insurance.

 

(a) Carried by Lessee.  Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto.  Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than EUR 1,000,000 per occurrence with an annual aggregate of not less than EUR 2,000,000, an “Additional Insured-Managers or Lessors of Premises Endorsement” and contain the “Amendment of the Pollution Exclusion Endorsement” for damage caused by heat, smoke or fumes from a hostile fire.  The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an “insured contract” for the performance of Lessee’s indemnity obligations under this Lease.  The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder.  All insurance carried by

 

 

5



 

Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

 

(b) Carried by Lessor.  Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee.  Lessee shall not be named as an additional insured therein.

 

8.3         Property Insurance - Building, Improvements and Rental Value.

 

(a) Building and Improvements.  The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises.  The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof.  If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee’s personal property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor.  If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss.  Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located.  If such insurance coverage has a deductible clause, the deductible amount shall not exceed EUR 1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss.

 

(b) Rental Value.  The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days (“Rental Value insurance”).  Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period.  Lessee shall be liable for any deductible amount in the event of such loss.

 

(c) Adjacent Premises.  If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee’s acts, omissions, use or occupancy of the Premises.

 

8.4         Lessee’s Property; Business Interruption Insurance.

 

(a) Property Damage.  Lessee shall obtain and maintain insurance coverage on all of Lessee’s personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations.  Such insurance shall be full replacement cost coverage with a deductible of not to exceed EUR 1,000 per occurrence.  The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations.  Lessee shall provide Lessor with written evidence that such insurance is in force.

 

(b) Business Interruption.  Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

 

(c) No Representation of Adequate Coverage.  Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee’s property, business operations or obligations under this Lease.

 

8.5         Insurance Policies.  Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a “General Policyholders Rating” of at least B+, V, as set forth in the most current issue of “Best’s Insurance Guide”, or such other rating as may be required by a Lender.  Lessee shall not do or permit to be done anything which invalidates the required insurance policies.  Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance.  No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor.  Lessee shall, at least 30 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or “insurance binders” evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand.  Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less.  If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

 

8.6         Waiver of Subrogation.   Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein.  The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto.  The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.

 

8.7         Indemnity.  Except for Lessor’s gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys’ and consultants’ fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee.  If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.  Lessor need not have first paid any such claim in order to be defended or indemnified.

 

8.8         Exemption of Lessor from Liability.  Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee’s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places.  Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor nor from the failure of Lessor to enforce the provisions of any other lease in the Project.  Notwithstanding Lessor’s negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee’s business or for any loss of income or profit therefrom.

 

8.9         Failure to Provide Insurance.  Lessee acknowledges that any failure on its part to obtain or maintain the insurance required herein will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain.  Accordingly, for any month or portion thereof that Lessee does not maintain the required insurance and/or does not provide Lessor with the required binders or certificates evidencing the existence of the required insurance, the Base Rent shall be automatically increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then

 

 

6



 

existing Base Rent or $100, whichever is greater.  The parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/ costs that Lessor will incur by reason of Lessee’s failure to maintain the required insurance.  Such increase in Base Rent shall in no event constitute a waiver of Lessee’s Default or Breach with respect to the failure to maintain such insurance, prevent the exercise of any of the other rights and remedies granted hereunder, nor relieve Lessee of its obligation to maintain the insurance specified in this Lease.

 

9.           Damage or Destruction.

 

9.1         Definitions.

 

(a) “Premises Partial Damage” shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 6 months or less from the date of the damage or destruction.  Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

 

(b) “Premises Total Destruction” shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 6 months or less from the date of the damage or destruction.  Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

 

(c) “Insured Loss” shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

 

(d) “Replacement Cost” shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

 

(e) “Hazardous Substance Condition” shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises which requires repair, remediation, or restoration.

 

9.2         Partial Damage - Insured Loss.  If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor’s expense, repair such damage (but not Lessee’s Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor’s election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose.  Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee’s responsibility) as and when required to complete said repairs.  In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor.  If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect.  If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to:  (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter.  Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction.  Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

 

9.3         Partial Damage - Uninsured Loss.  If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee’s expense), Lessor may either:  (i) repair such damage as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage.  Such termination shall be effective 60 days following the date of such notice.  In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee’s commitment to pay for the repair of such damage without reimbursement from Lessor.  Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment.  In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available.  If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.

 

9.4         Total Destruction.  Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction.  If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor’s damages from Lessee, except as provided in Paragraph 8.6.

 

9.5         Damage Near End of Term.  If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month’s Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage.  Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee’s receipt of Lessor’s written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires.  If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor’s commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect.  If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee’s option shall be extinguished.

 

9.6         Abatement of Rent; Lessee’s Remedies.

 

(a) Abatement.  In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee’s use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance.  All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

 

 

7



 

(b) Remedies.  If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee’s election to terminate this Lease on a date not less than 60 days following the giving of such notice.  If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice.  If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect.  “Commence” shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

 

9.7         Termination; Advance Payments.  Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor.  Lessor shall, in addition, return to Lessee so much of Lessee’s Security Deposit as has not been, or is not then required to be, used by Lessor.

 

9.8         Waive Statutes.  Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.

 

10.         Real Property Taxes.

 

10.1       Definition.  As used herein, the term “Real Property Taxes” shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises or the Project, Lessor’s right to other income therefrom, and/or Lessor’s business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located.  Real Property Taxes shall also include any tax, fee, levy, assessment or charge, or any increase therein:  (i) imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Premises, and (ii) levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease.

 

10.2       Payment of Taxes.  In addition to Base Rent, Lessee shall pay to Lessor an amount equal to the Real Property Tax installment due at least 20 days prior to the applicable delinquency date.  If any such installment shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee’s share of such installment shall be prorated.  In the event Lessee incurs a late charge on any Rent payment, Lessor may estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee monthly in advance with the payment of the Base Rent.  Such monthly payments shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes delinquent.  When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes.  If the amount collected by Lessor is insufficient to pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such additional sum as is necessary.  Advance payments may be intermingled with other moneys of Lessor and shall not bear interest.  In the event of a Breach by Lessee in the performance of its obligations under this Lease, then any such advance payments may be treated by Lessor as an additional Security Deposit.

 

10.3       Joint Assessment.  If the Premises are not separately assessed, Lessee’s liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor’s work sheets or such other information as may be reasonably available.

 

10.4       Personal Property Taxes.  Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee.  When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor.  If any of Lessee’s said property shall be assessed with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee’s property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee’s property.

 

11.         Utilities and Services.  Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon.  If any such services are not separately metered or billed to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered or billed.  There shall be no abatement of rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor’s reasonable control or in cooperation with governmental request or directions.

 

12.         Assignment and Subletting.

 

12.1       Lessor’s Consent Required.

 

(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, “assign or assignment” ) or sublet all or any part of Lessee’s interest in this Lease or in the Premises without Lessor’s prior written consent.

 

(b) Unless Lessee is a corporation and its stock is publicly traded on a national stock exchange, a change in the control of Lessee shall constitute an assignment requiring consent.  The transfer, on a cumulative basis, of 25% or more of the voting control of Lessee shall constitute a change in control for this purpose.

 

(c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee’s assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent.  “Net Worth of Lessee” shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

 

(d) An assignment or subletting without consent shall, at Lessor’s option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period.  If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either:  (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect.  Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.

 

(e) Lessee’s remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

 

 

8



 

12.2       Terms and Conditions Applicable to Assignment and Subletting.

 

(a) Regardless of Lessor’s consent, no assignment or subletting shall:  (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

 

(b) Lessor may accept Rent or performance of Lessee’s obligations from any person other than Lessee pending approval or disapproval of an assignment.  Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor’s right to exercise its remedies for Lessee’s Default or Breach.

 

(c) Lessor’s consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

 

(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee’s obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor’s remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor.

 

(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor’s determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 as consideration for Lessor’s considering and processing said request.  Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested.  (See also Paragraph 36)

 

(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

 

(g) Lessor’s consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing.  (See Paragraph 39.2)

 

12.3       Additional Terms and Conditions Applicable to Subletting.  The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

 

(a) Lessee hereby assigns and transfers to Lessor all of Lessee’s interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee’s obligations, Lessee may collect said Rent.  In the event that the amount collected by Lessor exceeds Lessee’s obligations any such excess shall be refunded to Lessee.  Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee’s obligations to such sublessee.  Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee’s obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease.  Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

 

(b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

 

(c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.

 

(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor’s prior written consent.

 

(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice.  The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.

 

13.         Default; Breach; Remedies.

 

13.1       Default; Breach.  A “Default” is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease.  A “Breach” is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:

 

(a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

 

(b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee.

 

(c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42, (viii) material safety data sheets (MSDS), or (ix) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee.

 

(d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee’s Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.

 

(e) The occurrence of any of the following events:  (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a “debtor” as defined in 11 U.S.C. §101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

 

 

9


 

(f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.

 

(g) If the performance of Lessee’s obligations under this Lease is guaranteed:  (i) the death of a Guarantor, (ii) the termination of a Guarantor’s liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor’s becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor’s refusal to honor the guaranty, or (v) a Guarantor’s breach of its guaranty obligation on an anticipatory basis, and Lessee’s failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

 

13.2       Remedies.  If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee’s behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals.  Lessee shall pay to Lessor an amount equal to 115% of the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor.  In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

 

(a) Terminate Lessee’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor.  In such event Lessor shall be entitled to recover from Lessee:  (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease.  The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Lessor is located at the time of award plus one percent.  Efforts by Lessor to mitigate damages caused by Lessee’s Breach of this Lease shall not waive Lessor’s right to recover damages under Paragraph 12.  If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit.  If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1.  In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

 

(b) Continue the Lease and Lessee’s right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations.  Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor’s interests, shall not constitute a termination of the Lessee’s right to possession.

 

(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located.  The expiration or termination of this Lease and/or the termination of Lessee’s right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee’s occupancy of the Premises.

 

13.3       Inducement Recapture.  Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee’s entering into this Lease, all of which concessions are hereinafter referred to as “Inducement Provisions,” shall be deemed conditioned upon Lessee’s full and faithful performance of all of the terms, covenants and conditions of this Lease.  Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee.  The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.

 

13.4       Late Charges.  Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain.  Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender.  Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall immediately pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater.  The Parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment.  Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee’s Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder.  In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor’s option, become due and payable quarterly in advance.

 

13.5       Interest.  Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments.  The interest ( “Interest” ) charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law.  Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

 

13.6       Breach by Lessor.

 

(a)  Notice of Breach.  Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor.  For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor’s obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.

 

(b)  Performance by Lessee on Behalf of Lessor.  In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee’s expense and offset from Rent the actual and reasonable cost to perform such cure, provided however, that such offset shall not exceed an amount equal to the greater of one month’s Base Rent or the Security Deposit, reserving

 

 

10



 

Lessee’s right to seek reimbursement from Lessor.  Lessee shall document the cost of said cure and supply said documentation to Lessor.

 

14.         Condemnation.  If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively “Condemnation” ), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs.  If more than 10% of the Building, or more than 25% of that portion of the Premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee’s option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession.  If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation.  Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee’s relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph.  All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor.  In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.

 

15.         Brokerage Fees.

 

15.1       Additional Commission.  In addition to the payments owed pursuant to Paragraph 1.9 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that:  (a) if Lessee exercises any Option, (b) if Lessee acquires any rights to the Premises or other premises owned by Lessor and located within the same Project, if any, within which the Premises is located, (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of the Brokers in effect at the time of the execution of this Lease.

 

15.2       Assumption of Obligations.  Any buyer or transferee of Lessor’s interest in this Lease shall be deemed to have assumed Lessor’s obligation hereunder.  Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.9, 15, 22 and 31.  If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue Interest.  In addition, if Lessor fails to pay any amounts to Lessee’s Broker when due, Lessee’s Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent.  In addition, Lessee’s Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor’s Broker for the limited purpose of collecting any brokerage fee owed.

 

15.3       Representations and Indemnities of Broker Relationships.  Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder’s fee in connection herewith.  Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys’ fees reasonably incurred with respect thereto.

 

16.         Estoppel Certificates.

 

(a) Each Party (as “Responding Party” ) shall within 10 days after written notice from the other Party (the “Requesting Party” ) execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current “Estoppel Certificate” form published by the AIR Commercial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

 

(b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that:  (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party’s performance, and (iii) if Lessor is the Requesting Party, not more than one month’s rent has been paid in advance.  Prospective purchasers and encumbrancers may rely upon the Requesting Party’s Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.

 

(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee’s financial statements for the past 3 years.  All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.

 

17.         Definition of Lessor.  The term “Lessor” as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee’s interest in the prior lease.  In the event of a transfer of Lessor’s title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor.  Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor.  Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.

 

18.         Severability.  The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

 

19.         Days.  Unless otherwise specifically indicated to the contrary, the word “days” as used in this Lease shall mean and refer to calendar days.

 

20.         Limitation on Liability.  The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor or its partners, members, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor’s partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction.

 

21.         Time of Essence.  Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

 

22.         No Prior or Other Agreements; Broker Disclaimer.  This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective.  Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises.  Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party.  The liability (including court costs and attorneys’ fees), of any Broker with respect to negotiation, execution, delivery or performance by

 

 

11



 

either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

 

23.         Notices.

 

23.1       Notice Requirements.  All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23.  The addresses noted adjacent to a Party’s signature on this Lease shall be that Party’s address for delivery or mailing of notices.  Either Party may by written notice to the other specify a different address for notice, except that upon Lessee’s taking possession of the Premises, the Premises shall constitute Lessee’s address for notice.  A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

 

23.2       Date of Notice.  Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon.  If sent by regular mail the notice shall be deemed given 48 hours after the same is addressed as required herein and mailed with postage prepaid.  Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier.  Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail.  If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

 

24.         Waivers.  No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof.  Lessor’s consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor’s consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent.  The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee.  Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

 

25.         Disclosures Regarding The Nature of a Real Estate Agency Relationship.

 

(a)         When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction.  Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows:

 

(i)          Lessor’s Agent.   A Lessor’s agent under a listing agreement with the Lessor acts as the agent for the Lessor only.  A Lessor’s agent or subagent has the following affirmative obligations:  To the Lessor :  A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor.  To the Lessee and the Lessor :  a. Diligent exercise of reasonable skills and care in performance of the agent’s duties.  b. A duty of honest and fair dealing and good faith.  c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties.  An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

 

(ii)         Lessee’s Agent .  An agent can agree to act as agent for the Lessee only.  In these situations, the agent is not the Lessor’s agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor.  An agent acting only for a Lessee has the following affirmative obligations.  To the Lessee :  A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee.  To the Lessee and the Lessor :  a. Diligent exercise of reasonable skills and care in performance of the agent’s duties.  b. A duty of honest and fair dealing and good faith.  c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties.  An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

 

(iii)        Agent Representing Both Lessor and Lessee .  A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee.  In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee:  a.  A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee.  b. Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii).  In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered.  The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests.  Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction.  A real estate agent is a person qualified to advise about real estate.  If legal or tax advice is desired, consult a competent professional.

 

(b)         Brokers have no responsibility with respect to any default or breach hereof by either Party.  The liability (including court costs and attorneys’ fees), of any Broker with respect to any breach of duty, error or omission relating to this Lease shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

 

(c)         Lessor and Lessee agree to identify to Brokers as “Confidential” any communication or information given Brokers that is considered by such Party to be confidential.

 

26.         No Right To Holdover.  Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease.  In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination.  Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.

 

27.         Cumulative Remedies.  No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

 

28.         Covenants and Conditions; Construction of Agreement.  All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions.  In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease.  Whenever required by the context, the singular shall include the plural and vice versa.  This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

 

29.         Binding Effect; Choice of Law.  This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Lessor is located.  Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Lessor is located.

 

 

12



 

30.         Subordination; Attornment; Non-Disturbance.

 

30.1       Subordination.  This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, “Security Device” ), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof.  Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as “Lender” ) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease.  Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.

 

30.2       Attornment.  In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of such new owner, this Lease shall automatically become a new Lease between Lessee and such new owner, upon all of the terms and conditions hereof, for the remainder of the term hereof, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor’s obligations hereunder, except that such new owner shall not:  (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month’s rent, or (d) be liable for the return of any security deposit paid to any prior lessor.

 

30.3       Non-Disturbance.  With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee’s subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a “Non-Disturbance Agreement” ) from the Lender which Non-Disturbance Agreement provides that Lessee’s possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises.  Further, within 60 days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises.  In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee’s option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.

 

30.4       Self-Executing.  The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

 

31.         Attorneys’ Fees.  If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees.  Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment.  The term, “Prevailing Party” shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense.  The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees reasonably incurred.  In addition, Lessor shall be entitled to attorneys’ fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation).

 

32.         Lessor’s Access; Showing Premises; Repairs.  Lessor and Lessor’s agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect to Lessee’s use of the Premises.  All such activities shall be without abatement of rent or liability to Lessee.

 

33.         Auctions.  Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor’s prior written consent.  Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.

 

Signs.  Lessor may place on the Premises ordinary “For Sale” signs at any time and ordinary “For Lease” signs during the last 6 months of the term hereof.  Except for ordinary “for sublease” signs, Lessee shall not place any sign upon the Premises without Lessor’s prior written consent.  All signs must comply with all Applicable Requirements.

 

34.         Termination; Merger.  Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies.  Lessor’s failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor’s election to have such event constitute the termination of such interest.

 

35.         Consents.  Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed.  Lessor’s actual reasonable costs and expenses (including but not limited to architects’, attorneys’, engineers’ and other consultants’ fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor.  Lessor’s consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent.  The failure to specify herein any particular condition to Lessor’s consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given.  In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.

 

36.         Guarantor.

 

36.1       Execution.  The Guarantors, if any, shall each execute a guaranty in the form most recently published by the AIR Commercial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease.

 

36.2       Default.  It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide:  (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor’s behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.

 

 

13



 

37.         Quiet Possession.  Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee’s part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

 

38.         Options.  If Lessee is granted an Option, as defined below, then the following provisions shall apply:

 

38.1       Definition.  “Option” shall mean:  (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

 

38.2       Options Personal To Original Lessee.  Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.

 

38.3       Multiple Options.  In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

 

38.4       Effect of Default on Options.

 

(a) Lessee shall have no right to exercise an Option:  (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option.

 

(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of Paragraph 39.4(a).

 

(c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee’s due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term or completion of the purchase, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), or (ii) if Lessee commits a Breach of this Lease.

 

39.         Multiple Buildings.  If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will abide by and conform to all reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform.  Lessee also agrees to pay its fair share of common expenses incurred in connection with such rules and regulations.

 

40.         Security Measures.  Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same.  Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

 

41.         Reservations.  Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee.  Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.

 

42.         Performance Under Protest.  If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment “under protest” and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum.  If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay.

 

43.         Authority; Multiple Parties; Execution.

 

(a)         If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf.  Each party shall, within 30 days after request, deliver to the other party satisfactory evidence of such authority.

 

(b)         If this Lease is executed by more than one person or entity as “Lessee”, each such person or entity shall be jointly and severally liable hereunder.  It is agreed that any one of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named Lessees had executed such document.

 

(c)         This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

 

44.         Conflict.  Any conflict between the printed provisions of this Lease and typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

 

45.         Offer.  Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party.  This Lease is not intended to be binding until executed and delivered by all Parties hereto.

 

46.         Amendments.  This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification.  As long as they do not materially change Lessee’s obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.

 

47.         Waiver of Jury Trial.  THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT.

 

48.         Mediation and Arbitration of Disputes.  An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease o is x is not attached to this Lease.

 

49.         Americans with Disabilities Act.  Since compliance with the Americans with Disabilities Act (ADA) is dependent upon Lessee’s specific use of the Premises, Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation.  In the event that Lessee’s use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Lessee agrees to make any such necessary modifications and/or additions at Lessee’s expense.

 

 

14



 

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO.  THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

 

ATTENTION :  NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES.  THE PARTIES ARE URGED TO:

 

1.        SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

 

2.        RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES.  SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO:  THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE’S INTENDED USE.

 

WARNING :  IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.

 

The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

 

Executed at: Los Angeles County, California

 

Executed at: Los Angeles County, California

 

 

 

on: August 1 , 2005

 

on: August 1 , 2005

 

 

 

By LESSOR:

 

By LESSEE:

 

 

 

WAFR, LLC

 

Wesco Aircraft France, SAS

 

 

 

By:

/s/ George Hess

 

By:

/s/ Randy Snyder

 

 

 

Name Printed: George Hess

 

Name Printed: Randy Snyder

 

 

 

Title: Manager

 

Title: President

 

 

 

 

 

 

By:

 

 

By:

 

 

 

 

Name Printed:

 

 

Name Printed:

 

 

 

 

Title:

 

 

Title:

 

 

 

 

Address: 27727 Avenue Scott

 

Address: 108 rue Robert Schuman

 

 

 

Valencia, CA 91355

 

77350 Le-Mee-sur Seine, France

 

 

 

Telephone: (661) 775-7200

 

Telephone: (661) 775-7200

 

 

 

Facsimile: (661) 295-1340

 

Facsimile: (661) 295-1340

 

 

 

Federal ID No. 95-7040340

 

Federal ID No. Company # 430 103 531 RCS MELUN

 

 

 

BROKER: N/A

 

BROKER: N/A

 

 

 

 

 

 

 

 

 

Attn:

 

Attn:

 

 

 

Title:

 

Title:

 

 

 

Address:

 

Address:

 

 

 

Telephone: (      )

 

Telephone: (      )

 

 

 

Facsimile: (      )

 

Facsimile: (      )

 

 

 

Email:

 

Email:

 

 

 

Federal ID No.

 

Federal ID No.

 

NOTE:    These forms are often modified to meet changing requirements of law and industry needs.  Always write or call to make sure you are utilizing the most current form:  AIR COMMERCIAL REAL ESTATE ASSOCIATION, 700 So. Flower Street, Suite 600, Los Angeles, California 90017.  (213) 687-8777.  Fax No. (213) 687-8616

 

 

 

15


 

STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-TENANT LEASE — NET
First Addenda to Lease Dated:  August 1, 2005
By and Between
WAFR, LLC (Lessor) and Wesco Aircraft France, SAS (Lessee)

 

 

The Lease is hereby supplemented and amended as follows:  Unless otherwise stated, definitions used herein are as used in the Lease.  This Addendum shall be deemed incorporated in the Lease.  In the case of any conflict, the provisions of this Addendum shall prevail.  This Addendum shall be deemed incorporated in the Lease.

 

51.                      Rent Adjustments .  The monthly rent for each month of the adjustment periods specified below shall be increased using the following method:

 

a)               On January 1, 2007 and each January 1 st  thereafter, the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the “All Items” index figure of the “Index of Retail Prices” or “PI”, published by the French government, which most closely represents the price changes where the Premises is located.

 

b)              The monthly rent payable in accordance with paragraph 51(a) of this Addendum shall be calculated as follows:  the Base Rent set forth in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the PI of the month of September preceding the calendar month during which the adjustment is to take effect, and the denominator of which shall be the PI of September 2005.  The sum so calculated shall constitute the new monthly rent hereunder, but in no event, shall such new monthly rent be less than the rent payable for the month immediately preceding the rent adjustment.

 

c)               In the event the compilation and/or publication of the PI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the PI shall be used to make such calculation.

 

52.                      No Partnership Or Joint Venture .  Nothing in this Lease shall be construed to render the Lessor in any way or for any purpose a partner, joint venturer, or associate in any relationship with Lessee other than that of Lessor and Lessee, nor shall this Lease be construed to authorize either to act as agent for the other.  Neither party has any fiduciary relationship hereunder to the other.

 

53.                      Add Paragraph 4.4 Taxes and Fees.  In addition to the Rent, Lessee is responsible for all other taxes and fees (except for income taxes assessed upon the Lessor) including VAT, costs in connection with the registration of this Lease.

 

54.                      Delete Paragraph 7.1(d) and replace with the following:  Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, and the repair or replacement exceeds €20,000, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is the remaining number of months of the lease, and the denominator of which is 120.  Lessee shall pay its obligation upon completion of the replacement or in progress payments, if required by the Lessor.

 

55.                      In Paragraph 8.1, after “€2,000,000 per occurrence”, the following words shall be added:  “or an amount as may be required by the Lender”.

 

56.                      In Paragraph 8.2(a), after “€2,000,000, the following words shall be added:  “or amounts as may be required by the Lender”.

 

57.                      At the commencement of Paragraph 8.2(b) ( Carried by Lessor ), the words “Lessor shall maintain” shall be changed to “Lessor may (but shall not be obligated to) maintain”.

 

58.                      In Line 3 of Paragraph 8.6 ( Waiver of Subrogation ), the words “perils required to be insured against” shall be changed to “perils insured against”.

 

59.                      At the end of Paragraph 8 ( Insurance, Indemnity ), the following paragraph shall be added:  “8.10 Lender’s Requirements .  Lessee agrees to comply with such amended or additional insurance requirements as may be imposed by any Lender upon Lessor in regard to the Premises.  Lessee further acknowledges, agrees and accepts that the availability of insurance or condemnation proceeds for restoration purposes shall be subject to such conditions, limitations and other provisions as may be imposed by any such Lender, and if and to the extent that insurance proceeds are not available for restoration, any such casualty may be treated by Lessor as an uninsured loss for purposes of this Lease.”

 

60.                      In Line 2 of Paragraph 9.1(c) (“ Insured Loss ”), the words “event required to be covered” shall be changed to “event covered”.

 

61.                      In Line 1 of Paragraph 9.2 ( Partial Damage-Insured Loss ), the words “Lessor shall” shall be changed to “Lessor may (but shall not be obligated to)”.

 

1



 

62.                      In Line 3 of Paragraph 9.2 ( Partial Damage-Insured Loss ), the words “and this Lease shall continue” shall be changed to “in which case, this Lease shall continue”.

 

63.                      In the second sentence of Paragraph 9.4 ( Total Destruction ), the words “caused by the gross negligence or willful misconduct of Lessee” shall be changed to “not caused by the gross negligence or willful misconduct of Lessor”.

 

64.                      The following sentence shall be added at the end of Paragraph 30.4 ( Self-Executing ).  “Lessee agrees to accept such limitations as may be requested by any such Lender upon such Lender’s liability under this Lease and such other conditions, requirements and provisions as may be requested by such Lender in regard to this Lease, and agrees not to hold Lessor liable for, and to indemnify and hold harmless Lessor from and against, failure to comply with such limitations, conditions, requirements and provisions.”

