UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED September 30, 2003.
------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
--------------- --------------
Commission File No. 0-1093
KAMAN CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Connecticut 06-0613548
- -------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1332 Blue Hills Avenue
Bloomfield, Connecticut 06002
----------------------------------------
(Address of principal executive offices)
(860) 243-7100
--------------------------------------------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2)
Yes x No
--- ---
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of October 31, 2003:
Class A Common 21,942,316
Class B Common 667,814
Page 1 of 29 Pages
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets(In thousands)
Assets September 30, 2003 December 31, 2002
------ ------------------ -------------------
Current assets:
Cash and cash equivalents $ 8,005 $ 5,571
Accounts receivable 211,350 195,857
Inventories:
Contracts and other
work in process $ 59,043 61,917
Finished goods 22,003 7,742
Merchandise for resale 84,120 165,166 95,056 164,715
------- -------
Income taxes receivable 6,050 5,192
Deferred income taxes 27,999 28,450
Other current assets 12,737 14,460
------- -------
Total current assets 431,307 414,245
Property, plant & equip., at cost 154,810 161,918
Less accumulated depreciation
and amortization 101,469 100,283
------- -------
Net property, plant & equipment 53,341 61,635
Goodwill and other intangible assets 50,753 50,994
Other assets, net 7,158 8,666
------- -------
Total assets $542,559 $535,540
======= =======
- 2 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets(In thousands) (continued)
Liabilities and Shareholders' Equity
------------------------------------
September 30, 2003 December 31, 2002
------------------ -------------------
Current liabilities:
Notes payable inc. current
portion of long-term debt $ 10,579 $ 10,307
Accounts payable 49,074 46,664
Accrued contract loss 22,846 26,674
Accrued restructuring costs 6,702 7,594
Other accrued liabilities 26,391 23,583
Advances on contracts 20,646 22,318
Other current liabilities 17,988 19,954
Income taxes payable 3,040 -
------- -------
Total current liabilities 157,266 157,094
Long-term debt, excl. current portion 53,774 60,132
Other long-term liabilities 27,331 26,367
Shareholders' equity 304,188 291,947
------- -------
Total liabilities and
shareholders' equity $542,559 $535,540
======= =======
See accompanying notes to condensed consolidated financial statements.
- 3 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, Continued:
Condensed Consolidated Statements of Operations
(In thousands except per share amounts)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------- --------------------
2003 2002 2003 2002
---- ---- ---- ----
Net sales $223,324 $218,266 $655,645 $650,500
Costs and expenses:
Cost of sales(1) 168,584 160,961 484,615 552,444
Selling, general and
administrative expense 53,415 48,191 156,799 149,681
Restructuring costs (2) - - - 8,290
Other operating
(income)/expense, net (493) (501) (1,107) (1,008)
Interest expense, net 739 713 2,258 1,580
(Gain)/loss on sale
of product lines
and other assets, net (1,317) 52 (18,143) (1,852)
Other(income)/expense, net 443 303 1,035 1,143
-------- -------- -------- --------
221,371 209,719 625,457 710,278
-------- -------- -------- --------
Earnings (loss)before
income taxes 1,953 8,547 30,188 (59,778)
Income taxes (benefit) 765 2 975 11,750 (20,325)
-------- -------- -------- --------
Net earnings (loss) $ 1,188 $ 5,572 $ 18,438 $(39,453)
======== ======== ======== ========
Net earnings (loss)per share:
Basic $ .05 $ .25 $ .82 $ (1.76)
Diluted (3) $ .05 $ .25 $ .81 $ (1.76)
======== ======== ======== ========
Dividends declared per share $ .11 $ .11 $ .33 $ .33
======== ======== ======== ========
(1)Cost of sales for the nine months ended September 30, 2002 includes the
write-off of K-MAX assets of $50,000 and Moosup facility assets of $2,679
which are associated with the charge taken in the Aerospace segment.
(2)Restructuring costs for the nine months ended September 30, 2002 relate
to the closure of the Moosup facility in 2003 and are associated with the
charge taken in the Aerospace segment.
(3)The calculated diluted per share amounts for the three months ended
September 30, 2003 and the nine months ended September 30, 2002 are
anti-dilutive, therefore, amounts shown are equal to the basic per share
calculation.
See accompanying notes to condensed consolidated financial statements.