 

65.                      The following sentences shall be added at the end of Paragraph 37.1 ( Execution ):  “In the event of an assignment, or in the event of any other transaction requiring Lessor’s consent under Paragraph 12 of the Lease, Lessor may require that a new guaranty or guaranties (collectively, the “New Guaranty”) be executed and delivered to Lessor, in the foregoing specified form, from one or more new guarantors reasonably acceptable to Lessor and otherwise in form and substance reasonably acceptable to Lessor (and, if applicable, any Lender of Lessor).  Delivery to Lessor of such required New Guaranty shall be a condition to the permissibility of any such assignment, subletting or other transaction, and failure to deliver same, immediately upon request by Lessor, shall constitute a Default and a Breach under this Lease.  Unless otherwise agreed by Lessor (and, if applicable, any Lender of Lessor), any such new guarantor(s) shall have a minimum aggregate net worth of $10,000,000.  Upon delivery to Lessor of such New Guaranty, any prior guaranty received by Lessor shall be terminated and cancelled,”

 

66.                      The following additional paragraph shall be added to the Lease:  “ Lender Provisions .  Upon written notice from Lessor, Lessee agrees to perform and comply with any and all obligations imposed by Lender upon Lessor in regard to the Premises, whether pursuant to Paragraph 30 of this Lease or otherwise, including any applicable tax and/or insurance impound requirements, and Lessee shall indemnify and hold harmless Lessor from and against any and all claims, liabilities, damages, losses, costs and expenses (including, without limitation, attorneys fees and costs) incurred in connection with or arising from or as a result of failure to perform or comply with any such obligations.”

 

 

Executed as of the date first referenced above.

 

 

 

WAFR, LLC (Lessor)

Wesco Aircraft France, SAS (Lessee)

 

 

 

 

 

 

By:

/s/ George Hess

 

By:

/s/ Randy Snyder

 

George Hess, Manager

 

Randy Snyder, President

 

2



 

STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-TENANT LEASE — NET
Second Addenda to Lease Dated:  August 1, 2005
By and Between
WAFR, LLC (Lessor) and Wesco Aircraft France, SAS (Lessee)

 

The Parties have entered into the above referenced Lease.  The Parties also agree that in order for the Lease to comply with all laws and obligations under French law that the Lease will require review and possible revision by French counsel.  All costs associated with review and revision shall be paid by the Lessee.

 

 

Agreed this first day of January 2006.

 

 

 

WAFR, LLC (Lessor)

Wesco Aircraft France, SAS (Lessee)

 

 

 

 

 

 

By:

/s/ George Hess

 

 

By:

/s/ Randy Snyder

 

George Hess, Manager

 

 

Randy Snyder, President

 



 

STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-TENANT LEASE — NET
Third Addenda to Lease Dated:  August 1, 2005
By and Between
WAFR, LLC (Lessor) and Wesco Aircraft France, SAS (Lessee)

 

The Lease is hereby supplemented and amended as follows:  In order to comply with the tax requirements relating to VAT payable on rent collected by the Lessor, the Parties agree that the Lessee shall pay the VAT directly to the government authority and take responsibility for filing the necessary forms with any such government authority as may be required.

 

 

Agreed this first day of January 2006.

 

 

 

WAFR, LLC (Lessor)

Wesco Aircraft France, SAS (Lessee)

 

 

 

 

 

 

By:

/s/ George Hess

 

By:

/s/ Randy Snyder

 

George Hess, Manager

 

Randy Snyder, President

 




Exhibit 10.16

 

 

 

 

 

 

 

 

 

AIR COMMERCIAL REAL ESTATE ASSOCIATION

 

STANDARD INDUSTRIAL/COMMERCIAL

 

SINGLE-TENANT LEASE — NET

 

 

 

(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)

 

 

 

 

1.           Basic Provisions (“Basic Provisions”).

 

1.1         Parties.  This Lease ( “Lease” ), dated for reference purposes on October 1, 2004, is made by and between Avenue Scott, LLC, a California limited liability company ( “Lessor” ) and Wesco Aircraft Hardware Corp., a California corporation ( “Lessee” ), (collectively the “Parties , or individually a “Party” ).

 

1.2         Premises.  That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known as 27727 Avenue Scott, Valencia, CA, located in the County of Los Angeles, State of California, and generally described as (describe briefly the nature of the property and, if applicable, the “Project” , if the property is located within a Project) Parcel 41 and an easement for drainage purposes over the southwesterly 20 feet of parcel 40, as shown on parcel map #10622, filed in book 119, pages 63 to 67 inclusive of parcel maps, in the office of the LA County Recorder ( “Premises” ).  (See also Paragraph 2)

 

1.3         Term:  Fifteen years and no months ( “Original Term” ) commencing October 1, 2004 ( “Commencement Date” ) and ending September 30, 2019 ( “Expiration Date” ).  (See also Paragraph 3)

 

1.4         Early Possession:  not applicable ( “Early Possession Date” ).  (See also Paragraphs 3.2 and 3.3)

 

1.5         Base Rent:  $85,000 per month ( “Base Rent” ), payable on the first day of each month commencing October 1, 2004.  (See also Paragraph 4)

 

x If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.

 

1.6         Base Rent and Other Monies Paid Upon Execution:

 

(a)           Base Rent:  $85,000 for the period October 1, 2004.

 

(b)          Security Deposit:  $85,000 ( “Security Deposit” ).  (See also Paragraph 5)

 

(c)           Association Fees:  $                          for the period

 

(d)          Other :  $                                for                                                                                       .

 

 

(e)           Total Due Upon Execution of this Lease:  $170,000.

 

1.7         Agreed Use:  Warehouse and Light Manufacturing.  (See also Paragraph 6)

 

1.8         Insuring Party.  Lessor is the “Insuring Party” unless otherwise stated herein.  (See also Paragraph 8)

 

1.9         Real Estate Brokers:  (See also Paragraph 15)  Not applicable

 

(a) Representation.  The following real estate brokers (the “Brokers” ) and brokerage relationships exist in this transaction (check applicable boxes):

 

o                                                                                                      represents Lessor exclusively ( “Lessor’s Broker” );

 

o                                                                                                      represents Lessee exclusively ( “Lessee’s Broker” ); or

 

o                                                                                                      represents both Lessor and Lessee ( “Dual Agency” ).

 

(b) Payment to Brokers.  Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their separate written agreement (or if there is no such agreement, the sum of            or           % of the total Base Rent) for the brokerage services rendered by the Brokers.

 

1.10       Guarantor.  The obligations of the Lessee under this Lease are to be guaranteed by Not Applicable ( “Guarantor” ).  (See also Paragraph 37)

 

1.11       Attachments.  Attached hereto are the following, all of which constitute a part of this Lease:

 

x an Addendum consisting of Paragraphs 51 through 53;

 

o a plot plan depicting the Premises;

 

o a current set of the Rules and Regulations;

 

o a Work Letter;

 

o other (specify):

 

 

                                                                                                                                                                                                              .

 

2.           Premises.

 

2.1         Letting.  Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease.  Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less.  Note:  Lessee is advised to verify the actual size prior to executing this Lease.

 

2.2         Condition.  Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs ( “Start Date” ), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems (“ HVAC” ), loading doors, sump pumps, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on said date and that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the “Building” ) shall be free of material defects.  If a non-compliance with said warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessor’s sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor’s expense.  The warranty periods shall be as follows:  (i) 6 months as to the HVAC systems, and (ii) 30 days as to the remaining systems and other elements of the Building.  If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee’s sole cost and expense.

 

2.3         Compliance.  Lessor warrants that the improvements on the Premises comply with the building codes, applicable laws, covenants or restrictions of record, regulations, and ordinances ( “Applicable Requirements” ) that were in effect at the time that each

 

 

1



 

improvement, or portion thereof, was constructed.  Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee’s use (see Paragraph 50), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee.  NOTE:  Lessee is responsible for determining whether or not the Applicable Requirements, and especially the zoning, are appropriate for Lessee’s intended use, and acknowledges that past uses of the Premises may no longer be allowed.  If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor’s expense.  If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee’s sole cost and expense.  If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building ( “Capital Expenditure” ), Lessor and Lessee shall allocate the cost of such work as follows:

 

(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months’ Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee’s termination notice that Lessor has elected to pay the difference between the actual cost thereof and an amount equal to 6 months’ Base Rent.  If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter.  Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

 

(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for such costs pursuant to the provisions of Paragraph 7.1(d); provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor’s termination notice that Lessee will pay for such Capital Expenditure.  If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor’s share of such costs have been fully paid.  If Lessee is unable to finance Lessor’s share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor.

 

(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements.  If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either:  (i) immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense.  Lessee shall not, however, have any right to terminate this Lease.

 

2.4         Acknowledgements.  Lessee acknowledges that:  (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Lessee’s intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor’s agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease.  In addition, Lessor acknowledges that:  (i) Brokers have made no representations, promises or warranties concerning Lessee’s ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor’s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

 

2.5         Lessee as Prior Owner/Occupant.  The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises.  In such event, Lessee shall be responsible for any necessary corrective work.

 

3.           Term.

 

3.1         Term.  The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.

 

3.2         Early Possession.  If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession.  All other terms of this Lease (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period.  Any such early possession shall not affect the Expiration Date.

 

3.3         Delay In Possession.  Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date.  If, despite said efforts, Lessor is unable to deliver possession by such date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease.  Lessee shall not, however, be obligated to pay Rent or perform its other obligations until Lessor delivers possession of the Premises and any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee.  If possession is not delivered within 60 days after the Commencement Date, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder.  If such written notice is not received by Lessor within said 10 day period, Lessee’s right to cancel shall terminate.  If possession of the Premises is not delivered within 120 days after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.

 

3.4         Lessee Compliance.  Lessor shall not be required to deliver possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5).  Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor’s election to withhold possession pending receipt of such evidence of insurance.  Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.

 

4.           Rent.

 

4.1         Rent Defined.  All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ( “Rent” ).

 

 

2



 

4.2         Payment.  Lessee shall cause payment of Rent to be received by Lessor in lawful money of France on or before the day on which it is due, without offset or deduction (except as specifically permitted in this Lease).  Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month.  Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing.  Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor’s rights to the balance of such Rent, regardless of Lessor’s endorsement of any check so stating.  In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of EUR25 in addition to any Late Charge and Lessor, at its option, may require all future payments to be made by Lessee to be by cashier’s check.  Payments will be applied first to accrued late charges and attorney’s fees, second to accrued interest, then to Base Rent and Operating Expense Increase, and any remaining amount to any other outstanding charges or costs.

 

4.3         Association Fees.  In addition to the Base Rent, Lessee shall pay to Lessor each month an amount equal to any owner’s association or condominium fees levied or assessed against the Premises.  Said monies shall be paid at the same time and in the same manner as the Base Rent.

 

5.           Security Deposit.  Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee’s faithful performance of its obligations under this Lease.  If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof.  If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease.  If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent.  Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor’s reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof.  If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor’s reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition.  Lessor shall not be required to keep the Security Deposit separate from its general accounts.  Within 14 days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within 30 days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor.  No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.

 

6.           Use.

 

6.1         Use.  Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose.  Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties.  Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises.  If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor’s objections to the change in the Agreed Use.

 

6.2         Hazardous Substances.

 

(a) Reportable Uses Require Consent.  The term “Hazardous Substance” as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either:  (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory.  Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof.  Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee’s expense) with all Applicable Requirements.  “Reportable Use” shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties.  Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor.  In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.

 

(b) Duty to Inform Lessor.  If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.

 

(c) Lessee Remediation.  Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee’s expense, comply with all Applicable Requirements and take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.

 

(d) Lessee Indemnification.  Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys’ and consultants’ fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party.  Lessee’s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.  No termination, cancellation or release agreement entered

 

 

3



 

into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.

 

(f) Investigations and Remediations.  Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to Lessee’s occupancy, unless such remediation measure is required as a result of Lessee’s use (including “Alterations”, as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment.  Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor’s agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor’s investigative and remedial responsibilities.

 

(g) Lessor Termination Option.  If a Hazardous Substance Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor’s rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor’s option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor’s desire to terminate this Lease as of the date 60 days following the date of such notice.  In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee’s commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater.  Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment.  In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available.  If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor’s notice of termination.

 

6.3         Lessee’s Compliance with Applicable Requirements.  Except as otherwise provided in this Lease, Lessee shall, at Lessee’s sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor’s engineers and/or consultants which relate in any manner to the such Requirements, without regard to whether such Requirements are now in effect or become effective after the Start Date.  Lessee shall, within 10 days after receipt of Lessor’s written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee’s compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements.

 

6.4         Inspection; Compliance.  Lessor and Lessor”s “Lender” (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease.  The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a Hazardous Substance Condition (see paragraph 9.1) is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority.  In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination.  In addition, Lessee shall provide copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the receipt of a written request therefor.

 

7.           Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations.

 

7.1         Lessee’s Obligations.

 

(a) In General.  Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee’s Compliance with Applicable Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee’s sole expense, keep the Premises, Utility Installations (intended for Lessee’s exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee’s use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (interior and exterior), foundations, ceilings, roofs, roof drainage systems, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, or adjacent to the Premises.  Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below.  Lessee’s obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair.  Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition (including, e.g. graffiti removal) consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the exterior repainting of the Building.

 

(b) Service Contracts.  Lessee shall, at Lessee’s sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises:  (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drains, (vi) clarifiers (vii) basic utility feed to the perimeter of the Building, and (viii) any other equipment, if reasonably required by Lessor.  However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof.

 

(c) Failure to Perform.  If Lessee fails to perform Lessee’s obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days’ prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee’s behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly pay to Lessor a sum equal to 115% of the cost thereof.

 

(d) Replacement.  Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (ie. 1/144th of the cost per month).  Lessee shall pay interest on the unamortized balance at a rate that is commercially reasonable in the judgment of Lessor’s accountants.  Lessee may, however, prepay its obligation at any time.

 

 

4



 

7.2         Lessor’s Obligations.  Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee.  It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.

 

7.3         Utility Installations; Trade Fixtures; Alterations.

 

(a) Definitions.  The term “Utility Installations” refers to all floor and window coverings, air and/or vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises.  The term “Trade Fixtures” shall mean Lessee’s machinery and equipment that can be removed without doing material damage to the Premises.  The term “Alterations” shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion.  “Lessee Owned Alterations and/or Utility Installations” are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).

 

(b) Consent.  Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor’s prior written consent.  Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, will not affect the electrical, plumbing, HVAC, and/or life safety systems, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month’s Base Rent in the aggregate or a sum equal to one month’s Base Rent in any one year.  Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor.  Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor.  Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans.  Consent shall be deemed conditioned upon Lessee’s:  (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner.  Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials.  Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications.  For work which costs an amount in excess of one month’s Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee’s posting an additional Security Deposit with Lessor.

 

(c) Liens; Bonds.  Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic’s or materialmen’s lien against the Premises or any interest therein.  Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility.  If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof.  If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same.  If Lessor elects to participate in any such action, Lessee shall pay Lessor’s attorneys’ fees and costs.

 

7.4         Ownership; Removal; Surrender; and Restoration.

 

(a) Ownership.  Subject to Lessor’s right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises.  Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations.  Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.

 

(b) Removal.  By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease.  Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.

 

(c) Surrender; Restoration.  Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted.  “Ordinary wear and tear” shall not include any damage or deterioration that would have been prevented by good maintenance practice.  Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear.  Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee.  Lessee shall completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Premises, or if applicable, the Project) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements.  Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee.  Any personal property of Lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire.  The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.

 

8.           Insurance; Indemnity.

 

8.1         Payment For Insurance.  Lessee shall pay for all insurance required under Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per occurrence.  Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term.  Payment shall be made by Lessee to Lessor within 10 days following receipt of an invoice.

 

8.2         Liability Insurance.

 

(a) Carried by Lessee.  Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto.  Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000, an “Additional Insured-Managers or Lessors of Premises Endorsement” and contain the “Amendment of the Pollution Exclusion Endorsement” for damage caused by heat, smoke or fumes from a hostile fire.  The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an “insured contract” for the performance of Lessee’s indemnity obligations under this Lease.  The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder.  All insurance carried by

 

 

5



 

Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

 

(b) Carried by Lessor.  Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee.  Lessee shall not be named as an additional insured therein.

 

8.3         Property Insurance - Building, Improvements and Rental Value.

 

(a) Building and Improvements.  The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises.  The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof.  If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee’s personal property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor.  If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss.  Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located.  If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss.

 

(b) Rental Value.  The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days (“Rental Value insurance”).  Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period.  Lessee shall be liable for any deductible amount in the event of such loss.

 

(c) Adjacent Premises.  If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee’s acts, omissions, use or occupancy of the Premises.

 

8.4         Lessee’s Property; Business Interruption Insurance.

 

(a) Property Damage.  Lessee shall obtain and maintain insurance coverage on all of Lessee’s personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations.  Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence.  The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations.  Lessee shall provide Lessor with written evidence that such insurance is in force.

 

(b) Business Interruption.  Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

 

(c) No Representation of Adequate Coverage.  Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee’s property, business operations or obligations under this Lease.

 

8.5         Insurance Policies.  Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a “General Policyholders Rating” of at least A,X, as set forth in the most current issue of “Best’s Insurance Guide”, or such other rating as may be required by a Lender.  Lessee shall not do or permit to be done anything which invalidates the required insurance policies.  Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance.  No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor.  Lessee shall, at least 30 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or “insurance binders” evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand.  Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less.  If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

 

8.6         Waiver of Subrogation.  Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein.  The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto.  The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.

 

8.7         Indemnity.  Except for Lessor’s gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys’ and consultants’ fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee.  If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.  Lessor need not have first paid any such claim in order to be defended or indemnified.

 

8.8         Exemption of Lessor from Liability.  Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee’s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places.  Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor nor from the failure of Lessor to enforce the provisions of any other lease in the Project.  Notwithstanding Lessor’s negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee’s business or for any loss of income or profit therefrom.

 

8.9         Failure to Provide Insurance.  Lessee acknowledges that any failure on its part to obtain or maintain the insurance required herein will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain.  Accordingly, for any month or portion thereof that Lessee does not maintain the required insurance and/or does not provide Lessor with the required binders or certificates evidencing the existence of the required insurance, the Base Rent shall be automatically increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then

 

 

6



 

existing Base Rent or $100, whichever is greater.  The parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/ costs that Lessor will incur by reason of Lessee’s failure to maintain the required insurance.  Such increase in Base Rent shall in no event constitute a waiver of Lessee’s Default or Breach with respect to the failure to maintain such insurance, prevent the exercise of any of the other rights and remedies granted hereunder, nor relieve Lessee of its obligation to maintain the insurance specified in this Lease.

 

9.           Damage or Destruction.

 

9.1         Definitions.

 

(a) “Premises Partial Damage” shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 6 months or less from the date of the damage or destruction.  Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

 

(b) “Premises Total Destruction” shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 6 months or less from the date of the damage or destruction.  Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

 

(c) “Insured Loss” shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

 

(d) “Replacement Cost” shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

 

(e) “Hazardous Substance Condition” shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises which requires repair, remediation, or restoration.

 

9.2         Partial Damage - Insured Loss.  If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor’s expense, repair such damage (but not Lessee’s Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor’s election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose.  Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee’s responsibility) as and when required to complete said repairs.  In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor.  If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect.  If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to:  (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter.  Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction.  Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

 

9.3         Partial Damage - Uninsured Loss.  If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee’s expense), Lessor may either:  (i) repair such damage as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage.  Such termination shall be effective 60 days following the date of such notice.  In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee’s commitment to pay for the repair of such damage without reimbursement from Lessor.  Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment.  In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available.  If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.

 

9.4         Total Destruction.  Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction.  If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor’s damages from Lessee, except as provided in Paragraph 8.6.

 

9.5         Damage Near End of Term.  If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month’s Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage.  Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee’s receipt of Lessor’s written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires.  If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor’s commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect.  If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee’s option shall be extinguished.

 

9.6         Abatement of Rent; Lessee’s Remedies.

 

(a) Abatement.  In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee’s use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance.  All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

 

 

7



 

(b) Remedies.  If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee’s election to terminate this Lease on a date not less than 60 days following the giving of such notice.  If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice.  If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect.  “Commence” shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

 

9.7         Termination; Advance Payments.  Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor.  Lessor shall, in addition, return to Lessee so much of Lessee’s Security Deposit as has not been, or is not then required to be, used by Lessor.

 

9.8         Waive Statutes.  Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.

 

10.         Real Property Taxes.

 

10.1       Definition.  As used herein, the term “Real Property Taxes” shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises or the Project, Lessor’s right to other income therefrom, and/or Lessor’s business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located.  Real Property Taxes shall also include any tax, fee, levy, assessment or charge, or any increase therein:  (i) imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Premises, and (ii) levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease.

 

10.2       Payment of Taxes.  In addition to Base Rent, Lessee shall pay to Lessor an amount equal to the Real Property Tax installment due at least 20 days prior to the applicable delinquency date.  If any such installment shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee’s share of such installment shall be prorated.  In the event Lessee incurs a late charge on any Rent payment, Lessor may estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee monthly in advance with the payment of the Base Rent.  Such monthly payments shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes delinquent.  When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes.  If the amount collected by Lessor is insufficient to pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such additional sum as is necessary.  Advance payments may be intermingled with other moneys of Lessor and shall not bear interest.  In the event of a Breach by Lessee in the performance of its obligations under this Lease, then any such advance payments may be treated by Lessor as an additional Security Deposit.

 

10.3       Joint Assessment.  If the Premises are not separately assessed, Lessee’s liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor’s work sheets or such other information as may be reasonably available.

 

10.4       Personal Property Taxes.  Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee.  When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor.  If any of Lessee’s said property shall be assessed with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee’s property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee’s property.

 

11.         Utilities and Services.  Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon.  If any such services are not separately metered or billed to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered or billed.  There shall be no abatement of rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor’s reasonable control or in cooperation with governmental request or directions.

 

12.         Assignment and Subletting.

 

12.1       Lessor’s Consent Required.

 

(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, “assign or assignment” ) or sublet all or any part of Lessee’s interest in this Lease or in the Premises without Lessor’s prior written consent.

 

(b) Unless Lessee is a corporation and its stock is publicly traded on a national stock exchange, a change in the control of Lessee shall constitute an assignment requiring consent.  The transfer, on a cumulative basis, of 25% or more of the voting control of Lessee shall constitute a change in control for this purpose.

 

(c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee’s assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent.  “Net Worth of Lessee” shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

 

(d) An assignment or subletting without consent shall, at Lessor’s option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period.  If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either:  (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect.  Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.

 

(e) Lessee’s remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

 

 

8



 

12.2       Terms and Conditions Applicable to Assignment and Subletting.

 

(a) Regardless of Lessor’s consent, no assignment or subletting shall:  (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

 

(b) Lessor may accept Rent or performance of Lessee’s obligations from any person other than Lessee pending approval or disapproval of an assignment.  Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor’s right to exercise its remedies for Lessee’s Default or Breach.

 

(c) Lessor’s consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

 

(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee’s obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor’s remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor.

 

(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor’s determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 as consideration for Lessor’s considering and processing said request.  Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested.  (See also Paragraph 36)

 

(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

 

(g) Lessor’s consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing.  (See Paragraph 39.2)

 

12.3       Additional Terms and Conditions Applicable to Subletting.  The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

 

(a) Lessee hereby assigns and transfers to Lessor all of Lessee’s interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee’s obligations, Lessee may collect said Rent.  In the event that the amount collected by Lessor exceeds Lessee’s obligations any such excess shall be refunded to Lessee.  Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee’s obligations to such sublessee.  Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee’s obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease.  Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

 

(b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

 

(c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.

 

(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor’s prior written consent.

 

(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice.  The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.

 

13.         Default; Breach; Remedies.

 

13.1       Default; Breach.  A “Default” is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease.  A “Breach” is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:

 

(a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

 

(b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee.

 

(c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42, (viii) material safety data sheets (MSDS), or (ix) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee.

 

(d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee’s Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.

 

(e) The occurrence of any of the following events:  (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a “debtor” as defined in 11 U.S.C. §101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

 

 

9



 

(f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.

 

(g) If the performance of Lessee’s obligations under this Lease is guaranteed:  (i) the death of a Guarantor, (ii) the termination of a Guarantor’s liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor’s becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor’s refusal to honor the guaranty, or (v) a Guarantor’s breach of its guaranty obligation on an anticipatory basis, and Lessee’s failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

 

13.2       Remedies.  If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee’s behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals.  Lessee shall pay to Lessor an amount equal to 115% of the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor.  In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

 

(a) Terminate Lessee’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor.  In such event Lessor shall be entitled to recover from Lessee:  (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease.  The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent.  Efforts by Lessor to mitigate damages caused by Lessee’s Breach of this Lease shall not waive Lessor’s right to recover damages under Paragraph 12.  If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit.  If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1.  In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

 

(b) Continue the Lease and Lessee’s right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations.  Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor’s interests, shall not constitute a termination of the Lessee’s right to possession.

 

(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located.  The expiration or termination of this Lease and/or the termination of Lessee’s right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee’s occupancy of the Premises.

 

13.3       Inducement Recapture.  Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee’s entering into this Lease, all of which concessions are hereinafter referred to as “Inducement Provisions,” shall be deemed conditioned upon Lessee’s full and faithful performance of all of the terms, covenants and conditions of this Lease.  Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee.  The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.

 

13.4       Late Charges.  Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain.  Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender.  Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall immediately pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater.  The Parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment.  Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee’s Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder.  In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor’s option, become due and payable quarterly in advance.

 

13.5       Interest.  Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments.  The interest ( “Interest” ) charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law.  Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

 

13.6       Breach by Lessor.

 

(a) Notice of Breach.  Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor.  For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor’s obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.

 

(b) Performance by Lessee on Behalf of Lessor.  In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee’s expense and offset from Rent the actual and reasonable cost to perform such cure, provided however, that such offset shall not exceed an amount equal to the greater of one month’s Base Rent or the Security Deposit, reserving

 

 

10


 

Lessee’s right to seek reimbursement from Lessor.  Lessee shall document the cost of said cure and supply said documentation to Lessor.

 

14.         Condemnation.  If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively “Condemnation” ), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs.  If more than 10% of the Building, or more than 25% of that portion of the Premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee’s option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession.  If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation.  Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee’s relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph.  All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor.  In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.

 

15.         Brokerage Fees.

 

15.1       Additional Commission.  In addition to the payments owed pursuant to Paragraph 1.9 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that:  (a) if Lessee exercises any Option, (b) if Lessee acquires any rights to the Premises or other premises owned by Lessor and located within the same Project, if any, within which the Premises is located, (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of the Brokers in effect at the time of the execution of this Lease.

 

15.2       Assumption of Obligations.  Any buyer or transferee of Lessor’s interest in this Lease shall be deemed to have assumed Lessor’s obligation hereunder.  Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.9, 15, 22 and 31.  If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue Interest.  In addition, if Lessor fails to pay any amounts to Lessee’s Broker when due, Lessee’s Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent.  In addition, Lessee’s Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor’s Broker for the limited purpose of collecting any brokerage fee owed.

 

15.3       Representations and Indemnities of Broker Relationships.  Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder’s fee in connection herewith.  Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys’ fees reasonably incurred with respect thereto.

 

16.         Estoppel Certificates.

 

(a) Each Party (as “Responding Party” ) shall within 10 days after written notice from the other Party (the “Requesting Party” ) execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current “Estoppel Certificate” form published by the AIR Commercial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

 

(b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that:  (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party’s performance, and (iii) if Lessor is the Requesting Party, not more than one month’s rent has been paid in advance.  Prospective purchasers and encumbrancers may rely upon the Requesting Party’s Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.

 

(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee’s financial statements for the past 3 years.  All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.

 

17.         Definition of Lessor.  The term “Lessor” as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee’s interest in the prior lease.  In the event of a transfer of Lessor’s title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor.  Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor.  Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.

 

18.         Severability.  The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

 

19.         Days.  Unless otherwise specifically indicated to the contrary, the word “days” as used in this Lease shall mean and refer to calendar days.

 

20.         Limitation on Liability.  The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor or its partners, members, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor’s partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction.

 

21.         Time of Essence.  Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

 

22.         No Prior or Other Agreements; Broker Disclaimer.  This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective.  Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises.  Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party.  The liability (including court costs and attorneys’ fees), of any Broker with respect to negotiation, execution, delivery or performance by

 

 

11



 

either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

 

23.         Notices.

 

23.1       Notice Requirements.  All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23.  The addresses noted adjacent to a Party’s signature on this Lease shall be that Party’s address for delivery or mailing of notices.  Either Party may by written notice to the other specify a different address for notice, except that upon Lessee’s taking possession of the Premises, the Premises shall constitute Lessee’s address for notice.  A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

 

23.2       Date of Notice.  Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon.  If sent by regular mail the notice shall be deemed given 48 hours after the same is addressed as required herein and mailed with postage prepaid.  Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier.  Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail.  If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

 

24.         Waivers.  No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof.  Lessor’s consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor’s consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent.  The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee.  Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

 

25.         Disclosures Regarding The Nature of a Real Estate Agency Relationship.

 

(a)         When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction.  Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows:

 

(i)          Lessor’s Agent.   A Lessor’s agent under a listing agreement with the Lessor acts as the agent for the Lessor only.  A Lessor’s agent or subagent has the following affirmative obligations:  To the Lessor :  A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor.  To the Lessee and the Lessor :  a. Diligent exercise of reasonable skills and care in performance of the agent’s duties.  b. A duty of honest and fair dealing and good faith.  c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties.  An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

 

(ii)         Lessee’s Agent .  An agent can agree to act as agent for the Lessee only.  In these situations, the agent is not the Lessor’s agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor.  An agent acting only for a Lessee has the following affirmative obligations.  To the Lessee :  A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee.  To the Lessee and the Lessor :  a. Diligent exercise of reasonable skills and care in performance of the agent’s duties.  b. A duty of honest and fair dealing and good faith.  c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties.  An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

 

(iii)        Agent Representing Both Lessor and Lessee .  A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee.  In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee:  a.  A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee.  b. Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii).  In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered.  The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests.  Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction.  A real estate agent is a person qualified to advise about real estate.  If legal or tax advice is desired, consult a competent professional.

 

(b)         Brokers have no responsibility with respect to any default or breach hereof by either Party.  The liability (including court costs and attorneys’ fees), of any Broker with respect to any breach of duty, error or omission relating to this Lease shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

 

(c)         Lessor and Lessee agree to identify to Brokers as “Confidential” any communication or information given Brokers that is considered by such Party to be confidential.

 

26.         No Right To Holdover.  Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease.  In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination.  Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.

 

27.         Cumulative Remedies.  No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

 

28.         Covenants and Conditions; Construction of Agreement.  All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions.  In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease.  Whenever required by the context, the singular shall include the plural and vice versa.  This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

 

29.         Binding Effect; Choice of Law.  This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located.  Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.

 

 

12



 

30.         Subordination; Attornment; Non-Disturbance.

 

30.1       Subordination.  This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, “Security Device” ), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof.  Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as “Lender” ) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease.  Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.

 

30.2       Attornment.  In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of such new owner, this Lease shall automatically become a new Lease between Lessee and such new owner, upon all of the terms and conditions hereof, for the remainder of the term hereof, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor’s obligations hereunder, except that such new owner shall not:  (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month’s rent, or (d) be liable for the return of any security deposit paid to any prior lessor.

 

30.3       Non-Disturbance.  With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee’s subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a “Non-Disturbance Agreement” ) from the Lender which Non-Disturbance Agreement provides that Lessee’s possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises.  Further, within 60 days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises.  In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee’s option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.

 

30.4       Self-Executing.  The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

 

31.         Attorneys’ Fees.  If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees.  Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment.  The term, “Prevailing Party” shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense.  The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees reasonably incurred.  In addition, Lessor shall be entitled to attorneys’ fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation).

 

32.         Lessor’s Access; Showing Premises; Repairs.  Lessor and Lessor’s agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect to Lessee’s use of the Premises.  All such activities shall be without abatement of rent or liability to Lessee.

 

33.         Auctions.  Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor’s prior written consent.  Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.

 

34.         Signs.  Lessor may place on the Premises ordinary “For Sale” signs at any time and ordinary “For Lease” signs during the last 6 months of the term hereof.  Except for ordinary “for sublease” signs, Lessee shall not place any sign upon the Premises without Lessor’s prior written consent.  All signs must comply with all Applicable Requirements.

 

35.         Termination; Merger.  Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies.  Lessor’s failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor’s election to have such event constitute the termination of such interest.

 

36.         Consents.  Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed.  Lessor’s actual reasonable costs and expenses (including but not limited to architects’, attorneys’, engineers’ and other consultants’ fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor.  Lessor’s consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent.  The failure to specify herein any particular condition to Lessor’s consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given.  In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.

 

37.         Guarantor.

 

37.1       Execution.  The Guarantors, if any, shall each execute a guaranty in the form most recently published by the AIR Commercial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease.

 

37.2       Default.  It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide:  (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor’s behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.

 

 

13



 

38.         Quiet Possession.  Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee’s part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

 

39.         Options.  If Lessee is granted an Option, as defined below, then the following provisions shall apply:

 

39.1       Definition.  “Option” shall mean:  (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

 

39.2       Options Personal To Original Lessee.  Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.

 

39.3       Multiple Options.  In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

 

39.4       Effect of Default on Options.

 

(a) Lessee shall have no right to exercise an Option:  (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option.

 

(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of Paragraph 39.4(a).

 

(c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee’s due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term or completion of the purchase, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), or (ii) if Lessee commits a Breach of this Lease.

 

40.         Multiple Buildings.  If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will abide by and conform to all reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform.  Lessee also agrees to pay its fair share of common expenses incurred in connection with such rules and regulations.

 

41.         Security Measures.  Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same.  Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

 

42.         Reservations.  Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee.  Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.

 

43.         Performance Under Protest.  If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment “under protest” and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum.  If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay.

 

44.         Authority; Multiple Parties; Execution.

 

(a)         If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf.  Each party shall, within 30 days after request, deliver to the other party satisfactory evidence of such authority.

 

(b)         If this Lease is executed by more than one person or entity as “Lessee”, each such person or entity shall be jointly and severally liable hereunder.  It is agreed that any one of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named Lessees had executed such document.

 

(c)         This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

 

45.         Conflict.  Any conflict between the printed provisions of this Lease and typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

 

46.         Offer.  Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party.  This Lease is not intended to be binding until executed and delivered by all Parties hereto.

 

47.         Amendments.  This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification.  As long as they do not materially change Lessee’s obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.

 

48.         Waiver of Jury Trial.  THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT.

 

49.         Mediation and Arbitration of Disputes.  An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease o is x is not attached to this Lease.

 

50.         Americans with Disabilities Act.  Since compliance with the Americans with Disabilities Act (ADA) is dependent upon Lessee’s specific use of the Premises, Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation.  In the event that Lessee’s use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Lessee agrees to make any such necessary modifications and/or additions at Lessee’s expense.

 

 

14



 

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO.  THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

 

ATTENTION :  NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES.  THE PARTIES ARE URGED TO:

 

1.        SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

 

2.        RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES.  SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO:  THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE’S INTENDED USE.

 

WARNING :  IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.

 

The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

 

Executed at:  Valencia, California

Executed at:  Valencia, California

 

 

on:  September 1 , 2004

on:  September 1 , 2004

 

 

By LESSOR:

By LESSEE:

 

 

Avenue Scott, LLC

Wesco Aircraft Hardware Corp.

 

By:

/s/ Randy Snyder

 

By:

/s/ George Hess

 

 

Name Printed:  Randy Snyder

Name Printed:  George Hess

 

 

Title:  Manager

Title:  Chief Financial Officer

 

 

 

By:

/s/ George Hess

 

By:

/s/ Randy Snyder

 

 

Name Printed:  George Hess

Name Printed:  Randy Snyder

 

 

Title:  Manager

Title:  President

 

Address:

27727 Avenue Scott

Address:

27727 Avenue Scott

 

 

 

 

 

Valencia, CA 91355

 

Valencia, CA 91355

 

Telephone:  (661) 775-7200

Telephone:  (661) 775-7200

 

 

Facsimile:  (661) 295-1340

Facsimile:  (661) 295-1340

 

 

Federal ID No. 20-1188575

Federal ID No. 95-2704662

 

 

 

 

BROKER:  N/A

BROKER:  N/A

 

 

 

Attn:

Attn:

 

 

Title:

Title:

 

 

Address:

Address:

 

 

Telephone:  (      )

Telephone:  (      )

 

 

Facsimile:  (      )

Facsimile:  (      )

 

 

Email:

Email:

 

 

Federal ID No.

Federal ID No.

 

NOTE:    These forms are often modified to meet changing requirements of law and industry needs.  Always write or call to make sure you are utilizing the most current form:  AIR COMMERCIAL REAL ESTATE ASSOCIATION, 700 So. Flower Street, Suite 600, Los Angeles, California 90017.  (213) 687-8777.  Fax No. (213) 687-8616

 

 

 

15


 

STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-TENANT LEASE — NET
ADDENDA

 

Lease Dated:  October 1, 2004
By and Between Avenue Scott, LLC (Lessor)
And Wesco Aircraft Hardware Corp. (Lessee)

 

51.         Rent Adjustments .  The monthly rent for each month of the adjustment periods specified below shall be increased using the following method:

 

a)      On January 1, 2006 and each January 1 st  thereafter, the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for CPI-U (All Urban Consumers), Los Angeles County, California, All items (1982-1984 = 100), herein referred to as “CPI”.

 

b)     The monthly rent payable in accordance with paragraph 51(a) of this Addendum shall be calculated as follows:  the Base Rent set forth in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the CPI of the month of September preceding the calendar month during which the adjustment is to take effect, and the denominator of which shall be the CPI of September 2004. The sum so calculated shall constitute the new monthly rent hereunder, but in no event, shall such new monthly rent be less than the rent payable for the month immediately preceding the rent adjustment.

 

c)      In the event the compilation and/or publication of the CPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the CPI shall be used to make such calculation.

 

52.         No Partnership Or Joint Venture .  Nothing in this Lease shall be construed to render the Lessor in any way or for any purpose a partner, joint venturer, or associate in any relationship with Lessee other than that of Lessor and Lessee, nor shall this Lease be construed to authorize either to act as agent for the other.  Neither party has any fiduciary relationship hereunder to the other.

 

53.         Lease Assignments .  The parties acknowledge that, previously, Lessee and the Snyder Family Trust entering into a lease for a portion of the Premises, and the Snyder Family Trust, as lessor therein, assigned its interest in said Lease to lessor herein.  This Lease is intended to supersede and replace the previous Lease with Lessee, dated October 1, 1994, which was to expire on March 31, 2010.  Effective October 1, 2004, this Lease will be the sole controlling document between the parties relating to the Premises.  Furthermore, Lessor hereby assigns to Lessee its right, title and interest in the lease dated May 15, 1996, with KLAL Engineering Co., Inc. (“KLAL”) (the “KLAL Lease”), wherein KLAL is leasing approximately 37,000 square feet of the Premises.  Lessee recognizes the rights of KLAL to use and occupy a portion of the Premises which is subject to this Lease, and Lessee shall assume the position of lessor pursuant to the KLAL Lease, akin to being a sublessor.  Lessee shall collect all rents due from KLAL and shall be responsible for the payment in full of the Rent due hereunder regardless of whether KLAL performs its obligations in a timely manner.  At the time of the expiration of the KLAL Lease, Lessee shall have the right to occupy the portion of the Premises now occupied by KLAL or negotiate a new lease with KLAL, as it elects to do in its sole discretion.

 

Executed effective October 1, 2004.

 

LESSOR:

LESSEE:

 

 

AVENUE SCOTT, LLC

WESCO AIRCRAFT HARDWARE CORP.

 

 

By:

/s/ Randy Snyder

 

By:

/s/ Randy Snyder

 

RANDY SNYDER, Manager

 

RANDY SNYDER, President

 

 

 

 

By:

/s/ George Hess

 

By:

/s/ George Hess

 

GEORGE HESS, Manager

 

GEORGE HESS, Chief Financial Officer

 



 

STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-TENANT LEASE — NET
SECOND ADDENDA
Lease Dated:  October 1, 2004
By and Between Avenue Scott, LLC (Lessor) and Wesco Aircraft Hardware Corp. (Lessee)

 

The Lease is hereby supplemented and amended as follows:  Unless otherwise stated, definitions used herein are as used in the Lease.  This Addendum shall be deemed incorporated in the Lease.  In the case of any conflict, the provisions of this Addendum shall prevail.  This Addendum shall be deemed incorporated in the Lease.

 

54.         Delete Paragraph 7.1 (d) and replace with the following:  Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, and the repair or replacement exceeds $20,000, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is the remaining number of months of the lease, and the denominator of which is 120.  Lessee shall pay its obligation upon completion of the replacement or in progress payments, if required by the Lessor.

 

55.         In Paragraph 8.1, after “$2,000,000 per occurrence”; the following words shall be added:  “or an amount as may be required by the Lender”.

 

56.         In Paragraph 8.2(a), after “$2,000,000, the following words shall be added:  “or amounts as may be required by the Lender”

 

57.         At the commencement of Paragraph 8.2(b) ( Carried by Lessor ), the words “Lessor shall maintain” shall be changed to “Lessor may (but shall not be obligated to) maintain”.

 

58.         In Line 3 of Paragraph 8.6 ( Waiver of Subrogation ), the words “perils required to be insured against” shall be changed to “perils insured against”.

 

59.         At the end of Paragraph 8 ( Insurance, Indemnity ), the following paragraph shall be added:  “8.10 Lender’s Requirements .  Lessee agrees to comply with such amended or additional insurance requirements as may be imposed by any Lender upon Lessor in regard to the Premises.  Lessee further acknowledges, agrees and accepts that the availability of insurance or condemnation proceeds for restoration purposes shall be subject to such conditions, limitations and other provisions as may be imposed by any such Lender, and if and to the extent that insurance proceeds are not available for restoration, any such casualty may be treated by Lessor as an uninsured loss for purposes of this Lease.”

 

60.         In Line 2 of Paragraph 9.1 (c) (“ Insured Loss ”), the words “event required to be covered” shall be changed to “event covered”.

 

61.         In Line 1 of Paragraph 9.2 ( Partial Damage-Insured Loss ), the words “Lessor shall” shall be changed to “Lessor may (but shall not be obligated to)”.

 

62.         In Line 3 of Paragraph 9.2 ( Partial Damage-Insured Loss ), the words “and this Lease shall continue” shall be changed to “in which case, this Lease shall continue”.

 

63.         In the second sentence of Paragraph 9.4 ( Total Destruction ), the words “caused by the gross negligence or willful misconduct of Lessee” shall be changed to “not caused by the gross negligence or willful misconduct of Lessor”.

 

64.         The following sentence shall be added at the end of Paragraph 30.4 ( Self-Executing ).  “Lessee agrees to accept such limitations as may be requested by any such Lender upon such Lender’s liability under this Lease and such other conditions, requirements and provisions as may be requested by such Lender in regard to this Lease, and agrees not to hold Lessor liable for, and to indemnify and hold harmless Lessor from and against, failure to comply with such limitations, conditions, requirements and provisions.”

 

65.         The following sentences shall be added at the end of Paragraph 37.1 ( Execution ):  “In the event of an assignment, or in the event of any other transaction requiring Lessor’s consent under Paragraph 12 of the Lease, Lessor may require that a new guaranty or guaranties (collectively, the “New Guaranty”) be executed and delivered to Lessor, in the foregoing specified form, from one or more new guarantors reasonably acceptable to Lessor and otherwise in form and substance reasonably acceptable to Lessor (and, if applicable, any Lender of Lessor).  Delivery to Lessor of such required New Guaranty shall be a condition to the permissibility of any such assignment, subletting or other transaction, and failure to deliver same, immediately upon request by Lessor, shall constitute a Default and a Breach under this Lease.  Unless otherwise agreed by Lessor (and, if applicable, any Lender of Lessor), any such new guarantor(s) shall have a minimum aggregate net worth of $10,000,000.  Upon delivery to Lessor of such New Guaranty, any prior guaranty received by Lessor shall be terminated and cancelled,”

 

66.         The following additional paragraph shall be added to the Lease:  “ Lender Provisions .  Upon written notice from Lessor, Lessee agrees to perform and comply with any and all obligations imposed by Lender upon Lessor in regard to the Premises, whether pursuant to Paragraph 30 of this Lease or otherwise, including any applicable tax and/or insurance impound requirements, and Lessee shall indemnify and hold harmless Lessor from and against any and all claims, liabilities, damages, losses, costs and expenses (including, without limitation, attorneys fees and costs) incurred in connection with or arising from or as a result of failure to perform or comply with any such obligations.”

 

Executed as of the date first referenced above.

 

Avenue Scott, LLC (Lessor)

Wesco Aircraft Hardware Corp. (Lessee)

 

 

By:

/s/ Randy Snyder

 

By:

/s/ Randy Snyder

 

Randy Snyder, Manager

 

Randy Snyder, President

 

 

 

 

By:

/s/ George Hess

 

By:

/s/ George Hess

 

George Hess, Manager

 

George Hess, Chief Financial Officer

 




Exhibit 10.17

 

 

 

 

 

 

 

 

 

AIR COMMERCIAL REAL ESTATE ASSOCIATION

 

STANDARD INDUSTRIAL/COMMERCIAL

 

SINGLE-TENANT LEASE — NET

 

 

 

(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)

 

 

 

 

1.           Basic Provisions (“Basic Provisions”).

 

1.1         Parties.  This Lease ( “Lease” ), dated for reference purposes on January 1, 2004, is made by and between WATX Properties, LLC, a Texas limited liability company ( “Lessor” ) and Wesco Aircraft Hardware Corp., A California corporation ( “Lessee” ), (collectively the “Parties , or individually a “Party” ).

 

1.2         Premises.  That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known as 6701 Will Rogers Boulevard, Ft. Worth, located in the County of Tarrant, State of Texas, and generally described as (describe briefly the nature of the property and, if applicable, the “Project” , if the property is located within a Project) Part of block six Carter Industrial Park ( “Premises” ).  (See also Paragraph 2)

 

1.3         Term:  15 years and 3 months ( “Original Term” ) commencing April 1 2004 ( “Commencement Date” ) and ending June 30, 2019 ( “Expiration Date” ).  (See also Paragraph 3)

 

1.4         Early Possession:  As soon as available ( “Early Possession Date” ).  (See also Paragraphs 3.2 and 3.3)

 

1.5         Base Rent:   $16,000.00 per month ( “Base Rent” ), payable on the first day of each month commencing  April 2004.  (See also Paragraph 4)

 

x If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.

 

1.6         Base Rent and Other Monies Paid Upon Execution:

 

(a)           Base Rent:   $16,000.00 for the period April 2004.

(b)          Security Deposit:   $40,000.00 ( “Security Deposit” ).  (See also Paragraph 5)

(c)           Association Fees:   $                          for the period

(d)          Other :  $                                for                                                                                             .

(e)           Total Due Upon Execution of this Lease:   $56,000.00.

 

1.7         Agreed Use:   Distribution and Light Manufacturing.  (See also Paragraph 6)

 

1.8         Insuring Party.  Lessor is the “Insuring Party” unless otherwise stated herein.  (See also Paragraph 8)

 

1.9         Real Estate Brokers:   (See also Paragraph 15)

 

(a)  Representation.  The following real estate brokers (the “Brokers” ) and brokerage relationships exist in this transaction (check applicable boxes):

 

o

 

represents Lessor exclusively ( “Lessor’s Broker” );

o

 

represents Lessee exclusively ( “Lessee’s Broker” ); or

o

 

represents both Lessor and Lessee ( “Dual Agency” ).

 

(b)  Payment to Brokers.  Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their separate written agreement (or if there is no such agreement, the sum of            or           % of the total Base Rent) for the brokerage services rendered by the Brokers.

 

1.10       Guarantor.  The obligations of the Lessee under this Lease are to be guaranteed by N/A ( “Guarantor” ).  (See also Paragraph 37)

 

1.11       Attachments.  Attached hereto are the following, all of which constitute a part of this Lease:

 

x  an Addendum consisting of Paragraphs 51 through 53;

o   a plot plan depicting the Premises;

o   a current set of the Rules and Regulations;

o   a Work Letter;

o   other (specify):

 

.

 

2.           Premises.

 

2.1         Letting.  Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease.  Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less.  Note: Lessee is advised to verify the actual size prior to executing this Lease.

 

2.2         Condition.  Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs ( “Start Date” ), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems (“ HVAC” ), loading doors, sump pumps, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on said date and that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the “Building” ) shall be free of material defects.  If a non-compliance with said warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessor’s sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor’s expense.  The warranty periods shall be as follows:  (i) 6 months as to the HVAC systems, and (ii) 30 days as to the remaining systems and other elements of the Building.  If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee’s sole cost and expense.

 

2.3         Compliance.  Lessor warrants that the improvements on the Premises comply with the building codes, applicable laws, covenants or restrictions of record, regulations, and ordinances ( “Applicable Requirements” ) that were in effect at the time that each improvement, or portion thereof, was constructed.  Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee’s use (see Paragraph 50), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee.  NOTE:

 

 

1



 

Lessee is responsible for determining whether or not the Applicable Requirements, and especially the zoning, are appropriate for Lessee’s intended use, and acknowledges that past uses of the Premises may no longer be allowed.  If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor’s expense.  If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee’s sole cost and expense.  If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building ( “Capital Expenditure” ), Lessor and Lessee shall allocate the cost of such work as follows:

 

(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months’ Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee’s termination notice that Lessor has elected to pay the difference between the actual cost thereof and an amount equal to 6 months’ Base Rent.  If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter.  Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

 

(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for such costs pursuant to the provisions of Paragraph 7.1(d); provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor’s termination notice that Lessee will pay for such Capital Expenditure.  If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor’s share of such costs have been fully paid.  If Lessee is unable to finance Lessor’s share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor.

 

(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements.  If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either: (i) immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense.  Lessee shall not, however, have any right to terminate this Lease.

 

2.4         Acknowledgements.  Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Lessee’s intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor’s agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease.  In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Lessee’s ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor’s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

 

2.5         Lessee as Prior Owner/Occupant.  The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises.  In such event, Lessee shall be responsible for any necessary corrective work.

 

3.           Term.

 

3.1         Term.  The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.

 

3.2         Early Possession.  If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession.  All other terms of this Lease (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period.  Any such early possession shall not affect the Expiration Date.

 

3.3         Delay In Possession.  Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date.  If, despite said efforts, Lessor is unable to deliver possession by such date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease.  Lessee shall not, however, be obligated to pay Rent or perform its other obligations until Lessor delivers possession of the Premises and any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee.  If possession is not delivered within 60 days after the Commencement Date, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder.  If such written notice is not received by Lessor within said 10 day period, Lessee’s right to cancel shall terminate.  If possession of the Premises is not delivered within 120 days after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.

 

3.4         Lessee Compliance.  Lessor shall not be required to deliver possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5).  Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor’s election to withhold possession pending receipt of such evidence of insurance.  Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.

 

4.           Rent.

 

4.1         Rent Defined.  All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ( “Rent” ).

 

4.2         Payment.  Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States on or before the day on which it is due, without offset or deduction (except as specifically permitted in this Lease).  Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month.  Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to

 

 

2



 

time designate in writing.  Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor’s rights to the balance of such Rent, regardless of Lessor’s endorsement of any check so stating.  In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any Late Charge and Lessor, at its option, may require all future payments to be made by Lessee to be by cashier’s check.  Payments will be applied first to accrued late charges and attorney’s fees, second to accrued interest, then to Base Rent and Operating Expense Increase, and any remaining amount to any other outstanding charges or costs.

 

4.3         Association Fees.  In addition to the Base Rent, Lessee shall pay to Lessor each month an amount equal to any owner’s association or condominium fees levied or assessed against the Premises.  Said monies shall be paid at the same time and in the same manner as the Base Rent.

 

5.           Security Deposit.  Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee’s faithful performance of its obligations under this Lease.  If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof.  If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease.  If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent.  Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor’s reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof.  If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor’s reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition.  Lessor shall not be required to keep the Security Deposit separate from its general accounts.  Within 14 days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within 30 days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor.  No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.

 

6.           Use.

 

6.1         Use.  Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose.  Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties.  Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises.  If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor’s objections to the change in the Agreed Use.

 

6.2         Hazardous Substances.

 

(a)  Reportable Uses Require Consent.  The term “Hazardous Substance” as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory.  Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof.  Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee’s expense) with all Applicable Requirements.  “Reportable Use” shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties.  Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor.  In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.

 

(b)  Duty to Inform Lessor.  If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.

 

(c)  Lessee Remediation.  Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee’s expense, comply with all Applicable Requirements and take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.

 

(d)  Lessee Indemnification.  Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys’ and consultants’ fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party.  Lessee’s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.  No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.

 

(f)  Investigations and Remediations.  Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to Lessee’s occupancy, unless such remediation measure is required as a result of Lessee’s use (including

 

 

3



 

“Alterations”, as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment.  Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor’s agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor’s investigative and remedial responsibilities.

 

(g)  Lessor Termination Option.  If a Hazardous Substance Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor’s rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor’s option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor’s desire to terminate this Lease as of the date 60 days following the date of such notice.  In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee’s commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater.  Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment.  In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available.  If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor’s notice of termination.

 

6.3         Lessee’s Compliance with Applicable Requirements.  Except as otherwise provided in this Lease, Lessee shall, at Lessee’s sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor’s engineers and/or consultants which relate in any manner to the such Requirements, without regard to whether such Requirements are now in effect or become effective after the Start Date.  Lessee shall, within 10 days after receipt of Lessor’s written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee’s compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements.

 

6.4         Inspection; Compliance.  Lessor and Lessor”s “Lender” (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease.  The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a Hazardous Substance Condition (see paragraph 9.1) is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority.  In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination.  In addition, Lessee shall provide copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the receipt of a written request therefor.

 

7.           Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations.

 

7.1         Lessee’s Obligations.

 

(a)  In General.  Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee’s Compliance with Applicable Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee’s sole expense, keep the Premises, Utility Installations (intended for Lessee’s exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee’s use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (interior and exterior), foundations, ceilings, roofs, roof drainage systems, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, or adjacent to the Premises.  Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below.  Lessee’s obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair.  Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition (including, e.g. graffiti removal) consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the exterior repainting of the Building.

 

(b)  Service Contracts.  Lessee shall, at Lessee’s sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drains, (vi) clarifiers (vii) basic utility feed to the perimeter of the Building, and (viii) any other equipment, if reasonably required by Lessor.  However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof.

 

(c)  Failure to Perform.  If Lessee fails to perform Lessee’s obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days’ prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee’s behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly pay to Lessor a sum equal to 115% of the cost thereof.