- 4 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, Continued:
Condensed Consolidated Statements of Cash Flows(In thousands)
For the Nine Months
Ended September 30,
--------------------
2003 2002
------- -------
Cash flows from operating activities:
Net earnings (loss) $ 18,438 $(39,453)
Depreciation and amortization 7,657 8,520
Gain on sale of product lines
and other assets, net (18,143) (1,852)
Restructuring costs - 8,290
Non-cash write-down of assets - 52,679
Deferred income taxes 1,818 (22,250)
Other, net 1,618 2,430
Changes in current assets and liabilities,
excluding effects of acquisitions/divestitures:
Accounts receivable (17,820) (29,072)
Inventory (3,469) 713
Income taxes receivable (858) (1,409)
Accounts payable - trade 2,309 (8,380)
Accrued contract loss (3,828) 18,495
Accrued restructuring costs (892) (520)
Advances on contracts (893) (3,277)
Income taxes payable 3,040 -
Changes in other current assets and liabilities 6,056 (9,303)
------- -------
Cash provided by (used in) operating activities (4,967) (24,389)
------- -------
Cash flows from investing activities:
Proceeds from sale of product lines
and other assets 28,309 7,685
Expenditures for property, plant & equipment (6,682) (4,637)
Acquisition of business, less cash acquired (465) (35,302)
Other, net (1,016) (144)
------- -------
Cash provided by (used in) investing activities 20,146 (32,398)
------- -------
See accompanying notes to condensed consolidated financial statements.
- 5 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, Continued:
Condensed Consolidated Statements of Cash Flows(In thousands)
For the Nine Months
Ended September 30,
--------------------
2003 2002
------- -------
Cash flows from financing activities:
Changes to notes payable 293 7,283
Additions/(reductions) to long-term debt (6,358) 31,680
Proceeds from exercise of employee stock plans 956 1,150
Purchases of treasury stock (205) (5)
Dividends paid (7,431) (7,379)
Other - 979
------- -------
Cash provided by (used in) financing activities (12,745) 33,708
------- -------
Net increase (decrease) in cash and cash equivalents 2,434 (23,079)
Cash and cash equivalents at beginning of period 5,571 30,834
------- -------
Cash and cash equivalents at end of period $ 8,005 $ 7,755
======= =======
See accompanying notes to condensed consolidated financial
statements.
Notes to Condensed Consolidated Financial Statements
(In thousands)
Basis of Presentation
- ----------------------
The December 31, 2002 condensed consolidated balance sheet
amounts have been derived from the previously audited
consolidated balance sheet of Kaman Corporation and subsidiaries.
In the opinion of management, the balance of the condensed
financial information reflects all adjustments which are
necessary for a fair presentation of the financial position,
results of operations and cash flows for the interim periods
presented and are of a normal recurring nature, unless otherwise
disclosed in this report.
The statements should be read in conjunction with the notes to
the consolidated financial statements included in Kaman
Corporation's 2002 Annual Report to Shareholders.
- 6 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, Continued:
Notes to Condensed Consolidated Financial Statements
(In thousands)
Net Gain on Sale of Product Lines
- ---------------------------------
On January 15, 2003, the corporation sold its electric motor and
drive business to DRS Technologies, Inc. The 2003 nine months
results include a pre-tax gain of $17,415 as a result of this
transaction. The 2003 third quarter results include pre-tax gains
of $1,114 due to post-closing adjustments associated with the sale
of businesses in prior periods. The 2002 nine month results
include a pre-tax $1,928 gain from the sale of the Company's
microwave products line.
Cash Flow Items
- ---------------
Cash payments for interest were $2,742 and $2,137 for the nine
months ended September 30, 2003 and 2002, respectively. Net cash
payments for income taxes for the comparable periods were $7,527
and $2,714, respectively.
Comprehensive Income/(Loss)
- ---------------------------
Comprehensive income (loss) was $18,250 and $(39,606) for the
nine months ended September 30, 2003 and 2002, respectively.
Comprehensive income was $302 and $5,350 for the three months
ended September 30, 2003 and 2002, respectively. The changes
to net earnings (loss) used to determine comprehensive income
(loss) are foreign currency translation adjustments.