 

(d)  Replacement.  Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (ie. 1/144th of the cost per month).  Lessee shall pay interest on the unamortized balance at a rate that is commercially reasonable in the judgment of Lessor’s accountants.  Lessee may, however, prepay its obligation at any time.

 

7.2         Lessor’s Obligations.  Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee.  It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the

 

 

4



 

Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.

 

7.3         Utility Installations; Trade Fixtures; Alterations.

 

(a)  Definitions.  The term “Utility Installations” refers to all floor and window coverings, air and/or vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises.  The term “Trade Fixtures” shall mean Lessee’s machinery and equipment that can be removed without doing material damage to the Premises.  The term “Alterations” shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion.  “Lessee Owned Alterations and/or Utility Installations” are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).

 

(b)  Consent.  Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor’s prior written consent.  Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, will not affect the electrical, plumbing, HVAC, and/or life safety systems, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month’s Base Rent in the aggregate or a sum equal to one month’s Base Rent in any one year.  Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor.  Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor.  Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans.  Consent shall be deemed conditioned upon Lessee’s: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner.  Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials.  Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications.  For work which costs an amount in excess of one month’s Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee’s posting an additional Security Deposit with Lessor.

 

(c)  Liens; Bonds.  Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic’s or materialmen’s lien against the Premises or any interest therein.  Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility.  If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof.  If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same.  If Lessor elects to participate in any such action, Lessee shall pay Lessor’s attorneys’ fees and costs.

 

7.4         Ownership; Removal; Surrender; and Restoration.

 

(a)  Ownership.  Subject to Lessor’s right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises.  Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations.  Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.

 

(b)  Removal.  By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease.  Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.

 

(c)  Surrender; Restoration.  Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted.  “Ordinary wear and tear” shall not include any damage or deterioration that would have been prevented by good maintenance practice.  Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear.  Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee.  Lessee shall completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Premises, or if applicable, the Project) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements.  Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee.  Any personal property of Lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire.  The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.

 

8.           Insurance; Indemnity.

 

8.1         Payment For Insurance.  Lessee shall pay for all insurance required under Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per occurrence.  Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term.  Payment shall be made by Lessee to Lessor within 10 days following receipt of an invoice.

 

8.2         Liability Insurance.

 

(a)  Carried by Lessee.  Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto.  Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000, an “Additional Insured-Managers or Lessors of Premises Endorsement” and contain the “Amendment of the Pollution Exclusion Endorsement” for damage caused by heat, smoke or fumes from a hostile fire.  The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an “insured contract” for the performance of Lessee’s indemnity obligations under this Lease.  The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder.  All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

 

 

5



 

(b)  Carried by Lessor.  Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee.  Lessee shall not be named as an additional insured therein.

 

8.3         Property Insurance - Building, Improvements and Rental Value.

 

(a)  Building and Improvements.  The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises.  The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof.  If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee’s personal property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor.  If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss.  Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located.  If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss.

 

(b)  Rental Value.  The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days (“Rental Value insurance”).  Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period.  Lessee shall be liable for any deductible amount in the event of such loss.

 

(c)  Adjacent Premises.  If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee’s acts, omissions, use or occupancy of the Premises.

 

8.4         Lessee’s Property; Business Interruption Insurance.

 

(a)  Property Damage.  Lessee shall obtain and maintain insurance coverage on all of Lessee’s personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations.  Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence.  The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations.  Lessee shall provide Lessor with written evidence that such insurance is in force.

 

(b)  Business Interruption.  Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

 

(c)  No Representation of Adequate Coverage.   Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee’s property, business operations or obligations under this Lease.

 

8.5         Insurance Policies.  Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a “General Policyholders Rating” of at least B+, V, as set forth in the most current issue of “Best’s Insurance Guide”, or such other rating as may be required by a Lender.  Lessee shall not do or permit to be done anything which invalidates the required insurance policies.  Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance.  No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor.  Lessee shall, at least 30 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or “insurance binders” evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand.  Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less.  If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

 

8.6         Waiver of Subrogation.  Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein.  The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto.  The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.

 

8.7         Indemnity.   Except for Lessor’s gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys’ and consultants’ fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee.  If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.  Lessor need not have first paid any such claim in order to be defended or indemnified.

 

8.8         Exemption of Lessor from Liability.  Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee’s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places.  Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor nor from the failure of Lessor to enforce the provisions of any other lease in the Project.  Notwithstanding Lessor’s negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee’s business or for any loss of income or profit therefrom.

 

8.9         Failure to Provide Insurance.  Lessee acknowledges that any failure on its part to obtain or maintain the insurance required herein will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain.  Accordingly, for any month or portion thereof that Lessee does not maintain the required insurance and/or does not provide Lessor with the required binders or certificates evidencing the existence of the required insurance, the Base Rent shall be automatically increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100, whichever is greater.  The parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/ costs that Lessor will incur by reason of Lessee’s failure to maintain the required insurance.  Such

 

 

6



 

increase in Base Rent shall in no event constitute a waiver of Lessee’s Default or Breach with respect to the failure to maintain such insurance, prevent the exercise of any of the other rights and remedies granted hereunder, nor relieve Lessee of its obligation to maintain the insurance specified in this Lease.

 

9.           Damage or Destruction.

 

9.1         Definitions.

 

(a)  “Premises Partial Damage” shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 6 months or less from the date of the damage or destruction.  Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

 

(b)  “Premises Total Destruction” shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 6 months or less from the date of the damage or destruction.  Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

 

(c)  “Insured Loss” shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

 

(d)  “Replacement Cost” shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

 

(e)  “Hazardous Substance Condition” shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises which requires repair, remediation, or restoration.

 

9.2         Partial Damage - Insured Loss.  If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor’s expense, repair such damage (but not Lessee’s Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor’s election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose.  Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee’s responsibility) as and when required to complete said repairs.  In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor.  If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect.  If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter.  Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction.  Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

 

9.3         Partial Damage - Uninsured Loss.  If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee’s expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage.  Such termination shall be effective 60 days following the date of such notice.  In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee’s commitment to pay for the repair of such damage without reimbursement from Lessor.  Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment.  In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available.  If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.

 

9.4         Total Destruction.  Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction.  If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor’s damages from Lessee, except as provided in Paragraph 8.6.

 

9.5         Damage Near End of Term.  If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month’s Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage.  Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee’s receipt of Lessor’s written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires.  If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor’s commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect.  If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee’s option shall be extinguished.

 

9.6         Abatement of Rent; Lessee’s Remedies.

 

(a)  Abatement.  In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee’s use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance.  All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

 

(b)  Remedies.  If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of

 

 

7



 

Lessee’s election to terminate this Lease on a date not less than 60 days following the giving of such notice.  If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice.  If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect.  “Commence” shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

 

9.7         Termination; Advance Payments.  Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor.  Lessor shall, in addition, return to Lessee so much of Lessee’s Security Deposit as has not been, or is not then required to be, used by Lessor.

 

9.8         Waive Statutes.  Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.

 

10.         Real Property Taxes.

 

10.1       Definition.  As used herein, the term “Real Property Taxes” shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises or the Project, Lessor’s right to other income therefrom, and/or Lessor’s business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located.  Real Property Taxes shall also include any tax, fee, levy, assessment or charge, or any increase therein: (i) imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Premises, and (ii) levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease.

 

10.2       Payment of Taxes.  In addition to Base Rent, Lessee shall pay to Lessor an amount equal to the Real Property Tax installment due at least 20 days prior to the applicable delinquency date.  If any such installment shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee’s share of such installment shall be prorated.  In the event Lessee incurs a late charge on any Rent payment, Lessor may estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee monthly in advance with the payment of the Base Rent.  Such monthly payments shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes delinquent.  When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes.  If the amount collected by Lessor is insufficient to pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such additional sum as is necessary.  Advance payments may be intermingled with other moneys of Lessor and shall not bear interest.  In the event of a Breach by Lessee in the performance of its obligations under this Lease, then any such advance payments may be treated by Lessor as an additional Security Deposit.

 

10.3       Joint Assessment.  If the Premises are not separately assessed, Lessee’s liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor’s work sheets or such other information as may be reasonably available.

 

10.4       Personal Property Taxes.  Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee.  When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor.  If any of Lessee’s said property shall be assessed with Lessor’s real property, Lessee shall pay.  Lessor the taxes attributable to Lessee’s property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee’s property.

 

11.         Utilities and Services.  Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon.  If any such services are not separately metered or billed to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered or billed.  There shall be no abatement of rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor’s reasonable control or in cooperation with governmental request or directions.

 

12.         Assignment and Subletting.

 

12.1       Lessor’s Consent Required.

 

(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, “assign or assignment” ) or sublet all or any part of Lessee’s interest in this Lease or in the Premises without Lessor’s prior written consent.

 

(b) Unless Lessee is a corporation and its stock is publicly traded on a national stock exchange, a change in the control of Lessee shall constitute an assignment requiring consent.  The transfer, on a cumulative basis, of 25% or more of the voting control of Lessee shall constitute a change in control for this purpose.

 

(c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee’s assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent.  “ Net Worth of Lessee ” shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

 

(d) An assignment or subletting without consent shall, at Lessor’s option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period.  If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect.  Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.

 

(e) Lessee’s remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

 

12.2       Terms and Conditions Applicable to Assignment and Subletting.

 

(a) Regardless of Lessor’s consent, no assignment or subletting shall: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations

 

 

8



 

hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

 

(b) Lessor may accept Rent or performance of Lessee’s obligations from any person other than Lessee pending approval or disapproval of an assignment.  Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor’s right to exercise its remedies for Lessee’s Default or Breach.

 

(c) Lessor’s consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

 

(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee’s obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor’s remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor.

 

(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor’s determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 as consideration for Lessor’s considering and processing said request.  Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested.  (See also Paragraph 36)

 

(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

 

(g) Lessor’s consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing.  (See Paragraph 39.2)

 

12.3       Additional Terms and Conditions Applicable to Subletting.  The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

 

(a) Lessee hereby assigns and transfers to Lessor all of Lessee’s interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee’s obligations, Lessee may collect said Rent.  In the event that the amount collected by Lessor exceeds Lessee’s obligations any such excess shall be refunded to Lessee.  Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee’s obligations to such sublessee.  Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee’s obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease.  Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

 

(b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

 

(c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.

 

(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor’s prior written consent.

 

(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice.  The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.

 

13.         Default; Breach; Remedies.

 

13.1       Default; Breach.  A “Default” is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease.  A “Breach” is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:

 

(a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

 

(b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee.

 

(c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42, (viii) material safety data sheets (MSDS), or (ix) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee.

 

(d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee’s Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.

 

(e) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a “debtor” as defined in 11 U.S.C. §101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

 

(f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.

 

(g) If the performance of Lessee’s obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor’s liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a

 

 

9



 

Guarantor’s becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor’s refusal to honor the guaranty, or (v) a Guarantor’s breach of its guaranty obligation on an anticipatory basis, and Lessee’s failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

 

13.2       Remedies.  If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee’s behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals.  Lessee shall pay to Lessor an amount equal to 115% of the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor.  In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

 

(a) Terminate Lessee’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor.  In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease.  The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent.  Efforts by Lessor to mitigate damages caused by Lessee’s Breach of this Lease shall not waive Lessor’s right to recover damages under Paragraph 12.  If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit.  If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1.  In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

 

(b) Continue the Lease and Lessee’s right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations.  Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor’s interests, shall not constitute a termination of the Lessee’s right to possession.

 

(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located.  The expiration or termination of this Lease and/or the termination of Lessee’s right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee’s occupancy of the Premises.

 

13.3       Inducement Recapture.  Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee’s entering into this Lease, all of which concessions are hereinafter referred to as “Inducement Provisions,” shall be deemed conditioned upon Lessee’s full and faithful performance of all of the terms, covenants and conditions of this Lease.  Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee.  The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.

 

13.4       Late Charges.  Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain.  Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender.  Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall immediately pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater.  The Parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment.  Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee’s Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder.  In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor’s option, become due and payable quarterly in advance.

 

13.5       Interest.  Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments.  The interest (“ Interest ”) charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law.  Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

 

13.6       Breach by Lessor.

 

(a)  Notice of Breach.  Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor.  For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor’s obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.

 

(b)  Performance by Lessee on Behalf of Lessor.  In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee’s expense and offset from Rent the actual and reasonable cost to perform such cure, provided however, that such offset shall not exceed an amount equal to the greater of one month’s Base Rent or the Security Deposit, reserving Lessee’s right to seek reimbursement from Lessor.  Lessee shall document the cost of said cure and supply said documentation to Lessor.

 

 

10


 

14.         Condemnation.  If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively “Condemnation” ), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs.  If more than 10% of the Building, or more than 25% of that portion of the Premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee’s option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession.  If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation.  Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee’s relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph.  All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor.  In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.

 

15.         Brokerage Fees.

 

15.1       Additional Commission.  In addition to the payments owed pursuant to Paragraph 1.9 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee acquires any rights to the Premises or other premises owned by Lessor and located within the same Project, if any, within which the Premises is located, (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of the Brokers in effect at the time of the execution of this Lease.

 

15.2       Assumption of Obligations.  Any buyer or transferee of Lessor’s interest in this Lease shall be deemed to have assumed Lessor’s obligation hereunder.  Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.9, 15, 22 and 31.  If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue Interest.  In addition, if Lessor fails to pay any amounts to Lessee’s Broker when due, Lessee’s Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent.  In addition, Lessee’s Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor’s Broker for the limited purpose of collecting any brokerage fee owed.

 

15.3       Representations and Indemnities of Broker Relationships.  Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder’s fee in connection herewith.  Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys’ fees reasonably incurred with respect thereto.

 

16.         Estoppel Certificates.

 

(a) Each Party (as “Responding Party” ) shall within 10 days after written notice from the other Party (the “Requesting Party” ) execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current “Estoppel Certificate” form published by the AIR Commercial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

 

(b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party’s performance, and (iii) if Lessor is the Requesting Party, not more than one month’s rent has been paid in advance.  Prospective purchasers and encumbrancers may rely upon the Requesting Party’s Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.

 

(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee’s financial statements for the past 3 years.  All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.

 

17.         Definition of Lessor.  The term “Lessor” as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee’s interest in the prior lease.  In the event of a transfer of Lessor’s title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor.  Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor.  Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.

 

18.         Severability.  The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

 

19.         Days.  Unless otherwise specifically indicated to the contrary, the word “days” as used in this Lease shall mean and refer to calendar days.

 

20.         Limitation on Liability.  The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor or its partners, members, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor’s partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction.

 

21.         Time of Essence.  Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

 

22.         No Prior or Other Agreements; Broker Disclaimer.  This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective.  Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises.  Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party.  The liability (including court costs and attorneys’ fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received

 

 

11



 

by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

 

23.         Notices.

 

23.1       Notice Requirements.  All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23.  The addresses noted adjacent to a Party’s signature on this Lease shall be that Party’s address for delivery or mailing of notices.  Either Party may by written notice to the other specify a different address for notice, except that upon Lessee’s taking possession of the Premises, the Premises shall constitute Lessee’s address for notice.  A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

 

23.2       Date of Notice.  Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon.  If sent by regular mail the notice shall be deemed given 48 hours after the same is addressed as required herein and mailed with postage prepaid.  Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier.  Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail.  If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

 

24.         Waivers.  No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof.  Lessor’s consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor’s consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent.  The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee.  Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

 

25.         Disclosures Regarding The Nature of a Real Estate Agency Relationship.

 

(a)         When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction.  Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows:

 

(i)          Lessor’s Agent .  A Lessor’s agent under a listing agreement with the Lessor acts as the agent for the Lessor only.  A Lessor’s agent or subagent has the following affirmative obligations:  To the Lessor :  A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor.  To the Lessee and the Lessor :  a. Diligent exercise of reasonable skills and care in performance of the agent’s duties.  b. A duty of honest and fair dealing and good faith.  c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties.  An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

 

(ii)         Lessee’s Agent .  An agent can agree to act as agent for the Lessee only.  In these situations, the agent is not the Lessor’s agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor.  An agent acting only for a Lessee has the following affirmative obligations.  To the Lessee :  A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee.  To the Lessee and the Lessor :  a. Diligent exercise of reasonable skills and care in performance of the agent’s duties.  b. A duty of honest and fair dealing and good faith.  c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties.  An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

 

(iii)        Agent Representing Both Lessor and Lessee .  A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee.  In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee: a.  A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee.  b. Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii).  In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered.  The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests.  Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction.  A real estate agent is a person qualified to advise about real estate.  If legal or tax advice is desired, consult a competent professional.

 

(b)         Brokers have no responsibility with respect to any default or breach hereof by either Party.  The liability (including court costs and attorneys’ fees), of any Broker with respect to any breach of duty, error or omission relating to this Lease shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

 

(c)         Lessor and Lessee agree to identify to Brokers as “Confidential” any communication or information given Brokers that is considered by such Party to be confidential.

 

26.         No Right To Holdover.  Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease.  In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination.  Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.

 

27.         Cumulative Remedies.  No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

 

28.         Covenants and Conditions; Construction of Agreement.  All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions.  In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease.  Whenever required by the context, the singular shall include the plural and vice versa.  This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

 

 

12



 

29.         Binding Effect; Choice of Law.  This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located.  Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.

 

30.         Subordination; Attornment; Non-Disturbance.

 

30.1       Subordination.  This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, “Security Device” ), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof.  Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as “Lender” ) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease.  Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.

 

30.2       Attornment.  In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of such new owner, this Lease shall automatically become a new Lease between Lessee and such new owner, upon all of the terms and conditions hereof, for the remainder of the term hereof, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor’s obligations hereunder, except that such new owner shall not: (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month’s rent, or (d) be liable for the return of any security deposit paid to any prior lessor.

 

30.3       Non-Disturbance.  With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee’s subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a “Non-Disturbance Agreement” ) from the Lender which Non-Disturbance Agreement provides that Lessee’s possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises.  Further, within 60 days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises.  In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee’s option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.

 

30.4       Self-Executing.  The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

 

31.         Attorneys’ Fees.  If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees.  Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment.  The term, “Prevailing Party” shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense.  The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees reasonably incurred.  In addition, Lessor shall be entitled to attorneys’ fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation).

 

32.         Lessor’s Access; Showing Premises; Repairs.  Lessor and Lessor’s agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect to Lessee’s use of the Premises.  All such activities shall be without abatement of rent or liability to Lessee.

 

33.         Auctions.  Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor’s prior written consent.  Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction. Signs.  Lessor may place on the Premises ordinary “For Sale” signs at any time and ordinary “For Lease” signs during the last 6 months of the term hereof.  Except for ordinary “for sublease” signs, Lessee shall not place any sign upon the Premises without Lessor’s prior written consent.  All signs must comply with all Applicable Requirements.

 

34.         Termination; Merger.  Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies.  Lessor’s failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor’s election to have such event constitute the termination of such interest.

 

35.         Consents.  Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed.  Lessor’s actual reasonable costs and expenses (including but not limited to architects’, attorneys’, engineers’ and other consultants’ fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor.  Lessor’s consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent.  The failure to specify herein any particular condition to Lessor’s consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given.  In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.

 

36.         Guarantor.

 

36.1       Execution.  The Guarantors, if any, shall each execute a guaranty in the form most recently published by the AIR Commercial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease.

 

36.2       Default.  It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor’s behalf to obligate Guarantor, and in the case

 

 

13



 

of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.

 

37.         Quiet Possession.  Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee’s part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

 

38.         Options.  If Lessee is granted an Option, as defined below, then the following provisions shall apply:

 

38.1       Definition.  “Option” shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

 

38.2       Options Personal To Original Lessee.  Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.

 

38.3       Multiple Options.  In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

 

38.4       Effect of Default on Options.

 

(a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option.

 

(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of Paragraph 39.4(a).

 

(c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee’s due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term or completion of the purchase, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), or (ii) if Lessee commits a Breach of this Lease.

 

39.         Multiple Buildings.  If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will abide by and conform to all reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform.  Lessee also agrees to pay its fair share of common expenses incurred in connection with such rules and regulations.

 

40.         Security Measures.  Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same.  Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

 

41.         Reservations.  Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee.  Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.

 

42.         Performance Under Protest.  If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment “under protest” and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum.  If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay.

 

43.         Authority; Multiple Parties; Execution.

 

(a)         If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf.  Each party shall, within 30 days after request, deliver to the other party satisfactory evidence of such authority.

 

(b)         If this Lease is executed by more than one person or entity as “Lessee”, each such person or entity shall be jointly and severally liable hereunder.  It is agreed that any one of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named Lessees had executed such document.

 

(c)         This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

 

44.         Conflict.  Any conflict between the printed provisions of this Lease and typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

 

45.         Offer.  Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party.  This Lease is not intended to be binding until executed and delivered by all Parties hereto.

 

46.         Amendments.  This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification.  As long as they do not materially change Lessee’s obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.

 

47.         Waiver of Jury Trial.  THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT.

 

48.         Mediation and Arbitration of Disputes.  An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease o is x is not attached to this Lease.

 

49.         Americans with Disabilities Act.  Since compliance with the Americans with Disabilities Act (ADA) is dependent upon Lessee’s specific use of the Premises, Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation.  In the event that Lessee’s use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Lessee agrees to make any such necessary modifications and/or additions at Lessee’s expense.

 

 

14



 

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO.  THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

 

ATTENTION : NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES.  THE PARTIES ARE URGED TO:

 

1.    SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

 

2.    RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES.  SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE’S INTENDED USE.

 

WARNING : IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.

 

The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

 

Executed at: Valencia, California

 

Executed at: Valencia, California

 

 

 

on: January 1 , 2004

 

on: January 1 , 2004

 

 

 

By LESSOR:

 

By LESSEE:

 

 

 

WATX Properties LLC

 

Wesco Aircraft Hardware Corp.

 

 

 

By:

/s/ Randy Snyder

 

By:

/s/ George Hess

 

 

 

Name Printed: Randy Snyder

 

Name Printed: George Hess

 

 

 

Title: Manager

 

Title: President

 

 

 

By:

/s/ George Hess

 

By:

/s/ Randy Snyder

 

 

 

Name Printed: George Hess

 

Name Printed: Randy Snyder

 

 

 

Title: Manager

 

Title: President

 

 

 

Address:

27727 Avenue Scott

 

Address:

27727 Avenue Scott

 

 

 

 

 

 

Valencia, CA 91355

 

 

Valencia, CA 91355

 

 

 

Telephone: (661) 775-7200

 

Telephone: (661) 775-7200

 

 

 

Facsimile: (661) 295-1340

 

Facsimile: (661) 295-1340

 

 

 

Federal ID No. 32-00548401

 

Federal ID No. 95-2704662

 

 

 

 

 

 

BROKER: N/A

 

BROKER: N/A

 

 

 

 

 

 

 

 

 

 

 

 

Attn:

 

 

Attn:

 

 

 

 

 

 

Title:

 

 

Title:

 

 

 

 

 

 

Address:

 

 

Address:

 

 

 

 

 

 

Telephone: (      )

 

 

Telephone: (      )

 

 

 

 

 

 

Facsimile: (      )

 

 

Facsimile: (      )

 

 

 

 

 

 

Email:

 

 

Email:

 

 

 

 

 

 

Federal ID No.

 

 

Federal ID No.

 

 

NOTE:           These forms are often modified to meet changing requirements of law and industry needs.  Always write or call to make sure you are utilizing the most current form:  AIR COMMERCIAL REAL ESTATE ASSOCIATION, 700 So. Flower Street, Suite 600, Los Angeles, California 90017.  (213) 687-8777.  Fax No. (213) 687-8616

 

 

15



 

©Copyright 2002 — By AIR Commercial Real Estate Association.  All rights reserved.
No part of these works may be reproduced in any form without permission in writing.

 

 

16


 

STANDARD LEASE ADDENDA

 

Lease Dated: January 1, 2004
By and Between (Lessor) WATX Properties, LLC
And (Lessee) Wesco Aircraft Hardware Corp.

 

50.       RENT ADJUSTMENTS .  The monthly rent for each month of the adjustment periods specified below shall be increased using the following method:

 

a)               On January 1, 2006 and each January l thereafter, the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for CPI-U (All Urban Consumers), Dallas — Ft. Worth, Texas, All items (1982-1984 = 100), herein referred to as “CPI”.

 

b)              The monthly rent payable in accordance with paragraph 51(a) of this Addendum shall be calculated as follows: the Base Rent set forth in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the CPI of the month of September preceding the calendar month during which the adjustment is to take effect, and the denominator of which shall be the CPI of September 2004.  The sum so calculated shall constitute the new monthly rent hereunder, but in no event, shall such new monthly rent be less than the rent payable for the month immediately preceding the rent adjustment.

 

c)               In the event the compilation and/or publication of the CPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the CPI shall be used to make such calculation.

 

51.       CONSTRUCTION OF IMPROVEMENTS BY LESSOR .

 

a)               Duty to Construct .  Lessor shall construct or cause to be constructed on the Premises, office and shop facilities, including bathrooms and related equipment (collectively, the “Improvements”), in the manner and according to the terms and conditions specified in this section.

 

b)              Requirement of Lessee’s Approval .  No improvement of any kind shall be constructed on the Premises unless and until the plans, specifications, and proposed location of the improvements have been approved by Lessee.  Furthermore, no improvement shall be constructed on the Premises that does not comply with plans, specifications, and locations approved by Lessee.

 

c)               Preparation and Submission of Plans .  Lessor shall engage a licensed architect or engineer to prepare plans and specifications for the Improvements to Lessee for approval, which approval shall not be unreasonably withheld or delayed.

 

d)              Payment of Construction Costs .  Lessee shall pay all costs of constructing the Improvements, including, but not limited to, fees and costs charged by architects, engineers, general contractor, subcontractors, laborers and materials.  Lessee’s liability shall be limited to the cost of square footage in excess of 3,200 square feet (8% of the total building square footage).  In lieu of actual costs, the Parties agree to use an factor of forty-five dollars ($45) per square foot.

 

e)               Time for Completion .  Lessor shall cause construction of the Improvements to be diligently pursued without unnecessary interruption, and shall cause the Improvements to be completed and ready for occupancy not later than April 30, 2004.  Lessor shall be excused for any delays in construction or commencement of construction caused by the act of Lessee, the act of any agent of Lessee, the act of any governmental authority, the act of any public enemy, acts of God, the elements, war, war defense conditions, litigation, strikes, walkouts, or other causes beyond Lessor’s control.  Lessor shall, however, use reasonable diligence to avoid any such delay and to resume construction as promptly as possible after the delay.

 

f)                 Ownership Of Improvements And Personality .  Section 7 of the Lease shall govern the matter of ownership of Improvements and personalty.

 

52.       NO PARTNERSHIP OR JOINT VENTURE .  Nothing in this Lease shall be construed to render the Lessor in any way or for any purpose a partner, joint venturer, or associate in any relationship with Lessee other than that of Lessor and Lessee, nor shall this Lease be construed to authorize either to act as agent for the other.

 

 

Initials:

/s/ R.S.

 

Initials:

/s/ G.H.

 

 

 

 

 

Initials:

/s/ G.H.

 

Initials:

/s/ R.S.

 



 

STANDARD INDUSTRIAL/COMMERCIAL

SINGLE-TENANT LEASE – NET

SECOND ADDENDA

Lease Dated: January 1, 2004

By and Between WATX Properties, LLC (Lessor) and Wesco Aircraft Hardware Corp. (Lessee)

 

The Lease is hereby supplemented and amended as follows:  Unless otherwise stated, definitions used herein are as used in the Lease.  This Addendum shall be deemed incorporated in the Lease.  In the case of any conflict, the provisions of this Addendum shall prevail.  This Addendum shall be deemed incorporated in the Lease.

 

54. Delete Paragraph 7.1(d) and replace with the following:  Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, and the repair or replacement exceeds $20,000, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is the remaining number of months of the lease, and the denominator of which is 120.  Lessee shall pay its obligation upon completion of the replacement or in progress payments, if required by the Lessor.

 

55. In Paragraph 8.1, after “$2,000,000 per occurrence”, the following words shall be added:  “or an amount as may be required by the Lender”.

 

56. In Paragraph 8.2(a), after “$2,000,000, the following words shall be added:  “or amounts as may be required by the Lender”

 

57. At the commencement of Paragraph 8.2(b) ( Carried by Lessor ), the words “Lessor shall maintain” shall be changed to “Lessor may (but shall not be obligated to) maintain”.

 

58. In Line 3 of Paragraph 8.6 ( Waiver of Subrogation ), the words “perils required to be insured against” shall be changed to “perils insured against”.

 

59. At the end of Paragraph 8 ( Insurance, Indemnity ), the following paragraph shall be added:  “8.10 Lender’s  Requirements .  Lessee agrees to comply with such amended or additional insurance requirements as may be imposed by any Lender upon Lessor in regard to the Premises.  Lessee further acknowledges, agrees and accepts that the availability of insurance or condemnation proceeds for restoration purposes shall be subject to such conditions, limitations and other provisions as may be imposed by any such Lender, and if and to the extent that insurance proceeds are not available for restoration, any such casualty may be treated by Lessor as an uninsured loss for purposes of this Lease.”

 

60. In Line 2 of Paragraph 9.1(c) (“ Insured Loss ”), the words “event required to be covered” shall be changed to “event covered”.

 

61. In Line 1 of Paragraph 9.2 ( Partial Damage-Insured Loss ), the words “Lessor shall” shall be changed to “Lessor may (but shall not be obligated to)”.

 

62. In Line 3 of Paragraph 9.2 ( Partial Damage-Insured Loss ), the words “and this Lease shall continue” shall be changed to “in which case, this Lease shall continue”.

 

63. In the second sentence of Paragraph 9.4 ( Total Destruction ), the words “caused by the gross negligence or willful misconduct of Lessee” shall be changed to “not caused by the gross negligence or willful misconduct of Lessor”.

 

64. The following sentence shall be added at the end of Paragraph 30.4 ( Self-Executing ).  “Lessee agrees to accept such limitations as may be requested by any such Lender upon such Lender’s liability under this Lease and such other conditions, requirements and provisions as may be requested by such Lender in regard to this Lease, and agrees not to hold Lessor liable for, and to indemnify and hold-harmless Lessor from and against, failure to comply with such limitations, conditions, requirements and provisions.”

 

65. The following sentences shall be added at the end of Paragraph 37.1 ( Execution ):  “In the event of an assignment, or in the event of any other transaction requiring Lessor’s consent under Paragraph 12 of the Lease, Lessor may require that a new guaranty or guaranties (collectively, the “New Guaranty”) be executed and delivered to Lessor, in the foregoing specified form, from one or more new guarantors reasonably acceptable to Lessor and otherwise in form and substance reasonably acceptable to Lessor (and, if applicable, any Lender of Lessor).  Delivery to Lessor of such required New Guaranty shall be a condition to the permissibility of any such assignment, subletting or other transaction, and failure to deliver same, immediately upon request by Lessor, shall constitute a Default and a Breach under this Lease.  Unless otherwise agreed by Lessor (and, if applicable, any Lender of Lessor), any such new guarantor(s) shall have a minimum aggregate net worth of $10,000,000.  Upon delivery to Lessor of such New Guaranty, any prior guaranty received by Lessor shall be terminated and cancelled,”

 

66. The following additional paragraph shall be added to the Lease:  “ Lender Provisions .  Upon written notice from Lessor, Lessee agrees to perform and comply with any and all obligations imposed by Lender upon Lessor in regard to the Premises, whether pursuant to Paragraph 30 of this Lease or otherwise, including any applicable tax and/or insurance impound requirements, and Lessee shall indemnify and hold harmless Lessor from and against any and all claims, liabilities, damages, losses, costs and expenses (including, without limitation, attorneys fees and costs) incurred in connection with or arising from or as a result of failure to perform or comply with any such obligations.”

 

Executed as of the date first referenced above.

 

Avenue Scott, LLC (Lessor)

 

Wesco Aircraft Hardware Corp. (Lessee)

 

 

 

By:

/s/ Randy Snyder

 

By:

/s/ Randy Snyder

 

Randy Snyder, Manager

 

 

Randy Snyder, President

 

 

 

 

 

By:

/s/ George Hess

 

By:

/s/ George Hess

 

George Hess, Manager

 

 

George Hess, Chief Financial Officer

 



 

SETTLEMENT FOR COSTS DUE IN ACCORDANCE WITH

STANDARD LEASE ADDENDUM PARAGRAPH #51

 

Lease Dated:  January 1, 2004

By and Between (Lessor) WATX Properties, LLC

And (Lessee) Wesco Aircraft Hardware Corp.

 

The Parties hereby agree that:

 

1.                As of July 15, 2004 obligations relating to paragraphs 51(a, b, c, e & f) under the above referenced addendum have been met by each party.  The liability noted in 51(c) has not been finalized.

 

2.                In accordance with the architectural drawings and as confirmed by the General Contractor (Steve Binkley of Binks Construction), the total square footage for Improvements is 10,210.  Therefore, the excess square footage (referred to in 51(c)) is 7,010 square feet.

 

3.                The Parties agree that the Lessee’s financial responsibility is $315,450.00 (7,010 x $45/square foot).

 

Therefore, the Parties agree that the Lessee is obligated to pay the sum of $315,450 to the Lessor, in full satisfaction of its obligation under paragraph 51(c).  Lessor agrees that any amounts owed by Lessor to Lessee may be offset against the final settlement.

 

 

Executed at Valencia, California this 15th day of July, 2004.

 

 

/s/ George Hess

 

/s/ George Hess

George Hess, Chief Financial Officer

 

George Hess, Manager

Wesco Aircraft

 

WATX Properties, LLC.

 




Exhibit 10.18

 

 

 

 

 

 

 

 

 

AIR COMMERCIAL REAL ESTATE ASSOCIATION

 

STANDARD INDUSTRIAL/COMMERCIAL

 

SINGLE-TENANT LEASE — NET

 

 

 

(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)

 

 

 

 

1.           Basic Provisions (“Basic Provisions”).

 

1.1         Parties.  This Lease ( “Lease” ), dated for reference purposes on January 1, 2006, is made by and between Snyder Family Living Trust ( “Lessor” ) and Wesco Aircraft Europe LTD. An English Company, incorporated and registered in England ( “Lessee” ), (collectively the “Parties , or individually a “Party” ).

 

1.2         Premises.  That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known as Unit 1, Park Mill Way, Clayton West, Huddersfield, located in the County of West Yorkshire, England, and generally described as (describe briefly the nature of the property and, if applicable, the “Project” , if the property is located within a Project) All that property as the same is more particularly described in and is the whole of the property comprised in the Head Lease and is for the purposes of identification only edged red on the plan. ( “Premises” ).  (See also Paragraph 2)

 

1.3         Term:  15 years and - months ( “Original Term” ) commencing January 1, 2006 ( “Commencement Date” ) and ending December 31, 2020 ( “Expiration Date” ).  (See also Paragraph 3)

 

1.4         Early Possession:  N/A ( “Early Possession Date” ).  (See also Paragraphs 3.2 and 3.3)

 

1.5         Base Rent:  $7,500 GBP per month ( “Base Rent” ), payable on the first day of each month commencing  January 1, 2006.  (See also Paragraph 4)

 

x If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.

 

1.6         Base Rent and Other Monies Paid Upon Execution:

 

(a)           Base Rent:  $7,500 GBP for the period January 2006.

 

(b)          Security Deposit:  $45,000 GBP ( “Security Deposit” ).  (See also Paragraph 5)

 

(c)           Association Fees:  $                          for the period                                                                          

 

(d)          Other :  $                                for                                                                       .

 

(e)           Total Due Upon Execution of this Lease:  $52,500 GBP.

 

1.7         Agreed Use:  Distribution and light manufacturing.  (See also Paragraph 6)

 

1.8         Insuring Party.  Lessor is the “Insuring Party” unless otherwise stated herein.  (See also Paragraph 8)

 

1.9         Real Estate Brokers:  (See also Paragraph 15)

 

(a)  Representation.  The following real estate brokers (the “Brokers” ) and brokerage relationships exist in this transaction (check applicable boxes):

 

o                                                                                                         represents Lessor exclusively ( “Lessor’s Broker” );

 

o                                                                                                         represents Lessee exclusively ( “Lessee’s Broker” ); or

 

o                                                                                                         represents both Lessor and Lessee ( “Dual Agency” ).

 

(b)  Payment to Brokers.  Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their separate written agreement (or if there is no such agreement, the sum of            or           % of the total Base Rent) for the brokerage services rendered by the Brokers.

 

1.10       Guarantor.  The obligations of the Lessee under this Lease are to be guaranteed by

 

                                                                                                                     ( “Guarantor” ).  (See also Paragraph 37)

 

1.11       Attachments.  Attached hereto are the following, all of which constitute a part of this Lease:

 

x an Addendum consisting of Paragraphs 51 through         ;

 

o a plot plan depicting the Premises;

 

o a current set of the Rules and Regulations;

 

o a Work Letter;

 

o other (specify):                                                                                                       .

 

2.           Premises.

 

2.1         Letting.  Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease.  Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less.  Note:  Lessee is advised to verify the actual size prior to executing this Lease.

 

2.2         Condition.  Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs ( “Start Date” ), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems (“ HVAC” ), loading doors, sump pumps, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on said date and that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the “Building” ) shall be free of material defects.  If a non-compliance with said warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessor’s sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor’s expense.  The warranty periods shall be as follows:  (i) 6 months as to the HVAC systems, and (ii) 30 days as to the remaining systems and other elements of the Building.  If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee’s sole cost and expense.

 

2.3         Compliance.  Lessor warrants that the improvements on the Premises comply with the building codes, applicable laws, covenants or restrictions of record, regulations, and ordinances ( “Applicable Requirements” ) that were in effect at the time that each improvement, or portion thereof, was constructed.  Said warranty does not apply to the use to which Lessee will put the Premises,

 

 

1



 

modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee’s use (see Paragraph 50), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee.  NOTE:  Lessee is responsible for determining whether or not the Applicable Requirements, and especially the zoning, are appropriate for Lessee’s intended use, and acknowledges that past uses of the Premises may no longer be allowed.  If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor’s expense.  If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee’s sole cost and expense.  If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building ( “Capital Expenditure” ), Lessor and Lessee shall allocate the cost of such work as follows:

 

(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months’ Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee’s termination notice that Lessor has elected to pay the difference between the actual cost thereof and an amount equal to 6 months’ Base Rent.  If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter.  Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

 

(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for such costs pursuant to the provisions of Paragraph 7.1(d); provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor’s termination notice that Lessee will pay for such Capital Expenditure.  If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor’s share of such costs have been fully paid.  If Lessee is unable to finance Lessor’s share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor.

 

(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements.  If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either:  (i) immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense.  Lessee shall not, however, have any right to terminate this Lease.

 

2.4         Acknowledgements.  Lessee acknowledges that:  (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Lessee’s intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor’s agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease.  In addition, Lessor acknowledges that:  (i) Brokers have made no representations, promises or warranties concerning Lessee’s ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor’s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

 

2.5         Lessee as Prior Owner/Occupant.  The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises.  In such event, Lessee shall be responsible for any necessary corrective work.

 

3.           Term.

 

3.1         Term.  The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.

 

3.2         Early Possession.  If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession.  All other terms of this Lease (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period.  Any such early possession shall not affect the Expiration Date.

 

3.3         Delay In Possession.  Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date.  If, despite said efforts, Lessor is unable to deliver possession by such date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease.  Lessee shall not, however, be obligated to pay Rent or perform its other obligations until Lessor delivers possession of the Premises and any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee.  If possession is not delivered within 60 days after the Commencement Date, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder.  If such written notice is not received by Lessor within said 10 day period, Lessee’s right to cancel shall terminate.  If possession of the Premises is not delivered within 120 days after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.

 

3.4         Lessee Compliance.  Lessor shall not be required to deliver possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5).  Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor’s election to withhold possession pending receipt of such evidence of insurance.  Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.

 

4.           Rent.

 

4.1         Rent Defined.  All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ( “Rent” ).

 

4.2         Payment.  Lessee shall cause payment of Rent to be received by Lessor in lawful money of England on or before the day on which it is due, without offset or deduction (except as specifically permitted in this Lease).  Rent for any period during the term

 

 

2



 

hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month.  Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing.  Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor’s rights to the balance of such Rent, regardless of Lessor’s endorsement of any check so stating.  In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of 25 GBP in addition to any Late Charge and Lessor, at its option, may require all future payments to be made by Lessee to be by cashier’s check.  Payments will be applied first to accrued late charges and attorney’s fees, second to accrued interest, then to Base Rent and Operating Expense Increase, and any remaining amount to any other outstanding charges or costs.

 

4.3         Association Fees.  In addition to the Base Rent, Lessee shall pay to Lessor each month an amount equal to any owner’s association or condominium fees levied or assessed against the Premises.  Said monies shall be paid at the same time and in the same manner as the Base Rent.

 

5.           Security Deposit.  Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee’s faithful performance of its obligations under this Lease.  If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof.  If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease.  If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent.  Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor’s reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof.  If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor’s reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition.  Lessor shall not be required to keep the Security Deposit separate from its general accounts.  Within 14 days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within 30 days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor.  No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.

 

6.           Use.

 

6.1         Use.  Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose.  Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties.  Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises.  If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor’s objections to the change in the Agreed Use.

 

6.2         Hazardous Substances.

 

(a)  Reportable Uses Require Consent.  The term “Hazardous Substance” as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either:  (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory.  Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof.  Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee’s expense) with all Applicable Requirements.  “Reportable Use” shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties.  Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor.  In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.

 

(b)  Duty to Inform Lessor.  If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.

 

(c)  Lessee Remediation.  Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee’s expense, comply with all Applicable Requirements and take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.

 

(d)  Lessee Indemnification.  Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys’ and consultants’ fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party.  Lessee’s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.  No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.

 

 

3



 

(f)  Investigations and Remediations.  Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to Lessee’s occupancy, unless such remediation measure is required as a result of Lessee’s use (including “Alterations”, as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment.  Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor’s agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor’s investigative and remedial responsibilities.

 

(g)  Lessor Termination Option.  If a Hazardous Substance Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor’s rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor’s option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor’s desire to terminate this Lease as of the date 60 days following the date of such notice.  In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee’s commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater.  Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment.  In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available.  If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor’s notice of termination.

 

6.3         Lessee’s Compliance with Applicable Requirements.  Except as otherwise provided in this Lease, Lessee shall, at Lessee’s sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor’s engineers and/or consultants which relate in any manner to the such Requirements, without regard to whether such Requirements are now in effect or become effective after the Start Date.  Lessee shall, within 10 days after receipt of Lessor’s written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee’s compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements.

 

6.4         Inspection; Compliance.  Lessor and Lessor”s “Lender” (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease.  The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a Hazardous Substance Condition (see paragraph 9.1) is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority.  In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination.  In addition, Lessee shall provide copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the receipt of a written request therefor.

 

7.           Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations.

 

7.1         Lessee’s Obligations.

 

(a)  In General.  Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee’s Compliance with Applicable Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee’s sole expense, keep the Premises, Utility Installations (intended for Lessee’s exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee’s use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (interior and exterior), foundations, ceilings, roofs, roof drainage systems, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, or adjacent to the Premises.  Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below.  Lessee’s obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair.  Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition (including, e.g. graffiti removal) consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the exterior repainting of the Building.

 

(b)  Service Contracts.  Lessee shall, at Lessee’s sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises:  (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drains, (vi) clarifiers (vii) basic utility feed to the perimeter of the Building, and (viii) any other equipment, if reasonably required by Lessor.  However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof.

 

(c)  Failure to Perform.  If Lessee fails to perform Lessee’s obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days’ prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee’s behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly pay to Lessor a sum equal to 115% of the cost thereof.

 

(d)  Replacement.  Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (ie. 1/144th of the cost per month).  Lessee shall pay interest on the unamortized balance at a rate that is commercially reasonable in the judgment of Lessor’s accountants.  Lessee may, however, prepay its obligation at any time.

 

7.2         Lessor’s Obligations.  Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee.  It is the

 

 

4



 

intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.

 

7.3         Utility Installations; Trade Fixtures; Alterations.

 

(a)  Definitions.  The term “Utility Installations” refers to all floor and window coverings, air and/or vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises.  The term “Trade Fixtures” shall mean Lessee’s machinery and equipment that can be removed without doing material damage to the Premises.  The term “Alterations” shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion.  “Lessee Owned Alterations and/or Utility Installations” are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).

 

(b)  Consent.  Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor’s prior written consent.  Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, will not affect the electrical, plumbing, HVAC, and/or life safety systems, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month’s Base Rent in the aggregate or a sum equal to one month’s Base Rent in any one year.  Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor.  Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor.  Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans.  Consent shall be deemed conditioned upon Lessee’s:  (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner.  Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials.  Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications.  For work which costs an amount in excess of one month’s Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee’s posting an additional Security Deposit with Lessor.

 

(c)  Liens; Bonds.  Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic’s or materialmen’s lien against the Premises or any interest therein.  Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility.  If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof.  If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same.  If Lessor elects to participate in any such action, Lessee shall pay Lessor’s attorneys’ fees and costs.

 

7.4         Ownership; Removal; Surrender; and Restoration.

 

(a)  Ownership.  Subject to Lessor’s right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises.  Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations.  Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.

 

(b)  Removal.  By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease.  Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.

 

(c)  Surrender; Restoration.  Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted.  “Ordinary wear and tear” shall not include any damage or deterioration that would have been prevented by good maintenance practice.  Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear.  Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee.  Lessee shall completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Premises, or if applicable, the Project) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements.  Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee.  Any personal property of Lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire.  The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.

 

8.           Insurance; Indemnity.

 

8.1         Payment For Insurance.  Lessee shall pay for all insurance required under Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of 2,000,000 GBP per occurrence.  Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term.  Payment shall be made by Lessee to Lessor within 10 days following receipt of an invoice.

 

8.2         Liability Insurance.

 

(a)  Carried by Lessee.  Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto.  Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than 1,000,000 GBP per occurrence with an annual aggregate of not less than 2,000,000 GBP, an “Additional Insured-Managers or Lessors of Premises Endorsement” and contain the “Amendment of the Pollution Exclusion Endorsement” for damage caused by heat, smoke or fumes from a hostile fire.  The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an “insured contract” for the performance of Lessee’s indemnity obligations under this Lease.  The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder.  All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

 

 

5



 

(b)  Carried by Lessor.  Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee.  Lessee shall not be named as an additional insured therein.

 

8.3         Property Insurance - Building, Improvements and Rental Value.

 

(a)  Building and Improvements.  The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises.  The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof.  If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee’s personal property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor.  If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss.  Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located.  If such insurance coverage has a deductible clause, the deductible amount shall not exceed 1,000 GBP per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss.

 

(b)  Rental Value.  The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days (“Rental Value insurance”).  Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period.  Lessee shall be liable for any deductible amount in the event of such loss.

 

(c)  Adjacent Premises.  If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee’s acts, omissions, use or occupancy of the Premises.

 

8.4         Lessee’s Property; Business Interruption Insurance.

 

(a)  Property Damage.  Lessee shall obtain and maintain insurance coverage on all of Lessee’s personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations.  Such insurance shall be full replacement cost coverage with a deductible of not to exceed 1,000 GBP per occurrence.  The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations.  Lessee shall provide Lessor with written evidence that such insurance is in force.

 

(b)  Business Interruption.  Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

 

(c)  No Representation of Adequate Coverage.  Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee’s property, business operations or obligations under this Lease.

 

8.5         Insurance Policies.  Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a “General Policyholders Rating” of at least B+, V, as set forth in the most current issue of “Best’s Insurance Guide”, or such other rating as may be required by a Lender.  Lessee shall not do or permit to be done anything which invalidates the required insurance policies.  Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance.  No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor.  Lessee shall, at least 30 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or “insurance binders” evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand.  Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less.  If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

 

8.6         Waiver of Subrogation.  Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein.  The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto.  The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.

 

8.7         Indemnity.  Except for Lessor’s gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys’ and consultants’ fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee.  If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.  Lessor need not have first paid any such claim in order to be defended or indemnified.

 

8.8         Exemption of Lessor from Liability.  Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee’s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places.  Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor nor from the failure of Lessor to enforce the provisions of any other lease in the Project.  Notwithstanding Lessor’s negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee’s business or for any loss of income or profit therefrom.

 

8.9         Failure to Provide Insurance.  Lessee acknowledges that any failure on its part to obtain or maintain the insurance required herein will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain.  Accordingly, for any month or portion thereof that Lessee does not maintain the required insurance and/or does not provide Lessor with the required binders or certificates evidencing the existence of the required insurance, the Base Rent shall be automatically increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100, whichever is greater.  The parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/ costs that Lessor will incur by reason of Lessee’s failure to maintain the required insurance.  Such

 

 

6



 

increase in Base Rent shall in no event constitute a waiver of Lessee’s Default or Breach with respect to the failure to maintain such insurance, prevent the exercise of any of the other rights and remedies granted hereunder, nor relieve Lessee of its obligation to maintain the insurance specified in this Lease.

 

9.           Damage or Destruction.

 

9.1         Definitions.

 

(a)  “Premises Partial Damage” shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 6 months or less from the date of the damage or destruction.  Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

 

(b)  “Premises Total Destruction” shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 6 months or less from the date of the damage or destruction.  Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

 

(c)  “Insured Loss” shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

 

(d)  “Replacement Cost” shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

 

(e)  “Hazardous Substance Condition” shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises which requires repair, remediation, or restoration.

 

9.2         Partial Damage - Insured Loss.  If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor’s expense, repair such damage (but not Lessee’s Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor’s election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose.  Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee’s responsibility) as and when required to complete said repairs.  In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor.  If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect.  If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to:  (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter.  Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction.  Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

 

9.3         Partial Damage - Uninsured Loss.  If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee’s expense), Lessor may either:  (i) repair such damage as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage.  Such termination shall be effective 60 days following the date of such notice.  In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee’s commitment to pay for the repair of such damage without reimbursement from Lessor.  Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment.  In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available.  If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.

 

9.4         Total Destruction.  Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction.  If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor’s damages from Lessee, except as provided in Paragraph 8.6.

 

9.5         Damage Near End of Term.  If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month’s Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage.  Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee’s receipt of Lessor’s written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires.  If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor’s commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect.  If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee’s option shall be extinguished.

 

9.6         Abatement of Rent; Lessee’s Remedies.

 

(a)  Abatement.  In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee’s use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance.  All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

 

(b)  Remedies.  If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of

 

 

7



 

Lessee’s election to terminate this Lease on a date not less than 60 days following the giving of such notice.  If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice.  If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect.  “Commence” shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

 

9.7         Termination; Advance Payments.  Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor.  Lessor shall, in addition, return to Lessee so much of Lessee’s Security Deposit as has not been, or is not then required to be, used by Lessor.

 

9.8         Waive Statutes.  Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.

 

10.         Real Property Taxes.

 

10.1       Definition.  As used herein, the term “Real Property Taxes” shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises or the Project, Lessor’s right to other income therefrom, and/or Lessor’s business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located.  Real Property Taxes shall also include any tax, fee, levy, assessment or charge, or any increase therein:  (i) imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Premises, and (ii) levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease.

 

10.2       Payment of Taxes.  In addition to Base Rent, Lessee shall pay to Lessor an amount equal to the Real Property Tax installment due at least 20 days prior to the applicable delinquency date.  If any such installment shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee’s share of such installment shall be prorated.  In the event Lessee incurs a late charge on any Rent payment, Lessor may estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee monthly in advance with the payment of the Base Rent.  Such monthly payments shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes delinquent.  When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes.  If the amount collected by Lessor is insufficient to pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such additional sum as is necessary.  Advance payments may be intermingled with other moneys of Lessor and shall not bear interest.  In the event of a Breach by Lessee in the performance of its obligations under this Lease, then any such advance payments may be treated by Lessor as an additional Security Deposit.

 

10.3       Joint Assessment.  If the Premises are not separately assessed, Lessee’s liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor’s work sheets or such other information as may be reasonably available.

 

10.4       Personal Property Taxes.  Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee.  When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor.  If any of Lessee’s said property shall be assessed with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee’s property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee’s property.

 

11.         Utilities and Services.  Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon.  If any such services are not separately metered or billed to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered or billed.  There shall be no abatement of rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor’s reasonable control or in cooperation with governmental request or directions.

 

12.         Assignment and Subletting.

 

12.1       Lessor’s Consent Required.

 

(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, “assign or assignment” ) or sublet all or any part of Lessee’s interest in this Lease or in the Premises without Lessor’s prior written consent.

 

(b) Unless Lessee is a corporation and its stock is publicly traded on a national stock exchange, a change in the control of Lessee shall constitute an assignment requiring consent.  The transfer, on a cumulative basis, of 25% or more of the voting control of Lessee shall constitute a change in control for this purpose.

 

(c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee’s assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent.  “Net Worth of Lessee” shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

 

(d) An assignment or subletting without consent shall, at Lessor’s option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period.  If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either:  (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect.  Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.

 

(e) Lessee’s remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

 

12.2       Terms and Conditions Applicable to Assignment and Subletting.

 

(a) Regardless of Lessor’s consent, no assignment or subletting shall:  (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations

 

 

8



 

hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

 

(b) Lessor may accept Rent or performance of Lessee’s obligations from any person other than Lessee pending approval or disapproval of an assignment.  Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor’s right to exercise its remedies for Lessee’s Default or Breach.

 

(c) Lessor’s consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

 

(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee’s obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor’s remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor.

 

(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor’s determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 as consideration for Lessor’s considering and processing said request.  Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested.  (See also Paragraph 36)

 

(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

 

(g) Lessor’s consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing.  (See Paragraph 39.2)

 

12.3       Additional Terms and Conditions Applicable to Subletting.  The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

 

(a) Lessee hereby assigns and transfers to Lessor all of Lessee’s interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee’s obligations, Lessee may collect said Rent.  In the event that the amount collected by Lessor exceeds Lessee’s obligations any such excess shall be refunded to Lessee.  Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee’s obligations to such sublessee.  Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee’s obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease.  Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

 

(b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

 

(c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.

 

(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor’s prior written consent.