- 7 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, Continued:
Notes to Condensed Consolidated Financial Statements
(In thousands)
Restructuring Costs
- -------------------
The following table displays the activity and balances of these
pre-tax charges as of September 30, 2003:
Deductions
----------
Balance at Balance at
December 31, Cash Non-Cash September 30,
2002 Payments Charges 2003
----------- -------- -------- -------------
Restructuring costs
- -------------------
Employee termination
benefits $ 2,594 $ 892 $ - $ 1,702
Facility closings 5,000 - - 5,000
------ ------ ------ ------
Total restructuring costs $ 7,594 $ 892 $ - $ 6,702
====== ====== ====== ======
Accounts Receivable
- -------------------
Accounts receivable consist of the following:
September 30, December 31,
2003 2002
------------ -----------
Trade receivables, net of allowance
for doubtful accounts of
$3,041 in 2003, $2,853 in 2002 $ 79,016 $ 72,471
U.S. Government contracts:
Billed 10,953 11,607
Recoverable costs and accrued profit
- not billed 13,404 21,225
Commercial and other government contracts:
Billed 26,928 21,628
Recoverable costs and accrued profit
- not billed 81,049 68,926
-------- --------
Total $211,350 $195,857
======== ========
- 8 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, Continued:
Notes to Condensed Consolidated Financial Statements
(In thousands)
Shareholders' Equity
- --------------------
Changes in shareholders' equity were as follows:
Balance, January 1, 2003 $291,947
Net earnings 18,438
Foreign currency translation adjustment (188)
--------
Comprehensive income 18,250
Dividends declared (7,446)
Purchase of treasury stock (205)
Employee stock plans 1,642
--------
Balance, September 30, 2003 $304,188
========
- 9 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, Continued:
Notes to Condensed Consolidated Financial Statements
(In thousands)
Business Segments
- -----------------
Summarized financial information by business segment is as
follows:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
2003 2002 2003 2002
---- ---- ---- ----
Net sales:
Aerospace $ 62,785 $ 65,226 $187,421 $201,253
Industrial Distribution 122,571 120,259 364,699 358,734
Music Distribution 37,968 32,781 103,525 90,513
------- ------- ------- -------
$223,324 $218,266 $655,645 $650,500
======== ======== ======== ========
Operating profit (loss):
Aerospace $ 1,738 $ 7,180 $ 15,463 $(61,694)
Industrial Distribution 2,830 3,003 8,992 9,060
Music Distribution 2,772 2,289 6,010 4,351
------- ------- ------- -------
7,340 12,472 30,465 (48,283)
Interest, corporate and
other expense, net (6,704) (3,873) (18,420) (13,347)
Gain (loss) on sale of
product lines and
other assets, net 1,317 (52) 18,143 1,852
-------- -------- -------- --------
Earnings (loss)
before income taxes $ 1,953 $ 8,547 $ 30,188 $(59,778)
======= ======= ======= =======
September 30, December 31,
2003 2002
------------ -----------
Identifiable assets:
Aerospace $311,109 $308,275
Industrial Distribution 133,017 144,585
Music Distribution 73,477 68,448
Corporate 24,956 14,232
-------- --------
$542,559 $535,540
======== ========
- 10 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, Continued:
Notes to Condensed Consolidated Financial Statements
(In thousands except per share amounts)
Stock Option Accounting
- -----------------------
The following table reflects pro forma net earnings (loss) and
earnings (loss) per share had the corporation elected to record
employee stock option expense based on the fair value methodology:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
2003 2002 2003 2002
---- ---- ---- ----
Net earnings (loss):
As reported $ 1,188 $ 5,572 $ 18,438 $(39,453)
Less stock option expense (313) (344) (945) (1,044)
Tax effect 122 116 368 355
------ ------- ------- -------
Pro forma net
earnings (loss) $ 997 $ 5,344 $ 17,861 $(40,142)
====== ====== ====== ======
Earnings (loss) per share - basic:
As reported .05 .25 .82 (1.76)
Pro forma after option expense .04 .24 .79 (1.79)
Earnings (loss) per share - diluted:
As reported .05* .25 .81 (1.76)*
Pro forma after option expense .04* .24 .79 (1.79)*
These pro forma amounts may not be representative of future
disclosures since the estimated fair value of stock options is
amortized to expense over the vesting period, and additional
options may be granted in future years. The pro forma amounts
assume that the corporation had been following the fair value
approach since the beginning.
* The calculated diluted per share amounts for the three months
ended September 30, 2003 and the nine months ended September 30,
2002 are anti-dilutive, therefore, amounts shown are equal to the
basic per share calculation.