 

(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice.  The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.

 

13.         Default; Breach; Remedies.

 

13.1       Default; Breach.  A “Default” is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease.  A “Breach” is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:

 

(a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

 

(b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee.

 

(c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42, (viii) material safety data sheets (MSDS), or (ix) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee.

 

(d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee’s Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.

 

(e) The occurrence of any of the following events:  (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a “debtor” as defined in 11 U.S.C. §101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

 

(f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.

 

(g) If the performance of Lessee’s obligations under this Lease is guaranteed:  (i) the death of a Guarantor, (ii) the termination of a Guarantor’s liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a

 

 

9



 

Guarantor’s becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor’s refusal to honor the guaranty, or (v) a Guarantor’s breach of its guaranty obligation on an anticipatory basis, and Lessee’s failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

 

13.2       Remedies.  If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee’s behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals.  Lessee shall pay to Lessor an amount equal to 115% of the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor.  In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

 

(a) Terminate Lessee’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor.  In such event Lessor shall be entitled to recover from Lessee:  (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease.  The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Lessor is located at the time of award plus one percent.  Efforts by Lessor to mitigate damages caused by Lessee’s Breach of this Lease shall not waive Lessor’s right to recover damages under Paragraph 12.  If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit.  If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1.  In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

 

(b) Continue the Lease and Lessee’s right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations.  Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor’s interests, shall not constitute a termination of the Lessee’s right to possession.

 

(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located.  The expiration or termination of this Lease and/or the termination of Lessee’s right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee’s occupancy of the Premises.

 

13.3       Inducement Recapture.  Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee’s entering into this Lease, all of which concessions are hereinafter referred to as “Inducement Provisions,” shall be deemed conditioned upon Lessee’s full and faithful performance of all of the terms, covenants and conditions of this Lease.  Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee.  The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.

 

13.4       Late Charges.   Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain.  Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender.  Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall immediately pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater.  The Parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment.  Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee’s Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder.  In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor’s option, become due and payable quarterly in advance.

 

13.5       Interest.  Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments.  The interest ( “Interest” ) charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law.  Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

 

13.6       Breach by Lessor.

 

(a)  Notice of Breach.  Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor.  For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor’s obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.

 

(b)  Performance by Lessee on Behalf of Lessor.  In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee’s expense and offset from Rent the actual and reasonable cost to perform such cure, provided however, that such offset shall not exceed an amount equal to the greater of one month’s Base Rent or the Security Deposit, reserving Lessee’s right to seek reimbursement from Lessor.  Lessee shall document the cost of said cure and supply said documentation to Lessor.

 

 

10


 

14.        Condemnation.  If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively “Condemnation” ), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs.  If more than 10% of the Building, or more than 25% of that portion of the Premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee’s option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession.  If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation.  Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee’s relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph.  All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor.  In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.

 

15.        Brokerage Fees.

 

15.1      Additional Commission.  In addition to the payments owed pursuant to Paragraph 1.9 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that:  (a) if Lessee exercises any Option, (b) if Lessee acquires any rights to the Premises or other premises owned by Lessor and located within the same Project, if any, within which the Premises is located, (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of the Brokers in effect at the time of the execution of this Lease.

 

15.2      Assumption of Obligations.  Any buyer or transferee of Lessor’s interest in this Lease shall be deemed to have assumed Lessor’s obligation hereunder.  Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.9, 15, 22 and 31.  If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue Interest.  In addition, if Lessor fails to pay any amounts to Lessee’s Broker when due, Lessee’s Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent.  In addition, Lessee’s Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor’s Broker for the limited purpose of collecting any brokerage fee owed.

 

15.3      Representations and Indemnities of Broker Relationships.  Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder’s fee in connection herewith.  Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys’ fees reasonably incurred with respect thereto.

 

16.        Estoppel Certificates.

 

(a) Each Party (as “Responding Party” ) shall within 10 days after written notice from the other Party (the “Requesting Party” ) execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current “Estoppel Certificate” form published by the AIR Commercial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

 

(b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that:  (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party’s performance, and (iii) if Lessor is the Requesting Party, not more than one month’s rent has been paid in advance.  Prospective purchasers and encumbrancers may rely upon the Requesting Party’s Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.

 

(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee’s financial statements for the past 3 years.  All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.

 

17.        Definition of Lessor.  The term “Lessor” as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee’s interest in the prior lease.  In the event of a transfer of Lessor’s title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor.  Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor.  Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.

 

18.        Severability.  The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

 

19.        Days.  Unless otherwise specifically indicated to the contrary, the word “days” as used in this Lease shall mean and refer to calendar days.

 

20.        Limitation on Liability.  The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor or its partners, members, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor’s partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction.

 

21.        Time of Essence.  Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

 

22.        No Prior or Other Agreements; Broker Disclaimer.  This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective.  Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises.  Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party.  The liability (including court costs and attorneys’ fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received

 

 

11



 

by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

 

23.        Notices.

 

23.1      Notice Requirements.  All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23.  The addresses noted adjacent to a Party’s signature on this Lease shall be that Party’s address for delivery or mailing of notices.  Either Party may by written notice to the other specify a different address for notice, except that upon Lessee’s taking possession of the Premises, the Premises shall constitute Lessee’s address for notice.  A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

 

23.2      Date of Notice.  Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon.  If sent by regular mail the notice shall be deemed given 48 hours after the same is addressed as required herein and mailed with postage prepaid.  Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier.  Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail.  If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

 

24.        Waivers.  No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof.  Lessor’s consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor’s consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent.  The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee.  Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

 

25.        Disclosures Regarding The Nature of a Real Estate Agency Relationship.

 

(a)        When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction.  Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows:

 

(i)         Lessor’s Agent.   A Lessor’s agent under a listing agreement with the Lessor acts as the agent for the Lessor only.  A Lessor’s agent or subagent has the following affirmative obligations:  To the Lessor :  A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor.  To the Lessee and the Lessor :  a. Diligent exercise of reasonable skills and care in performance of the agent’s duties.  b. A duty of honest and fair dealing and good faith.  c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties.  An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

 

(ii)        Lessee’s Agent .  An agent can agree to act as agent for the Lessee only.  In these situations, the agent is not the Lessor’s agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor.  An agent acting only for a Lessee has the following affirmative obligations.  To the Lessee :  A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee.   To the Lessee and the Lessor :  a. Diligent exercise of reasonable skills and care in performance of the agent’s duties.  b. A duty of honest and fair dealing and good faith.  c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties.  An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

 

(iii)       Agent Representing Both Lessor and Lessee .  A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee.  In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee:  a.  A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee.  b. Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii).  In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered.  The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests.  Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction.  A real estate agent is a person qualified to advise about real estate.  If legal or tax advice is desired, consult a competent professional.

 

(b)        Brokers have no responsibility with respect to any default or breach hereof by either Party.  The liability (including court costs and attorneys’ fees), of any Broker with respect to any breach of duty, error or omission relating to this Lease shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

 

(c)        Lessor and Lessee agree to identify to Brokers as “Confidential” any communication or information given Brokers that is considered by such Party to be confidential.

 

26.        No Right To Holdover.  Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease.  In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination.  Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.

 

27.        Cumulative Remedies.  No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

 

28.        Covenants and Conditions; Construction of Agreement.  All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions.  In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease.  Whenever required by the context, the singular shall include the plural and vice versa.  This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

 

29.        Binding Effect; Choice of Law.  This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Lessor is located.  Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Lessor is located.

 

 

12



 

30.        Subordination; Attornment; Non-Disturbance.

 

30.1      Subordination.  This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, “Security Device” ), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof.  Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as “Lender” ) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease.  Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.

 

30.2      Attornment.  In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of such new owner, this Lease shall automatically become a new Lease between Lessee and such new owner, upon all of the terms and conditions hereof, for the remainder of the term hereof, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor’s obligations hereunder, except that such new owner shall not:  (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month’s rent, or (d) be liable for the return of any security deposit paid to any prior lessor.

 

30.3      Non-Disturbance.  With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee’s subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a “Non-Disturbance Agreement” ) from the Lender which Non-Disturbance Agreement provides that Lessee’s possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises.  Further, within 60 days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises.  In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee’s option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.

 

30.4      Self-Executing.  The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

 

31.        Attorneys’ Fees.  If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees.  Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment.  The term, “Prevailing Party” shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense.  The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees reasonably incurred.  In addition, Lessor shall be entitled to attorneys’ fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation).

 

32.        Lessor’s Access; Showing Premises; Repairs.  Lessor and Lessor’s agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect to Lessee’s use of the Premises.  All such activities shall be without abatement of rent or liability to Lessee.

 

33.        Auctions.  Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor’s prior written consent.  Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.

 

34.        Signs.  Lessor may place on the Premises ordinary “For Sale” signs at any time and ordinary “For Lease” signs during the last 6 months of the term hereof.  Except for ordinary “for sublease” signs, Lessee shall not place any sign upon the Premises without Lessor’s prior written consent.  All signs must comply with all Applicable Requirements.

 

35.        Termination; Merger.  Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies.  Lessor’s failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor’s election to have such event constitute the termination of such interest.

 

36.        Consents.  Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed.  Lessor’s actual reasonable costs and expenses (including but not limited to architects’, attorneys’, engineers’ and other consultants’ fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor.  Lessor’s consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent.  The failure to specify herein any particular condition to Lessor’s consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given.  In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.

 

37.        Guarantor.

 

37.1      Execution.  The Guarantors, if any, shall each execute a guaranty in the form most recently published by the AIR Commercial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease.

 

37.2      Default.  It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide:  (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor’s behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.

 

 

13



 

38.        Quiet Possession.  Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee’s part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

 

39.        Options.  If Lessee is granted an Option, as defined below, then the following provisions shall apply:

 

39.1      Definition.  “Option” shall mean:  (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

 

39.2      Options Personal To Original Lessee.  Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.

 

39.3      Multiple Options.  In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

 

39.4      Effect of Default on Options.

 

(a) Lessee shall have no right to exercise an Option:  (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option.

 

(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of Paragraph 39.4(a).

 

(c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee’s due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term or completion of the purchase, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), or (ii) if Lessee commits a Breach of this Lease.

 

40.        Multiple Buildings.  If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will abide by and conform to all reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform.  Lessee also agrees to pay its fair share of common expenses incurred in connection with such rules and regulations.

 

41.        Security Measures.  Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same.  Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

 

42.        Reservations.  Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee.  Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.

 

43.        Performance Under Protest.  If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment “under protest” and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum.  If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay.

 

44.        Authority; Multiple Parties; Execution.

 

(a)        If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individualexecuting this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf.  Each party shall, within 30 days after request, deliver to the other party satisfactory evidence of such authority.

 

(b)        If this Lease is executed by more than one person or entity as “Lessee”, each such person or entity shall be jointly and severally liable hereunder.  It is agreed that any one of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named Lessees had executed such document.

 

(c)        This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

 

45.        Conflict.  Any conflict between the printed provisions of this Lease and typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

 

46.        Offer.  Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party.  This Lease is not intended to be binding until executed and delivered by all Parties hereto.

 

47.        Amendments.  This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification.  As long as they do not materially change Lessee’s obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.

 

48.        Waiver of Jury Trial.  THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT.

 

49.        Mediation and Arbitration of Disputes.  An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease o is x is not attached to this Lease.

 

50.        Americans with Disabilities Act.  Since compliance with the Americans with Disabilities Act (ADA) is dependent upon Lessee’s specific use of the Premises, Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation.  In the event that Lessee’s use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Lessee agrees to make any such necessary modifications and/or additions at Lessee’s expense.

 

 

14



 

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO.  THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

 

ATTENTION :  NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES.  THE PARTIES ARE URGED TO:

 

1.   SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

 

2.   RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES.  SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO:  THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE’S INTENDED USE.

 

WARNING :  IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.

 

The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

 

Executed at: Los Angeles County, California

 

Executed at: Los Angeles County, California

 

 

 

on: January 1 , 2006

 

on: January 1 , 2006

 

 

 

By LESSOR:

 

By LESSEE:

 

 

 

Snyder Family Living Trust

 

Wesco Aircraft Europe, LTD.

 

 

 

By:

          /s/ Randy Snyder

 

By:

              /s/ George Hess

 

 

 

Name Printed: Randy Snyder

 

Name Printed: George Hess

 

 

 

Title: Trustee

 

Title: Company Secretary

 

 

 

By:

 

 

By:

 

 

 

 

Name Printed:

 

 

Name Printed:

 

 

 

 

Title:

 

 

Title:

 

 

 

 

Address: 27727 Avenue Scott

 

Address: Same as premises

 

 

 

               Valencia, CA 91355

 

 

 

 

 

Telephone: (661) 775-7200

 

Telephone: (661) 775-7200

 

 

 

Facsimile: (661) 295-1340

 

Facsimile: (661) 295-1340

 

 

 

Federal ID No. 557-42-5337

 

Company # 1857310

 

 

 

 

 

 

BROKER: N/A

 

BROKER: N/A

 

 

 

 

 

 

Attn:

 

Attn:

 

 

 

Title:

 

Title:

 

 

 

Address:

 

Address:

 

 

 

Telephone: (      )

 

Telephone: (      )

 

 

 

Facsimile: (      )

 

Facsimile: (      )

 

 

 

Email:

 

Email:

 

 

 

Federal ID No.

 

Federal ID No.

 

NOTE:    These forms are often modified to meet changing requirements of law and industry needs.  Always write or call to make sure you are utilizing the most current form:  AIR COMMERCIAL REAL ESTATE ASSOCIATION, 700 So. Flower Street, Suite 600, Los Angeles, California 90017.  (213) 687-8777.  Fax No. (213) 687-8616

 

 

 

15


 

STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-TENANT LEASE — NET
First Addenda to Lease Dated:  January 1, 2006
By and Between
Snyder Family Living Trust (Lessor) and Wesco Aircraft Europe, Ltd. (Lessee)

 

The Lease is hereby supplemented and amended as follows:  Unless otherwise stated, definitions used herein are as used in the Lease.  This Addendum shall be deemed incorporated in the Lease.  In the case of any conflict, the provisions of this Addendum shall prevail.  This Addendum shall be deemed incorporated in the Lease.

 

51.       Rent Adjustments .  The monthly rent for each month of the adjustment periods specified below shall be increased using the following method:

 

a)               On January 1, 2007 and each January 1 st  thereafter, the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the “All Items” index figure of the “Index of Retail Prices” or “RPI”, Published by the Dept of Employment (England).

 

b)              The monthly rent payable in accordance with paragraph 51(a) of this Addendum shall be calculated as follows:  the Base Rent set forth in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the RPI of the month of September preceding the calendar month during which the adjustment is to take effect, and the denominator of which shall be the RPI of September 2005.  The sum so calculated shall constitute the new monthly rent hereunder, but in no event, shall such new monthly rent be less than the rent payable for the month immediately preceding the rent adjustment.

 

c)               In the event the compilation and/or publication of the RPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the RPI shall be used to make such calculation.

 

52.       No Partnership Or Joint Venture .  Nothing in this Lease shall be construed to render the Lessor in any way or for any purpose a partner, joint venturer, or associate in any relationship with Lessee other than that of Lessor and Lessee, nor shall this Lease be construed to authorize either to act as agent for the other.  Neither party has any fiduciary relationship hereunder to the other.

 

53.       Add Paragraph 4.4 Taxes and Fees.  In addition to the Rent, Lessee is responsible for all other taxes and fees (except for income taxes assessed upon the Lessor) including VAT, costs in connection with the registration of this Lease and any costs or fees associated with any Head Lease.

 

54.       Delete Paragraph 7.1(d) and replace with the following:  Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, and the repair or replacement exceeds £10,000, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is the remaining number of months of the lease, and the denominator of which is 120.  Lessee shall pay its obligation upon completion of the replacement or in progress payments, if required by the Lessor.

 

55.       In Paragraph 8.1, after “£2,000,000 per occurrence”, the following words shall be added:  “or an amount as may be required by the Lender”.

 

56.       In Paragraph 8.2(a), after “£2,000,000, the following words shall be added:  “or amounts as may be required by the Lender”.

 

57.       At the commencement of Paragraph 8.2(b) ( Carried by Lessor ), the words “Lessor shall maintain” shall be changed to “Lessor may (but shall not be obligated to) maintain”.

 

58.       In Line 3 of Paragraph 8.6 ( Waiver of Subrogation ), the words “perils required to be insured against” shall be changed to “perils insured against”.

 

59.       At the end of Paragraph 8 ( Insurance, Indemnity ), the following paragraph shall be added:  “8.10 Lender’s Requirements .  Lessee agrees to comply with such amended or additional insurance requirements as may be imposed by any Lender upon Lessor in regard to the Premises.  Lessee further acknowledges, agrees and accepts that the availability of insurance or condemnation proceeds for restoration purposes shall be subject to such conditions, limitations and other provisions as may be imposed by any such Lender, and if and to the extent that insurance proceeds are not available for restoration, any such casualty may be treated by Lessor as an uninsured loss for purposes of this Lease.”

 

60.       In Line 2 of Paragraph 9.1(c) (“ Insured Loss ”), the words “event required to be covered” shall be changed to “event covered”.

 

61.       In Line 1 of Paragraph 9.2 ( Partial Damage-Insured Loss ), the words “Lessor shall” shall be changed to “Lessor may (but shall not be obligated to)”.

 

62.       In Line 3 of Paragraph 9.2 ( Partial Damage-Insured Loss ), the words “and this Lease shall continue” shall be changed to “in which case, this Lease shall continue”.

 

1



 

63.       In the second sentence of Paragraph 9.4 ( Total Destruction ), the words “caused by the gross negligence or willful misconduct of Lessee” shall be changed to “not caused by the gross negligence or willful misconduct of Lessor”.

 

64.       The following sentence shall be added at the end of Paragraph 30.4 ( Self-Executing ).  “Lessee agrees to accept such limitations as may be requested by any such Lender upon such Lender’s liability under this Lease and such other conditions, requirements and provisions as may be requested by such Lender in regard to this Lease, and agrees not to hold Lessor liable for, and to indemnify and hold harmless Lessor from and against, failure to comply with such limitations, conditions, requirements and provisions.”

 

65.       The following sentences shall be added at the end of Paragraph 37.1 ( Execution ):  “In the event of an assignment, or in the event of any other transaction requiring Lessor’s consent under Paragraph 12 of the Lease, Lessor may require that a new guaranty or guaranties (collectively, the “New Guaranty”) be executed and delivered to Lessor, in the foregoing specified form, from one or more new guarantors reasonably acceptable to Lessor and otherwise in form and substance reasonably acceptable to Lessor (and, if applicable, any Lender of Lessor).  Delivery to Lessor of such required New Guaranty shall be a condition to the permissibility of any such assignment, subletting or other transaction, and failure to deliver same, immediately upon request by Lessor, shall constitute a Default and a Breach under this Lease.  Unless otherwise agreed by Lessor (and, if applicable, any Lender of Lessor), any such new guarantor(s) shall have a minimum aggregate net worth of $10,000,000.  Upon delivery to Lessor of such New Guaranty, any prior guaranty received by Lessor shall be terminated and cancelled,”

 

66.       The following additional paragraph shall be added to the Lease:  “ Lender Provisions .  Upon written notice from Lessor, Lessee agrees to perform and comply with any and all obligations imposed by Lender upon Lessor in regard to the Premises, whether pursuant to Paragraph 30 of this Lease or otherwise, including any applicable tax and/or insurance impound requirements, and Lessee shall indemnify and hold harmless Lessor from and against any and all claims, liabilities, damages, losses, costs and expenses (including, without limitation, attorneys fees and costs) incurred in connection with or arising from or as a result of failure to perform or comply with any such obligations.”

 

67.       Add the following section:  Head Lease Obligations Lessor is the lessee of the premises by virtue of a lease, hereinafter the “ Head Lease ” (also referred to as “ Master Lease ”), wherein the Council Borough of Kirklees is the lessor, hereinafter the “ Head Lessor ”.

 

a)               This Lease is and shall be at all times subject and subordinate to the Head Lease.

 

b)              The terms, conditions and respective obligations of Lessor and Lessee to each other under this Lease shall also be governed by the terms and conditions of the Head Lease.  Therefore, wherever within the Head Lease the word “Lessor” or its equivalent is used, it shall be deemed to mean the Lessor as defined in this Lease and whenever within the Head Lease, the word “Lessee” or its equivalent is used it shall be deemed to mean the Lessee as defined within this Lease.

 

c)               During the terms of this Lease and for all periods subsequent for obligation which have arisen prior to the termination of this Lease, Lessee does hereby expressly assume and agree to perform and comply with, for the benefit of Lessor and Head Lessor, each and every obligation of Lessor under this Head Lease hereinafter referred to as the “ Lessee’s Assumed Obligations ”.

 

d)              Lessee shall hold Lessor free and harmless form all liability, judgments, costs, damages, claims or demands, including reasonable attorneys’ fees, arising out of Lessee’s failure to comply with or perform Lessee’s “Assumed Obligations.

 

e)               Lessor agrees to comply with or perform its obligations under the Head Lease and to hold Lessee free and harmless from all liability, judgments, costs, damages, claims or demands arising out of Lessor’s failure to comply with or perform its obligations.

 

f)                 Lessor represents to Lessee that the Head Lease is in full force and effect and that no default exists on the part of any Party to the Head Lease.

 

Executed as of the date first referenced above.

 

 

Snyder Family Living Trust (Lessor)

 

Wesco Aircraft Europe, Ltd. (Lessee)

 

 

 

 

 

By:

    /s/ Randy Snyder

 

By:

    /s/ George Hess

 

  Randy Snyder, Trustee

 

              George Hess, Company Secretary

 

2



 

STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-TENANT LEASE — NET
Second Addenda to Lease Dated:  January 1, 2006
By and Between
Snyder Family Living Trust (Lessor) and Wesco Aircraft Europe, Ltd. (Lessee)

 

The Parties have entered into the above referenced Lease.  The Parties also agree that in order for the Lease to comply with all laws and obligations under English law, and the requirement and obligations under the Head Lease, that the Lease will require review and possible revision by English counsel.  All costs associated with review and revision shall be paid by the Lessee.

 

Agreed this first day of January 2006.

 

 

Snyder Family Living Trust (Lessor)

Wesco Aircraft Europe, Ltd. (Lessee)

 

 

 

 

By:

  /s/ Randy Snyder

 

By:

    /s/ George Hess

 

  Randy Snyder, Trustee

 

 

   George Hess, Company Secretary

 



 

STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-TENANT LEASE — NET
Third Addenda to Lease Dated:  January 1, 2006
By and Between
Snyder Family Living Trust (Lessor) and Wesco Aircraft Europe, Ltd. (Lessee)

 

 

The Lease is hereby supplemented and amended as follows:  In order to comply with the tax requirements relating to VAT payable on rent collected by the Lessor, the Parties agree that the Lessee shall pay the VAT directly to the government authority and take responsibility for filing the necessary forms with any such government authority as may be required.

 

Agreed this first day of January 2006.

 

Snyder Family Living Trust (Lessor)

Wesco Aircraft Europe, Ltd. (Lessee)

 

 

 

 

By:

   /s/ Randy Snyder

 

By:

   /s/ George Hess

 

  Randy Snyder, Trustee

 

 

   George Hess, Company Secretary

 




Exhibit 10.19

 

CONFIDENTIAL

 

January 20, 2011

 

Wesco Holdings, Inc.
27727 Avenue Scott
Valencia, CA 91355
Attention:  Greg Hann, Chief Financial Officer

 

Re:                              Engagement of Services

 

Dear Greg:

 

This letter agreement (the “ Agreement ”) will confirm the basis upon which Wesco Holdings, Inc. (“ Client ”) has engaged Solebury Capital LLC (“ Solebury ”) to provide financial consulting services in connection with the transaction described in paragraph 1 below (the “ Engagement ”).  Such services shall include, but are not limited to:  RFP and investment banker bakeoff preparation, advice and planning, underwriter selection process and recommendations, deal structuring, fee and economics recommendations, distribution strategy recommendations, coordination of research community, investor targeting, marketing message development to include advice and support on positioning as well as road show presentation materials, book- building analysis, size and pricing analysis, review of share allocations and recommendation on stabilization strategy.

 

1.             Fee .  Client shall pay Solebury a transaction fee in an amount equal to $400,000 (the “ Transaction Fee ”), which shall be payable by Client to Solebury upon the successful completion of an initial public offering of the securities of Wesco Holdings, Inc. (the “ Transaction ”).  If Client terminates this Agreement after the pricing of the securities sold in the Transaction has been determined (“ Pricing ”), Client shall remain responsible for the payment of the entire Transaction Fee.  If Client terminates this Agreement pursuant to paragraph 2 below prior to Pricing, Client shall not be responsible for payment of the Transaction Fee.  If Solebury terminates this Agreement pursuant to paragraph 2 below, Client shall not be responsible for payment of the Transaction Fee.  Client will make its best efforts to obtain payment of the Transaction Fee from the gross spread earned by the bookrunners for the Transaction.  If Client is unable to obtain such payment from the bookrunners, Client will be fully responsible for prompt payment to Solebury of the Transaction Fee within 90 days after the closing date of the Transaction.  In addition, at Client’s sole discretion, Client may elect to pay Solebury up to $200,000 above the Transaction Fee upon the successful completion of the Transaction.  The fees described in this paragraph 1 are compensation for the Engagement, which consists of work directly related to the Transaction.

 

2.             Term of Engagement .  This Agreement shall remain in force for a period of twelve (12) months from the date hereof (the “ Initial Term ”).  The Initial Term will automatically renew for an additional twelve (12) month period (the “ Renewal Period ”).  The Initial Term, the Renewal Period and any renewal thereof shall constitute the “ Term ”.  Notwithstanding the foregoing, this Agreement may be terminated at any time by either Solebury or Client with thirty (30) days written notice to the other, except that Client may terminate at any

 



 

time without notice as a result of the bad faith, willful misconduct or gross negligence of Solebury.  Expiration or termination of this Agreement shall not affect Solebury’s right to indemnification or contribution or payment of the Transaction Fee in accordance with the terms of this Agreement, subject to paragraph 1 above.  Without limiting the foregoing, notwithstanding the expiration or termination of this Agreement, the provisions of paragraphs 3, 4, 5 and 7 of this Agreement shall survive and remain operative in accordance with their respective terms.

 

3.             Expenses .  In addition to any fees that may be payable to Solebury hereunder and regardless of whether the Transaction is completed, Client hereby agrees, upon submission of invoice, to reimburse Solebury for all reasonable, accountable and duly documented travel and other out-of-pocket expenses incurred in connection with the Engagement, not to exceed $50,000 in the aggregate without the prior written consent of Client.

 

4.             Scope of Liability .  Neither Solebury (nor any of its control persons, members, managers, officers, employees, agents or affiliates) shall be liable to Client or to any other person claiming through Client for any error of judgment or for any claim, loss or expense suffered by Client or any such other person in connection with the matters to which the Engagement relates except to the extent a claim, loss or expense arises out of or is based upon any action or failure to act by Solebury or any of its control persons, members, managers, officers, employees, agents or affiliates that is found in a final judicial determination (or a settlement tantamount thereto) to constitute bad faith, willful misconduct or gross negligence on the part of Solebury or any such other person, other than an action or failure to act undertaken at the request or with the consent of Client,

 

5.             Indemnity and Contribution .  Recognizing that transactions of the type contemplated by the Engagement sometimes result in litigation and that Solebury’s role is limited to acting in the capacities described herein, Client agrees to indemnify Solebury and its control persons, members, managers, officers, employees, agents and affiliates (each, including Solebury, an “ Indemnified Person ”) to the full extent lawful against any and all claims, losses and expenses as incurred (including all reasonable fees and disbursements of each such Indemnified Person’s counsel and all reasonable travel and other out-of-pocket expenses incurred by each such Indemnified Person in connection with investigation of and preparation for any such pending or threatened claims and any litigation or other proceedings arising therefrom) arising out of any actual or proposed Transaction or the Engagement; provided ; however , there shall be excluded from such indemnification any such claim, loss or expense to the extent arising from any action or failure to act by any Indemnified Person that is found in a final judicial determination (or a settlement tantamount thereto) to constitute bad faith, willful misconduct or gross negligence on the part of any Indemnified Person, other than an action or failure to act undertaken at the request or with the consent of Client.  Client shall be notified in writing by Solebury if any action, suit or investigation (an “ Action ”) is commenced against Solebury or, so long as Solebury has actual knowledge of such Action, any other Indemnified Person, promptly after Solebury or any other Indemnified Person shall have been served with a summons or other first legal process, but failure so to notify Client shall not relieve Client from any liability that it

 

2



 

may have hereunder, except to the extent that such failure so to notify Client materially prejudices Client’s rights.  Client may assume, at its own expense, the defense of any Action exercisable upon written notice to Solebury and any such Indemnified Person(s), if applicable, within 15 days of notice by Solebury or such Indemnified person provided pursuant to the preceding sentence, and such defense shall be conducted by counsel chosen by Client and reasonably satisfactory to Solebury and such Indemnified Person(s), if applicable.  In the event that the foregoing indemnity is unavailable or insufficient to hold such Indemnified Person(s) harmless, then Client shall contribute to amounts paid or payable by such Indemnified Person(s) in respect of such claims, losses and expenses in such proportion as appropriately reflects the relative benefits received by, and fault of, Client and such Indemnified Person(s) in connection with the matters as to which such claims, losses and expenses relate and other equitable considerations.

 

Client will not settle any litigation relating to the Engagement unless Solebury and each other Indemnified Person has given its prior written consent (not to be unreasonably withheld, delayed or conditioned) or such settlement includes an express release of Solebury and each other Indemnified Person with respect to all claims asserted against any Indemnified Person in such litigation, such release to be set forth in an instrument signed by all parties to such settlement.  No Indemnified Person seeking indemnification, reimbursement or contribution hereunder will, without Client’s prior written consent (not to be reasonably withheld, delayed or conditioned), settle, compromise, consent to the entry of any judgment in or otherwise seek to terminate any action, claim, suit, investigation or proceeding in respect of which indemnification may be sought hereunder.

 

Solebury agrees to indemnify Client and its control persons, members, managers, officers, employees, agents and affiliates (each, including Client, a “ Client Indemnified Person ”) to the full extent lawful against any and all claims, losses and expenses as incurred up to the amount of the Transaction Fee (including all reasonable fees and disbursements of each such Client Indemnified Person’s counsel and all reasonable travel and other out-of-pocket expenses incurred by each such Indemnified Person in connection with investigation of and preparation for any such pending or threatened claims and any litigation or other proceedings arising therefrom) arising out of any bad faith, willful misconduct or gross negligence of Solebury; provided ; however , there shall be excluded from such indemnification any such claim, loss or expense to the extent arising from any action or failure to act by any Client Indemnified Person that is found in a final judicial determination (or a settlement tantamount thereto) to constitute bad faith, willful misconduct or gross negligence on the part of any Client Indemnified Person, other than an action or failure to act undertaken at the request or with the consent of Solebury.  Solebury shall be notified in writing by Client if any action, suit or investigation (a “ Client Action ”) is commenced against Client or, so long as Client has actual knowledge of such Client Action, any other Client Indemnified Person, promptly after Client or any other Client Indemnified Person shall have been served with a summons or other first legal process, but failure so to notify Solebury shall not relieve Solebury from any liability that it may have hereunder, except to the extent that such failure so to notify Solebury materially prejudices Solebury’s rights.  Solebury may assume, at its own expense, the defense of any Client Action exercisable upon written

 

3



 

notice to Client and any such Client Indemnified Person(s), if applicable, within 15 days of notice by Client or such Client Indemnified Person provided pursuant to the preceding sentence, and such defense shall be conducted by counsel chosen by Solebury and reasonably satisfactory to Client and such Client Indemnified Person(s), if applicable.  In the event that the foregoing indemnity is unavailable or insufficient to hold such Client Indemnified Person(s) harmless, then Solebury shall contribute to amounts paid or payable by such Client Indemnified Person(s) in respect of such claims, losses and expenses in such proportion as appropriately reflects the relative benefits received by, and fault of, Solebury and such Client Indemnified Person(s) in connection with the matters as to which such claims, losses and expenses relate and other equitable considerations.

 

Solebury will not settle any litigation relating to the Engagement unless Client and each other Client Indemnified Person has given its prior written consent (not to be unreasonably withheld, delayed or conditioned) or such settlement includes an express release of Client and each other Client Indemnified Person with respect to all claims asserted against any Client Indemnified Person in such litigation, such release to be set forth in an instrument signed by all parties to such settlement.  No Client Indemnified Person seeking indemnification, reimbursement or contribution hereunder will, without Solebury’s prior written consent (not to be reasonably withheld, delayed or conditioned), settle, compromise, consent to the entry of any judgment in or otherwise seek to terminate any action, claim, suit, investigation or proceeding in respect of which indemnification may be sought hereunder.

 

6.             Information Provided to Solebury .  Client recognizes and confirms that Solebury (a) will use and rely primarily on the information furnished by Client and on information available from generally recognized public sources in performing the services contemplated hereby without having independently verified any of the same, (b) does not assume responsibility for the accuracy or completeness of the information furnished by Client and such other information and shall not be liable for any claims or losses resulting from any inaccuracy or lack of completeness of such information, and (c) will not make any appraisal of any of the assets or liabilities of Client.

 

7.             Confidentiality .  In the event of the consummation or public disclosure of the Transaction, to the extent Solebury received the Transaction Fee, Solebury shall have the right, at its sole expense, to disclose its participation in the Transaction, including without limitation the placement of announcements in financial and other newspapers and periodicals describing its services in connection with the Engagement, in a manner reasonably satisfactory to Client.

 

Except as required by law or regulation, or pursuant to order of a court of competent jurisdiction, no analysis, information or advice, whether communicated in written, electronic, oral or other form, provided by Solebury or its affiliates in connection with the Engagement (the “ Solebury Information ”) shall be disclosed by Client, in whole or in part, to any third party or circulated or referred to publicly, or used for any purpose other than in connection with the Engagement, without the prior written consent of Solebury.  Except as required by law or regulation, or pursuant to order of a court of competent jurisdiction, neither party may disclose to any third

 

4



 

party the existence or terms of this Agreement without the prior written consent of the other party.  Notwithstanding anything herein to the contrary, the fact of Solebury’s Engagement and the advice of Solebury may be disclosed by Client to its affiliates and its directors, officers, accountants, financial and legal advisors and employees (the “ Client Representatives ”) to the extent required in connection with the Engagement.  Client shall cause (i) each of its Client Representatives to comply with this Section 7, and (ii) each of its Client Representatives to whom the Solebury Information is disclosed to agree to be bound by the terms of this Section 7.  Client shall be responsible for any damages to Solebury to the extent caused by breaches of this Section 7 by any of its Client Representatives.

 

Solebury hereby acknowledges, affirms and agrees to be bound by the Letter Agreement dated January 19, 2011 to Solebury from the Client governing the confidentiality of information disclosed by the Client to Solebury as if the terms of such agreement were incorporated herein.

 

Each party hereto acknowledges and agrees that irreparable damage may occur to the other and their respective affiliates in the event any of the provisions of this Section 7 were not performed in accordance with their specific terms or were otherwise breached and monetary damages may not be a sufficient remedy for any such non-performance or breach.  Accordingly, each party shall be entitled to seek specific performance of the terms of this Section 7, including, without limitation, an injunction or injunctions to prevent breaches of the provisions of this Section 7 and to seek to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in New Castle County, Delaware or the Federal District Court for the District of Delaware in addition to any other remedy to which such party may be entitled at law or in equity.

 

8.             Governing Law .  This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (including, without limitation, provisions concerning limitations of actions), without reference to the conflicts of laws rules of that or any other jurisdiction, except that Federal law shall also apply to the extent relevant.  To the full extent lawful, each of Client and Solebury hereby consents irrevocably to the exclusive jurisdiction of the Court of Chancery of the State of Delaware sitting in New Castle County as having proper subject matter jurisdiction, or the Federal District Court for the District of Delaware.  Any suit involving any dispute or matter arising under this Agreement may only be brought before a judge in the Chancery Court of the State of Delaware sitting in New Castle County or the Federal District Court for the District of Delaware, and each of Client and Solebury consents to the exercise of personal jurisdiction by any such court with respect to such proceeding.  Each of Client and Solebury hereby irrevocably waives trial by jury.

 

9.             Miscellaneous .

 

(a)           The parties understand that Solebury is being engaged hereunder as an independent contractor to provide the services described above solely to Client, and that Solebury is not acting as a fiduciary of Client, the security holders or creditors of Client or any other persons in connection with the Engagement.

 

5



 

(b)           Client understands and acknowledges that Solebury and its affiliates (collectively, the “ Solebury Group ”), engage in providing a wide variety of financial consulting services and other investment banking products and services to a wide range of institutions and individuals.  In the ordinary course of business, the Solebury Group and certain of its employees, as well as investment funds in which they may have financial interests, may acquire, hold or sell, long or short positions, or trade or otherwise effect transactions, in debt, equity, and other securities and financial instruments (including bank loans and other obligations) of, or investments in, a party that may be involved in the matters contemplated by this Agreement.  With respect to any such securities, financial instruments and/or investments, all rights in respect of such securities, financial instruments and investments, including any voting rights, will be exercised by the holder of the rights, in its sole discretion.  In addition, the Solebury Group may currently, and may in the future, have relationships with parties other than Client, including parties that may have interests with respect to Client, the Transaction or other parties involved in the Transaction, from which conflicting interests or duties may arise.  Although the Solebury Group in the course of such other activities and relationships may acquire information about Client, the Transaction or such other parties, the Solebury Group shall have no obligation to, and may not be contractually permitted to, disclose such information, or the fact that the Solebury Group is in possession of such information, to Client or to use such information on the Company’s behalf.  None of the foregoing shall limit in any way the obligations of Solebury pursuant to the Letter Agreement dated January 19, 2011.

 

(c)           This Agreement incorporates the entire agreement, and supersedes all prior agreements, arrangements or understandings (whether oral or written), between the parties with respect to the subject matter hereof, and may not be amended or modified except in writing signed by each party hereto.

 

(d)           This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original and all of which together will be deemed to be one and the same document.

 

6



 

If you are in agreement with the foregoing, please sign and return the attached copy of this Agreement, whereupon this Agreement shall become effective as of the date hereof.

 

 

Very truly yours,

 

 

 

Solebury Capital LLC

 

 

 

 

 

 

By:

/s/ Edward Hatfield

 

 

Name:  Edward Hatfield

 

 

Title:    Co-Chief Executive Officer

 

 

 

 

 

 

Acknowledged and Agreed on
this 31st day of March, 2011

 

 

 

 

 

Wesco Holdings, Inc.

 

 

 

 

 

 

 

 

By:

/s/  Greg Hann

 

 

 

 

Name:  Greg Hann

 

 

 

 

Title:   Chief Financial Officer

 

 

 

 

7


 



Exhibit 10.21

 

DATED 24 March 2011

 

 

(1) WESCO AIRCRAFT EUROPE LIMITED

 

- and -

 

(2) ALEXANDER MURRAY

 

 

SERVICE AGREEMENT

 



 

CONTENTS

 

1.

DEFINITIONS AND INTERPRETATION

1

2.

APPOINTMENT

2

3.

TERM

3

4.

WORKING TIME

3

5.

DUTIES

3

6.

REMUNERATION AND EXPENSES

4

7.

CAR ALLOWANCE

5

8.

PENSION

5

9.

INSURANCE BENEFITS

5

10.

HOLIDAYS AND HOLIDAY PAY

6

11.

SICKNESS AND ABSENCE

7

12.

CONFIDENTIAL INFORMATION

8

13.

PROTECTION OF THE COMPANY’S BUSINESS INTERESTS

9

14.

TERMINATION

12

15.

GARDEN LEAVE

14

16.

AMALGAMATION, RECONSTRUCTION AND CHANGE OF DIRECTOR

14

17.

DISCIPLINARY AND GRIEVANCE PROCEDURES

15

18.

DATA PROTECTION

15

19.

MISCELLANEOUS

16

20.

ENTIRE AGREEMENT

17

21.

CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

17

22.

COUNTERPARTS

17

 



 

THIS SERVICE AGREEMENT is made on

2011

 

BETWEEN:

 

(1)                                  WESCO AIRCRAFT EUROPE LIMITED registered number 01857310 whose registered office is at Park Mill Way, Clayton West, Huddersfield, West Yorkshire, HD8 9XJ ( “Company” );

 

(2)                                  ALEXANDER MURRAY of 24 Far Bank, Shelley, Huddersfield, West Yorkshire, HD8 8HS ( “Executive” ).

 

IT IS AGREED:

 

1.                                       DEFINITIONS AND INTERPRETATION

 

1.1                                  In this agreement where it is appropriate in context singular words shall include the plural and vice versa.  Words defined below shall have the following respective meanings:

 

“Appointment” means the employment of the Executive under the terms of this agreement ;

 

“Board” means the Board of Directors of the Company from time to time or its duly authorised representative;

 

“Business” means the business of distributing fasteners, fittings, bearings and other consumable products to the aerospace industry and any other business carried on by the Company and any Group Company from time to time;

 

“Company Intellectual Property” means Intellectual Property Rights created by the Executive (whether jointly or alone) in the course of his employment with the Company, whether or not during working hours or using Company premises or resources and whether or not recorded in material form;

 

“Garden Leave” means any period during which the Company has exercised its rights under clause 15.1;

 

“Group” means the Company and all companies which are for the time being either a Holding Company of the Company or a Subsidiary of either the Company or any such Holding Company;

 

“Group Company” means any company within the Group;

 

“Incapacitated” means prevented by illness, injury, accident or other incapacity or circumstances beyond the Executive’s control from properly fulfilling his duties under this agreement;

 

“Recognised Investment Exchange” means a recognised investment exchange as defined by section 285 of the Financial Services and Markets Act 2000;

 

“Salary” means the basic salary payable to the Executive under this agreement from time to time and does not include any benefits, bonus, commission or other remuneration payable to the Executive;

 

1



 

“Subsidiary” and “Holding Company” shall have the meanings ascribed to them by section 1159 of the Companies Act 2006 or any statutory modification or re-enactment thereof but for the purposes of section 1159(1) Companies Act 2006 a company shall be treated as a member of another company if any shares in that other company are registered in the name of (i) a person by way of security (where the company has provided the security) or (ii) a person as nominee for the company;

 

“Wesco Holdings Inc” means Wesco Holdings Inc of 27727 Avenue Scott, Valencia, CA 91355, United States .

 

1.2                                  The headings in this agreement are included for convenience only and shall not affect its interpretation or construction.

 

1.3                                  This agreement and any dispute or claim arising out of or in connection with it or its subject matter or formation including non contractual disputes or claims shall be construed and governed in accordance with the laws of England and Wales and the parties submit to the exclusive jurisdiction of the Courts of England and Wales over any claim or matter arising under or in connection with this agreement.

 

1.4                                  References to any legislation shall be construed as references to legislation as from time to time amended, re-enacted or consolidated.

 

1.5                                  References to clauses, the parties are respectively to clauses of and the parties to this agreement.

 

1.6                                  Save as otherwise defined words and expressions shall be construed in accordance with the Interpretation Act 1978.

 

1.7                                  The Company accepts the benefits in this agreement on its own behalf and on behalf of all Group Companies.  The Company shall be entitled to assign its rights and those of other Group Companies in connection with this agreement to any other Group Company at any time with immediate effect on giving written notice to the Executive.

 

2.                                       APPOINTMENT

 

2.1                                  The Company shall employ the Executive and the Executive shall be employed by the Company in the capacity of Vice President of Global Operations and/or in such other position or capacity with such job title as the Board may from time to time reasonably decide and subject to the terms and conditions set out in this agreement.

 

2.2                                  The Company shall procure the appointment of the Executive and the Executive shall act as a director of the Company with or without such executive powers as the Board shall decide in its absolute discretion.

 

2.3                                  The Executive warrants that he satisfies the necessary immigration requirements of and is entitled to work in the United Kingdom and will notify the Company immediately if he ceases to be so entitled during the Appointment.

 

2.4                                 During the Appointment:

 

2.4.1                                                 the Company has no duty to provide any work to or vest any powers in the Executive who shall have no right to perform any services for the Company or for any Group Company;

 

2



 

2.4.2                                                 the Board shall be entitled at any time to appoint another person to act jointly with the Executive in any capacity in which he may be employed.

 

2.5                                  The parties agreement that it is the current intention of the Group and the Executive that over the next two years his employment becomes more focussed on Group activity in which event the Executive may be offered employment with a Group company based in the USA.

 

3.                                       TERM

 

3.1                                  The Appointment commenced on 4 January 2000 and unless terminated in accordance with clauses 11.4 or 14.1 or 16.2 of this agreement shall continue until terminated by at least 6 months’ written notice given by the Company to the Executive or at least 6 months’ written notice given by the Executive to the Company such written notice in either case to expire on the last day of a calendar month.

 

3.2                                  The Executive’s continuous period of employment began on 4 January 2000.

 

4.                                       WORKING TIME

 

The Executive acknowledges that as an employee with autonomous decision-taking powers, and subject to his complying with his duties under clause 5, he can determine his own working hours and that as such his working time is not measured or predetermined, and that accordingly the regulations relating to maximum weekly working time, night work, daily and weekly rest periods in the Working Time Regulations 1998 shall not apply to this Appointment.

 

5.                                       DUTIES

 

5.1                                  During the Appointment the Executive shall:

 

5.1.1                                                 be responsible directly to the Board;

 

5.1.2                                                 be responsible for the overall management of the Company and shall additionally perform such duties and exercise such powers and functions as may from time to time be reasonably assigned to or vested in him by the Board whether relating to the Company or any Group Company;

 

5.1.3                                                 unless prevented by ill health devote the whole of his time and attention, endeavours and abilities to promoting the interests of the Company and of the Group and shall not engage in any activity which may be or may become harmful to or contrary to the interests of the Company or of the Group;

 

5.1.4                                                 observe and comply with all lawful and reasonable requests, instructions, resolutions and regulations of the Board and give to the Board such explanations information and assistance as the Board may reasonably require;

 

5.1.5                                                 carry out his duties in a proper, loyal and efficient manner to the best of his ability and use his best endeavours to maintain, develop and extend the business of the Company and of the Group;

 

5.1.6                                                 comply with all legal duties imposed on him including those contained in the Companies Act 2006;

 

3



 

5.1.7                                                 report to the Board in writing any matter relating to the Company or any Group Company or any of its or their officers or employees which he becomes aware of and which could be the subject of a qualifying disclosure as defined by section 43B of the Employment Rights Act 1996;

 

5.1.8                                                 report his own wrongdoing and any wrongdoing or proposed wrongdoing of any other employee or director of the Company or of any Group Company to the Board immediately on becoming aware of it;

 

5.1.9                                                 be based at the Company’s offices at Clayton West and perform such duties at such place or places in the United Kingdom or elsewhere as the Board shall decide but unless otherwise agreed the Executive shall not be required to work outside the United Kingdom for a continuous period exceeding one month;

 

5.1.10                                           work such hours and travel within and outside the United Kingdom as may reasonably be required for the proper performance of his duties;

 

5.1.11                                           accept (if offered) appointment as a director of the Company or any Group Company with or without such executive powers as the Board shall decide in its absolute discretion and resign any such appointment if requested by the Board without any claim for damages or compensation.  If the Executive fails to resign any such appointment the Company is hereby irrevocably authorised to appoint some person in his name and on his behalf to sign and execute all documents and do all things necessary to constitute and give effect to such resignation. Termination, at the Board’s request, of a directorship or other office held by the Executive will not terminate the Executive’s employment or amount to a breach of the terms of this agreement by the Company.

 

5.2                                  During the Appointment the Executive shall not without the written consent of the Board (such consent not to be unreasonably withheld):

 

5.2.1                                                 be engaged or interested either directly or indirectly (through any member of his family or household or otherwise) in any capacity in any trade, business or occupation whatsoever other than the Business of the Company or the Group provided that the Executive shall not be prohibited from holding whether directly or indirectly up to three per cent of the shares or stock of any class of any company quoted or dealt in on a Recognised Investment Exchange;

 

5.2.2                                                 pledge the credit of the Company or any Group Company other than in the ordinary course, day to day running of the Business or enter into any contracts or obligations involving the Company or any Group Company, which, in either case, obliges the Company or any Group Company in amounts that exceed the Company’s current written policies in place from time to time ;

 

5.2.3                                                 become a member of the Territorial Army or another reservist force, a member of Parliament,  a councillor of a local authority or a magistrate, or occupy or be engaged in public office.

 

6.                                       REMUNERATION AND EXPENSES

 

6.1                                  The Company shall pay to the Executive a Salary at a rate of £118,000 per annum or at such higher rate as may from time to time be agreed between the Company and the Executive.

 

4



 

6.2                                  The Salary shall be deemed to accrue evenly from day to day and shall be payable in arrears by equal monthly instalments on the 25th day of each month into a bank account nominated by the Executive and shall be inclusive of any fees and/or remuneration to which the Executive may be entitled as a director of the Company or any Group Company.

 

6.3                                  The Salary shall be reviewed annually by the Board of Directors of Wesco Holdings Inc and any change in the Salary will be implemented with effect from such date as determined by the Board of Directors of Wesco Holdings Inc. There is no obligation to award an increase following a salary review.

 

6.4                                  The Executive shall be entitled to participate in an annual bonus scheme on such terms and subject to such conditions as may be decided from time to time by the Board of Directors of Wesco Holdings Inc and notified to the Executive.  The Company reserves the right to vary or terminate (with or without replacement by a further scheme) any bonus scheme in place from time to time at any time with effect from the end of the financial year.

 

6.5                                  The Company shall reimburse the Executive for all reasonable and authorised out of pocket expenses (including hotel and travelling expenses) wholly, necessarily and exclusively incurred by the Executive in the discharge of his duties subject to the Company’s rules and policies relating to expenses as may be in force from time to time.  If the Executive is provided with a credit or charge card by the Company this must only be used for expenses which he incurs in performing the duties of his Appointment.

 

7.                                       CAR ALLOWANCE

 

7.1                                  Provided that the Executive holds a current driving licence, the Executive shall receive a car allowance for use of the Executive’s own car of £916.67 per month which shall be payable together with and in the same manner as the salary in accordance with clause 6.1.  The car allowance shall not be treated as part of the basic salary for any purpose and shall not be pensionable.

 

7.2                                  The Company shall reimburse the Executive in respect of fuel costs for business miles at the Company’s business mileage rate.

 

7.3                                  The Executive shall immediately inform the Company if he is disqualified from driving and shall cease to be entitled to receive the allowance under clause 7.1 or reimbursement of fuel expenses under clause 7.2.

 

8.                                       PENSION

 

8.1                                  The Company shall pay a sum equivalent to 8% per cent of the Salary into a registered Pension Scheme nominated by the Executive conditional upon the Employee making a personal contribution of 3% of the Salary.

 

9.                                       INSURANCE BENEFITS

 

9.1                                  Up until the Executive reaches the age of 65 the Company shall, subject to clause 9.2 below, provide the Executive with the following benefits, particulars of which may be obtained from the Human Resources Department:

 

9.1.1                                                 private medical expenses insurance for him and his spouse or civil partner and his children under the age of 18 in accordance with arrangements made between the Company and such reputable insurer as the Company may decide from time to time and subject to the terms and conditions applicable to any such insurance.

 

5



 

The Company reserves the right to discontinue or vary any such insurance at its discretion;

 

9.1.2                                                 life insurance at a rate of 4 times the Salary in accordance with arrangements made between the Company and such reputable insurer as the Company may decide from time to time and subject to the terms and conditions applicable to any such insurance. The Company reserves the right to discontinue or vary any such life insurance at its discretion;

 

9.1.3                                                 subject to the Company’s right to terminate the Appointment in accordance with clauses 3.1, 11.4 and 14.1 and 16.2 of this agreement permanent health insurance in accordance with the arrangements made between the Company and such reputable insurer as the Company may decide from time to time and subject to the terms and conditions applicable to any such insurance ( “PHI Scheme” ).  The Company reserves the right to discontinue or vary any such insurance at its discretion.

 

9.1.4                                                 During any period in which the Executive is eligible to receive benefits under the PHI Scheme the Company’s obligations under this agreement shall be limited to paying to the Executive such sums as it receives in respect of the Executive under the PHI Scheme and for the avoidance of doubt the Executive agrees in such circumstances to accept such sums in place of further payment of Salary and any other remuneration including bonus and the provision of a car allowance under the terms of this agreement.  During any such period the Executive shall continue to be bound by all his obligations (other than to provide his services) under this agreement.

 

9.2                                  The benefits referred to at each of clauses 9.1.1 to 9.1.3 above are conditional on the relevant insurer accepting cover for the Executive at a premium the rate of which the Company considers reasonable and accepting liability for any particular claim.  In the event that the relevant insurer does not accept cover or liability in respect of the Executive at a premium the rate of which the Company considers reasonable] or any claim by the Executive in respect of any of the benefits referred to at clauses 9.1.1 to 9.1.3 above, the Company shall have no obligation to provide any alternative benefit or cover in this regard.  The provision of the benefits at clauses 9.1.3 to 9.1.3 inclusive shall not restrict the Company’s ability to terminate the Appointment in accordance with clauses 3.1 or 11.4 or 14.1 or 16.2 of this agreement for any reason including, without limitation, because the Executive is Incapacitated.  All and any benefits provided under clauses 9.1.1 to 9.1.3 above shall cease with effect from the Executive’s 65th birthday or from the date of termination of the Appointment whichever is earlier.

 

10.                                HOLIDAYS AND HOLIDAY PAY

 

10.1                            The Company’s holiday year runs between 1 January and 31 December.  In addition to the normal bank and public holidays applicable in England and Wales the Executive shall be entitled to 25 working days’ paid holiday during each holiday year to be taken at such time as the notified to the President of Wesco Holdings Inc paid at the rate of basic Salary ( “Holiday Entitlement” ).  Holiday Entitlement is inclusive of statutory holiday under the Working Time Regulations 1998 ( “Statutory Holiday” ).

 

10.2                           Untaken Holiday Entitlement in any holiday year may not be carried forward to any following holiday year and such Holiday Entitlement will be forfeited without any right to payment in lieu other than with the consent of the President of Wesco Holdings Inc.

 

6



 

10.3                            In the holiday year in which the Executive’s Appointment commences or terminates the Executive shall be entitled to 2.5 days’ holiday for each completed month of service.

 

10.4                            Upon termination of the Appointment the Executive shall subject to clause 14.2 below if appropriate either be entitled to Salary in lieu of any outstanding Holiday Entitlement or be required to repay to the Company any Salary received in respect of Holiday Entitlement taken in excess of his proportionate Holiday Entitlement and any sums repayable by the Executive may be deducted from any outstanding Salary or other payments due to the Executive.

 

10.5                            The Company reserves the right to require the Executive to take any accrued but unused Holiday Entitlement during any period of notice given to terminate the Appointment or at any other time, or, if applicable, any such holiday shall be deemed to be taken during any period of Garden Leave.

 

10.6                            During any period when the Executive is Incapacitated he shall not accrue any holiday in excess of his entitlement to Statutory Holiday.  In any holiday year, the first 5.6 weeks of any holiday taken by the Executive shall be deemed to be Statutory Holiday .

 

10.7                            The provisions of this clause 10 shall replace regulations 15(1) to 15(4) inclusive of the Working Time Regulations 1998 which shall not apply to the Executive.

 

11.                                SICKNESS AND ABSENCE

 

11.1                            If the Executive is incapacitated he shall immediately notify the Human Resources Department and inform them of the reason for his absence.

 

11.2                            The Executive shall comply with the Company’s Absence Management policy which also sets out his entitlement to receive sick pay.

 

11.3                            The Executive agrees that at any time during the Appointment he will consent, if required by the Company, to a medical examination by a medical practitioner appointed by the Company at its expense and shall authorise such medical practitioner to disclose to and discuss with the Human Resources Department the results of any such medical examination.

 

11.4                            If the Executive shall at any time be Incapacitated during the Appointment for a total of 26 or more weeks in any 12 consecutive calendar months the Company may terminate the Appointment immediately by such notice as is required by section 86 of the Employment Rights Act 1996 in writing given to the Executive at any time during the period for which he is Incapacitated.

 

11.5                            If the Executive is incapacitated for a consecutive period of 20 working days the Board may (without prejudice to the provisions of clause 2.4.2) appoint another person or persons to perform those duties until such time as the Executive is able to resume fully the performance of his duties.

 

11.6                            If the Executive is Incapacitated by the action of a third party in respect of which damages are or may be recoverable the Executive shall notify the Human Resources Department of that fact and of any claim, compromise, settlement or judgment awarded as soon as is reasonably practicable.  The Executive shall include in any claim for damages against such third party a claim in respect of monies paid by the Company under this clause 11 and shall receive any payments referred to in this clause 11 above as loans by the Company to the Executive (notwithstanding that as an interim measure income tax has been deducted from such payments as if they were emoluments of employment).  The Executive shall repay such loans

 

7



 

(net of costs) when and to the extent that the Executive recovers compensation for loss of earnings from the third party by action or otherwise.

 

12.                                CONFIDENTIAL INFORMATION

 

12.1                            The Executive shall not at any time during the Appointment nor at any time after its termination except for a purpose of the Company or the Group directly or indirectly use or disclose trade secrets or confidential information relating to the Company or any Group Company or the Company’s or any Group Company’s agents, customers,  prospective customers or suppliers.

 

12.2                            For the purposes of clause 12.1 confidential information shall include any information relating to the Business and/or the financial affairs of the Company and/or the Group and the Company’s and/or any Group Company’s agents, customers, prospective customers or suppliers and in particular shall include:

 

12.2.1                                           the business methods and information of the Company and any Group Company (including prices charged, discounts given to customers or obtained from suppliers, product development, marketing and advertising programmes, costings, budgets, turnover, sales targets or other financial information);

 

12.2.2                                           lists and particulars of the Company’s and any Group Company’s suppliers and customers and the individual contacts at such suppliers and customers;

 

12.2.3                                           details and terms of the Company’s and any Group Company’s agreements with suppliers and customers;

 

12.2.4                                           secret manufacturing or production processes and know-how employed by the Company and any Group Company or its/their suppliers;

 

12.2.5                                           confidential details as to the design of the Company’s and any Group Company’s and its and/or their suppliers’ products and inventions or developments relating to future products;

 

12.2.6                                           details of any promotions or future promotions or marketing or publicity exercises planned by the Company and any Group Company;

 

12.2.7                                           details of any budgets or business plans of the Company and any Group Company; and

 

12.2.8                                           any information which may affect the value of the Business or the shares of the Company or any Group Company,

 

whether or not in the case of documents or other written materials or any materials in electronic format they are or were marked as confidential and whether or not, in the case of other information, such information is identified or treated by the Company or any Group Company as being confidential.

 

12.3                           The Executive shall not be restrained from using or disclosing any confidential information which:

 

12.3.1                                           he is authorised to use or disclose by the Board; or

 

8


 

12.3.2                                           has entered the public domain unless it enters the public domain as a result of an unauthorised disclosure by the Executive or anyone else employed or engaged by the Company or any Group Company; or

 

12.3.3                                           he is required to disclose by law; or

 

12.3.4                                           he is entitled to disclose under section 43A of the Employment Rights Act 1996 provided that the disclosure is made in an appropriate way to an appropriate person having regard to the provisions of that Act and clause 5.1.7 above.

 

12.4                            The Executive shall not make copies of any document, memoranda, correspondence, computer disk, CD-Rom, memory stick, video tape or any similar matter (including for the avoidance of doubt in any electronic format) or remove any such items from the premises of the Company or of any Group Company other than in the proper performance of his duties under this agreement except with the written authority of the President of Wesco Holdings Inc which authority will apply in that instance only.

 

12.5                            The Executive shall not make any adverse public statement (whether written or oral) to media or otherwise relating to the affairs of the Company or any Group Company and shall not write any article for publication on the matter concerned with the Business or other affairs of the Company or the Group without the prior written consent of Wesco Holdings Inc.

 

13.                                PROTECTION OF THE COMPANY’S BUSINESS INTERESTS

 

13.1                            The Executive acknowledges that following termination he will be in a position to compete unfairly with the Company as a result of the confidential information, trade secrets and knowledge about the business, operations, customers, employees and trade connections of the Company and the Group he has acquired or will acquire and through the connections that he has developed and will develop at the expense of the Company.  The Executive agrees to enter into the restrictions in this clause for the purpose of protecting the Company’s legitimate business interests and in particular the confidential information, goodwill and the stable trained workforce of the Company and the Group.

 

13.2                            The Executive shall not without the prior written consent of the Board (such consent not to be unreasonably withheld), directly or indirectly, on his own behalf, or on behalf of any person, firm or company in connection with any business which is or is intended or about to be competitive with the Restricted Business (as defined below) or in relation to the provision of any goods or services similar to or competitive with those sold or provided by the Company or any Group Company in connection with the Restricted Business:

 

13.2.1                                           for a period of 12 months after the termination of the Appointment solicit or canvass the custom of any Customer (as defined below);

 

13.2.2                                           for a period of 12 months after the termination of the Appointment solicit or canvass the custom of any Potential Customer (as defined below);

 

13.2.3                                           for a period of 12 months after the termination of the Appointment deal with any Customer;

 

13.2.4                                           for a period of 12 months after the termination of the Appointment deal with any Potential Customer;

 

9



 

13.2.5                                           for a period of 12 months after the termination of the Appointment solicit or entice away, or attempt to entice away from the Company or any Group Company any Restricted Employee (as defined below)

 

13.2.6                                           for a period of 12 months after the termination of the Appointment employ, offer to employ or enter into partnership with any Restricted Employee with a view to using the knowledge or skills of such person in connection with any business or activity which is or is intended to be competitive with the Restricted Business.

 

13.3                            The Executive shall not without the prior written consent of the Board (such consent not to be unreasonably withheld) for a period of 12 months after the termination of the Appointment, directly or indirectly, on his own behalf, or on behalf of any person, firm or company:

 

13.3.1                                           within the Restricted Territory (as defined below) set up, carry on, be employed in, provide services to, be associated with, or be engaged or interested in, whether as director, employee, principal, agent or otherwise, any business which is or is intended or about to be competitive with the Restricted Business save as a shareholder of not more than three per cent of any public company whose shares or stocks are quoted or dealt in on any Recognised Investment Exchange;

 

13.3.2                                           endeavour to cause any person, firm or company who is at the date of termination of the Appointment or at any time during the 12 months immediately prior to such termination was a Restricted Supplier (as defined below) to the Company and/or any Group Company, to either cease to supply the Company or any Group Company or materially alter the terms of such supply in a manner detrimental to the Company or any Group Company.

 

13.4                            In clause 13 the following words and phrases shall have the following meanings:

 

“Customer” shall mean any person, firm or company who at the date of termination of the Appointment or at any time during the 12 months immediately prior to such termination was a customer of the Company or any Group Company and from whom the Executive had obtained business on behalf of the Company or any Group Company or to whom the Executive had provided or arranged the provision of goods or services on behalf of the Company or any Group Company or for whom the Executive had management responsibility;

 

“Potential Customer” shall mean any person, firm or company with whom either the Executive or any other employee of the Company or any Group Company for whom the Executive had, at the date of the negotiations, management responsibility carried out negotiations on behalf of the Company or any Group Company at any time during the period of three months immediately prior to the date of termination of the Appointment with a view to such person, firm or company becoming a customer of the Company or of any Group Company.

 

“Restricted Business” shall mean the Business or any part of the Business which in either case:

 

(a)                                                           is carried on by the Company or any Group Company at the date of termination of the Appointment; or

 

(b)                                                          was carried on by the Company or by any Group Company at any time during the period of six months immediately prior to the date of termination of the Appointment; or

 

10



 

(c)                                                           is to the knowledge of the Executive to be carried out by the Company or by any Group Company at any time during the period of six months immediately following the date of termination of the Appointment;

 

and which the Executive was materially concerned with or had management responsibility for (or had substantial confidential information regarding) in either case at any time during the period of 12 months immediately prior to the date of termination of the Appointment;

 

“Restricted Employee” shall mean any senior employee of the Company or any Group Company employed at the date of termination of the Appointment in the capacity of director or in any research, technical, IT, financial, marketing or sales function or other managerial role whom the Executive has managed or with whom he has worked at any time during the period of 12 months immediately prior to the termination of the Appointment, and shall not include any employee employed in an administrative, clerical, manual or secretarial capacity;

 

“Restricted Supplier” means any supplier to the Company or to any Group Company with whom the Executive has had material personal contact or for whom the Executive has had managerial responsibility during the period of 12 months immediately prior to the termination of the Appointment.

 

“Restricted Territory” shall mean England, Scotland, Wales and Northern Ireland, Germany, France and Italy together with any other country in which the Company or any other Group Company:

 

carried on any Restricted Business or provided any goods or services in connection with any Restricted Business at the date of termination of the Appointment; or

 

(a)                                                           carried on any Restricted Business or provided any goods or services in connection with any Restricted Business at any time during the period of six months immediately prior to the date of termination of the Appointment; or

 

(b)                                                          is to the knowledge of the Executive to carry out any Restricted Business at any time during the period of six months immediately following the date of termination of the Appointment;

 

and regarding which country at any time during the period of 12 months immediately prior to the date of termination of the Appointment the Executive:

 

was materially concerned or worked in; and/or

 

(a)                                                           had management responsibility for; and/or

 

(b)                                                          obtained confidential information (as defined in clause 12.2)

 

13.5                            In the event that the Executive receives an offer of employment or request to provide services either during the Appointment or during the currency of the restrictive periods set out in clauses 13.2 and 13.3 the Executive shall provide immediately to such person, company or other entity making such an offer or request a full and accurate copy of this agreement signed by both parties.

 

13.6                            The restrictions contained in this clause are considered by the parties to be reasonable in all the circumstances.  Each sub clause constitutes an entirely separate and independent restriction and the duration, extent and application of each of the restrictions are no greater than is necessary for the protection of the interests of the Company and any Group Company.

 

11



 

14.                                TERMINATION

 

14.1                            The Appointment may be terminated without notice with immediate effect by the Company if at any time:

 

14.1.1                                           the Executive does not comply with any lawful order or direction given to him by the Board; or

 

14.1.2                                           the Board reasonably believes the Executive has committed any serious breach or repeated after written warning any breach or is guilty of a continuing breach of any of the terms of this agreement; or

 

14.1.3                                           the Board reasonably believes that the Executive is guilty of any gross or serious misconduct or (after written warning) wilful neglect in the discharge of his duties under this agreement; or

 

14.1.4                                           the Board reasonably believes that the Executive is guilty of any bribery, corruption, fraud, dishonesty or conduct tending to bring himself, the Company or any Group Company into disrepute including for the avoidance of doubt any criminal offence (except a road traffic offence not involving a custodial sentence); or

 

14.1.5                                           the Board reasonably believes that the Executive has committed a breach of any legislation in force which may affect or relate to the business of the Company or any Group Company); or

 

14.1.6                                           the Executive is declared bankrupt or has a receiving order made against him or makes any general composition with his creditors or takes advantage of any statute affording relief for insolvent debtors; or

 

14.1.7                                           the Executive becomes prohibited by law from being or acting as a director of the Company; or

 

14.1.8                                           the Executive refuses or fails to agree to accept employment on the terms and in the circumstances specified in clause 16.1 of this agreement; or

 

14.1.9                                           the Executive resigns as a director of the Company other than at the request of the Board.

 

14.2                            In the event of termination under clause 14.1 the Company shall not be obliged to make any further payment to the Executive except such Salary as shall have accrued at the date of termination and in respect of accrued but untaken Holiday Entitlement.

 

14.3                            Upon notice of termination of the Appointment being given or upon termination of the Appointment or, at the start of a period of Garden Leave the Executive shall:

 

14.3.1                                           at the request of the Company resign from all (if any) offices held by him in the Company or any Group Company and all (if any) trusteeships held by him of any pension scheme or any trust established or subscribed to/by the Company and any Group Company and in the event of his failure to do so the Company is hereby irrevocably authorised to appoint some person in his name and on his behalf to sign and execute all documents and do all things necessary to constitute and give effect to such resignation;

 

12



 

14.3.2                                           immediately return to the Company all correspondence, documents, papers, memoranda, notes, records such as may be contained in magnetic media or other forms of computer storage, videos, tapes (whether or not prepared or produced by him) and any copies thereof charge and credit cards and all other property (including any car) belonging to the Company which may be in the Executive’s possession or under his control provided that the Executive shall not be obliged to return during any period of Garden Leave any property provided to him as a contractual benefit;

 

14.3.3                                           if requested send to the Finance Director a signed statement confirming that he has complied with sub-clause 14.3.2 above.

 

14.4                            The Executive shall not at any time after the termination of the Appointment represent himself as being in any way connected with or interested in the Business of the Company or the Group.

 

14.5                            At its absolute discretion the Company may at any time (including without limitation after notice of termination shall have been given by either party lawfully terminate this agreement by notice in writing with immediate effect by paying to the Executive a sum in lieu equal to his Salary for the then unexpired period of notice (subject to deduction at source of income tax and national insurance contributions) ( “Payment in Lieu” ). For the avoidance of doubt, the Payment in Lieu shall not include any element in relation to:

 

14.5.1                                           any bonus or commission payments, or payments, rights or benefits under any share option or long term incentive plan that might otherwise have been due during the period for which the Payment in Lieu is made;

 

14.5.2                                           any payment in respect of benefits which the Executive would have been entitled to receive during the period for which the Payment in Lieu is made; and

 

14.5.3                                           any payment in respect of any holiday entitlement that would have accrued during the period for which the Payment in Lieu is made.

 

14.6                            The Executive shall have no right to receive a Payment in Lieu unless the Company has exercised its discretion in clause 14.5.  Nothing in this clause 14 shall prevent the Company from terminating the Appointment in breach.

 

14.7                            On termination of the Appointment howsoever arising the Executive shall not have any claim for breach of contract in respect of the loss of any rights or benefits under any share option, bonus, long-term incentive plan or other profit sharing scheme operated by the Company or by any Group Company in which he may participate which would otherwise have accrued during the period of notice to which the Executive is entitled under clause 3.1 of the agreement.

 

14.8                            The Executive expressly agrees that the Company may make such deductions from Salary or other payments due on the termination of or during the Appointment as may be necessary to reimburse the Company for sums paid out by the Company to or on behalf of the Executive but which are recoverable by it including but not limited to loans, advances, relocation expenses, excess holiday payments and any outstanding payments in relation to the company car.

 

13



 

15.                                GARDEN LEAVE

 

15.1                            Following notice to terminate the Appointment being given by the Company or the Executive or if the Executive purports to terminate the appointment in breach of contract the Company may by written notice require the Executive not to perform any services (or to perform only specified services) for the Company or for any Group Company for all or part of the notice period required under clause 3.1.

 

15.2                            During any period of Garden Leave the Executive shall:

 

15.2.1                                           continue to receive the Salary and other contractual benefits under this agreement in the usual way and subject to the terms of any benefit arrangements;

 

15.2.2                                           remain an employee of the Company and remain bound by his duties and obligations, whether contractual or otherwise, which shall continue in full force and effect;

 

15.2.3                                           not contact or deal with (or attempt to contact or deal with) any customer client supplier agent distributor shareholder employee officer or other business contact of the Company or any Group Company without the prior written consent of the President of Wesco Holdings Inc.;

 

15.2.4                                           not (unless otherwise requested) enter onto the premises of the Company or any Group Company without the prior written consent of Wesco Holdings Inc.;

 

15.2.5                                           not commence any other employment or engagement;

 

15.2.6                                           provide such assistance as the Company or any Group Company may require to effect an orderly handover of his responsibilities to any individual or individuals appointed by the Company or any Group Company to take over his role or responsibilities;

 

15.2.7                                           make himself available to deal with requests for information, provide assistance, be available for meetings and to advise on matters relating to work.

 

15.3                            In the event that the Company exercises its rights under clause 15.1 of this agreement then any Garden Leave shall be set off against and therefore reduce the periods for which the restrictions in clauses 13.2 and 13.3 of this agreement apply.

 

16.                                AMALGAMATION, RECONSTRUCTION AND CHANGE OF DIRECTOR

 

16.1                            If the Company is wound up for the purposes of reconstruction or amalgamation the Executive shall not as a result or by reason of any termination of the Appointment or the redefinition of his duties within the Company or the Group arising or resulting from any reorganisation of the Group have any claim against the Company for damages for termination of the Appointment or otherwise so long as he shall be offered employment with any concern or undertaking resulting from such reconstruction reorganisation or amalgamation on terms and conditions no less favourable to the Executive than the terms contained in this agreement.

 

16.2                            If the Executive shall at any time have been offered but shall have unreasonably refused or failed to agree to the transfer of this agreement by way of novation to a company which has acquired or agreed to acquire not less than 50 per cent of the equity share capital of the Company the Company may terminate the Appointment by such notice as is required by s86 of the Employment Rights Act 1996 given within one month of such offer.

 

14



 

16.3                            The appointment of the Executive as a director of the Company or any Group Company does not amount to a term of employment and the Company reserves the right to remove the Executive from any such directorship at any time for any reason.  Where the Company exercises this right, this shall not amount to a breach of this agreement and shall not give rise to a claim for damages or compensation.

 

17.                                DISCIPLINARY AND GRIEVANCE PROCEDURES

 

17.1                            There is no disciplinary procedure which applies to the Executive’s employment with the Company.

 

17.2                            The Executive shall refer any grievance he may have about his employment or an appeal in connection with any disciplinary decision relating to him to the President of Wesco Holdings Inc. in writing in the first instance.

 

17.3                            The Board shall have the right to suspend the Executive from his duties on such terms and conditions as the Board shall determine for the purpose of carrying out an investigation into any allegation of misconduct or negligence or an allegation of bullying harassment or discrimination against the Executive and pending any disciplinary hearing.  The Company shall be required to continue to pay the Salary and provide all other contractual benefits to the Executive during any period of suspension.  The Company shall not be required to give any reason for exercising its right under this clause.

 

18.                                DATA PROTECTION

 

18.1                            The Executive confirms that he has read and understood the Company’s data protection policy, a copy of which is [contained in the Staff Handbook][available on the intranet].  The Company may change its data protection policy at any time and will notify employees in writing of any changes.

 

18.2                            The Executive’s personal data will be held by the Company in its manual and automated filing systems.  The Company will process and may disclose such data and the Executive consents to the processing and disclosure of such data both inside and, where necessary, outside the European Economic Area (including in particular, but without limitation, the USA for the following purposes:

 

18.2.1                                           in order for the Appointment and this agreement to be performed;

 

18.2.2                                           in order to comply with any legal obligations imposed on the Company or any Group Company;

 

18.2.3                                           for decisions to be made regarding the Executive’s employment or continued employment;

 

18.2.4                                           for obtaining or carrying out work from or for customers or potential customers;

 

18.2.5                                           for the purpose of any potential sale of over 50 per cent of the shares of the Company or any Holding Company of the Company or other change of control or any potential transfer of the Executive’s employment under the Transfer of Undertaking (Protection of Employment) Regulations 2006.

 

Disclosure may include, in the case of sale, change of control or transfer, disclosure to the potential purchaser or investor and their advisors and, in the case of obtaining or carrying out work, disclosure to customers or potential customers.

 

15



 

18.3                            The Company will process and may disclose sensitive data and the Executive consents to the processing and disclosure of such data as follows:

 

18.3.1                                           information about the Executive’s physical or mental health or condition for the purpose of the performance of the Appointment and this agreement, monitoring sickness absence, dealing with sick pay and determining the Executive’s fitness to carry out duties on behalf of the Group;

 

18.3.2                                           information about the Executive’s sex, marital status, race, ethnic origin or disability for the purpose of monitoring to ensure equality of opportunity and compliance with equal opportunities legislation;

 

18.3.3                                           information relating to any criminal proceedings in which the Executive has been involved for insurance purposes and in order to comply with legal requirements and obligations to third parties.

 

18.4                            The Executive shall use all reasonable endeavours to keep the Company informed of any changes to his personal data.

 

18.5                            The Executive acknowledges that in the course of this Appointment he shall have access to personal and sensitive data relating to other employees and he agrees to comply with the Company’s data protection policy at all times.

 

19.                                MISCELLANEOUS

 

19.1                            The Executive shall pay and fully indemnify the Company against all income tax payable by the Company on his behalf by reason of any of the benefits received by the Executive in connection with the Appointment.  The Company shall be entitled to make deductions from the Salary or other payments due to the Executive to satisfy any such income tax liability.

 

19.2                            Notices may be given by either party by personal delivery or by letter or email or fax message addressed to the other party at (in the case of the Company) its registered office for the time being and (in the case of the Executive) his last known address. Any such notice given by letter shall be deemed to have been given 48 hours after posting and any such notice given by fax shall be deemed to have been given at the time on the confirmation report.

 

19.3                            There are no collective agreements in force which affect the terms and conditions of the Appointment.

 

19.4                            If any provision of this agreement (including without limitation the provisions contained in clause 13 shall be found by any court or administrative body of competent jurisdiction to be invalid or unenforceable, such invalidity or unenforceability shall not affect the other provisions of this agreement which shall remain in full force and effect.  If any provision of this agreement (including without limitation the provisions contained in clause 13 is so found to be invalid or unenforceable but would be valid or enforceable if some part of the provision were deleted, the provision in question shall apply with such modifications as may be necessary to make it valid.

 

19.5                            The Executive consents to any Group Company making his service contract (as defined in the Companies Act 2006) available for inspection in compliance with that Act notwithstanding that it contains his residential address.

 

16



 

20.                                ENTIRE AGREEMENT

 

20.1                            This agreement, together with the documents referred to in it constitutes the entire agreement and understanding between the parties in respect of the matters dealt with in them and supersedes cancels and nullifies any previous agreement between the parties or any of them relating to such matters notwithstanding the terms of any previous agreement or arrangement expressed to survive termination.

 

20.2                            Each of the parties acknowledges and agrees that in entering into this agreement, and the documents referred to in it, it does not rely on, and shall have no remedy in respect of, any statement, representation, warranty or understanding (whether negligently or innocently made) other than as expressly set out in this Agreement. The only remedy available to any party in respect of any such statement, representation, warranty or understanding shall be for breach of contract under the terms of this Agreement.

 

20.3                            Nothing in this clause 20 shall operate to exclude any liability for fraud.

 

21.                                CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

 

A person who is not party to this agreement shall have no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this agreement.  This clause does not affect any right or remedy of any person which exists or is available otherwise than pursuant to that Act.

 

22.                                COUNTERPARTS

 

This agreement may be executed in any number of counterparts each of which when executed by one or more of the parties hereto shall constitute an original but all of which shall constitute one and the same instrument.

 

IN WITNESS whereof the parties have executed this agreement as a deed on the date of this agreement

 

17



 

Executed as a deed, but not delivered until the

)

 

first date specified on page 1, by WESCO

)

 

AIRCRAFT EUROPE LIMITED by a

)

 

director in the presence of a witness:

)

Signature

  /s/ Julia Langton

 

 

 

 

Name (block capitals)

  JULIA LANGTON

 

 

Director

 

 

Witness signature 

  /s/ J. Dobrucki

 

 

 

 

 

 

Witness name 

  J. DOBRUCKI

 

 

(block capitals) 

 

 

 

 

 

 

 

Witness address 

41, Southlands Drive,

 

 

 

 

 

 

 

Fixby, Huddersfield,

 

 

 

 

 

 

 

HD2 - 2LT

 

 

 

 

Signed as a deed, but not delivered until the 

)

 

first date specified on page 1, by

)

 

ALEXANDER MURRAY in the presence of:

)

 

 

)

Signature

  /s/ Alexander Murray

 

 

 

 

Witness signature 

  /s/ J. Dobrucki

 

 

 

 

 

 

Witness name 

  J. DOBRUCKI

 

 

(block capitals) 

 

 

 

 

 

 

 

Witness address 

41, Southlands Drive,

 

 

 

 

 

 

 

Fixby, Huddersfield,

 

 

 

 

 

 

 

HD2 - 2LT

 

 

 

18




QuickLinks -- Click here to rapidly navigate through this document


Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        We hereby consent to the use in this Registration Statement on Amendment No. 1 to Form S-1 of Wesco Aircraft Holdings, Inc. of our report dated December 22, 2010 relating to the financial statements of Wesco Aircraft Holdings, Inc. (formerly known as Wesco Holdings, Inc.), which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement.

/s/ PricewaterhouseCoopers LLP
Los Angeles, California
May 12, 2011




QuickLinks


Exhibit 23.3

 

CONSENT TO USE OF NAME IN REGISTRATION STATEMENT

 

This Consent to Use of Name in Registration Statement is executed as of May 8, 2011, by a duly authorized representative of Stax Inc. (the “Company”).

 

The Company hereby consents to the use of the Company’s name and data from the independent report the Company published on behalf of Wesco Aircraft Holdings, Inc. (“Wesco”) in Wesco’s Registration Statement on Form S-1 and any amendments thereto (collectively, the “Registration Statement”), including references to the Company under the heading “Experts.” The Registration Statement is being filed by Wesco in connection with its anticipated initial public offering. The Company understands that the Registration Statement is a public document.

 

 

STAX INC.

 

 

 

 

 

By:

/s/ Paul D. Edwards

 

 

Name:

Paul D Edwards

 

 

Title:

Managing Director, Stax Inc.