- 11 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, Continued:
Reclassification
- ----------------
Certain amounts from earlier quarters have been reclassified for
comparability. There was no impact on net earnings in any period.
Subsequent Event
- ----------------
Early in the fourth quarter of 2003, the corporation completed
its acquisition of the net assets and business of Industrial
Supplies, Inc. (ISI), a privately held distributor of bearing,
conveyor, electrical, fluid power and power transmission
components. ISI is headquartered in Birmingham, Alabama and has
annual sales of approximately $28 million.
Item 2. Management's Discussion and Analysis of
Financial
Condition and Results of Operations
Results of Operations
- ---------------------
Consolidated net sales for the quarter ended September 30, 2003
were $223.3 million compared to $218.3 million for the same
period of 2002. Consolidated net sales for the nine months ended
September 30, 2003 were $655.6 million compared to $650.5 million
in the previous year. Net sales in the nine month period of 2002
were reduced by $6.5 million as a result of the Australia SH-2G
helicopter program adjustment recorded in the second quarter of
that year.
Aerospace segment net sales were $62.8 million for the third
quarter of 2003 compared to $65.2 million in the comparable
2002 quarter (which included $2.2 million from the
Electromagnetics Development Center operation that was sold
in January of 2003). Net sales for the first nine months of 2003
were $187.4 million compared to $201.3 million in the previous
year (including $11.9 million from two divested businesses). The
second quarter 2002 adjustment mentioned above reduced net sales
by $6.5 million for the nine-month period of 2002. During the
quarter and first nine-months of 2003, the Kaman Aerospace
subsidiary was affected by several factors, including the absence
of new helicopter orders, the fact that the MD Helicopters, Inc.
(MDHI) subcontract program is in stop-work mode, the transition
of manufacturing from the Moosup, Connecticut facility to the
Jacksonville, Florida facility, and the current weak market for
commercial airliners, which has caused order stretch-outs and a
- 12 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
lower volume of deliveries than anticipated for certain Boeing
programs. These conditions have resulted in lower sales, which in
turn have resulted in overhead and general and administrative
expenditures being absorbed at higher rates by active aerospace
programs. This has led to generally lower profitability or losses
for these programs.
In this environment, management continues to evaluate its overall
cost structure. To date, management has elected to continue
expenditures for longer-term competitiveness in the commercial
aircraft market and to maintain its prime helicopter program
capabilities.
The Aerospace segment's programs include prime helicopter
manufacturing along with spare parts and support; aerostructure
and helicopter subcontract work as well as manufacture of
components such as self-lubricating bearings and drive-line
couplings for aircraft applications; and advanced technology
products.
The corporation's prime helicopter programs include the SH-2G
multi-mission maritime helicopter and the K-MAX medium-to-heavy
external lift helicopter. This business generated sales of
$21.3 million in the third quarter (about 34% of Aerospace segment
sales), reflecting a decrease in SH-2G sales that was more than
offset by the sale of two K-MAX aircraft previously under lease
with customers. Sales for the same period of 2002 were $20.3
million (approximately 31% of the segment's sales). SH-2G
helicopter programs constituted a majority of the segment's
helicopter program sales for the quarter with only the Australia
program currently still in process. The programs for New Zealand
and Poland have essentially been completed.
Work continues on the SH-2G (A) program for Australia which
involves eleven helicopters with support, including a support
services facility, for the Royal Australian Navy (RAN). The total
contract has an anticipated value of about $716 million (US). The
helicopter production portion of the program is valued at
approximately $595 million, of which about 95% has been recorded
as sales through September 30, 2003. As previously reported,
this contract is now in a loss position due to an increase in
anticipated costs to complete the program, which was reflected in
a $25.0 million pre-tax charge taken in the second quarter of 2002
and a $31.2 million pre-tax charge taken in the second quarter
of 2001.
- 13 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Production of all the SH-2G(A) aircraft is essentially complete.
As previously reported, all of the aircraft lack the full
Integrated Tactical Avionics System (ITAS) software because of a
contract dispute with the original software supplier. Replacement
subcontractors are in the process of completing that element of
the program and the corporation has responsibility for aircraft
system integration (previously a subcontracted task). In the
third quarter of 2003, the Australian government began the process
of provisional acceptance for the aircraft. The RAN intends to
use the aircraft for training purposes until the full ITAS is
installed and the aircraft have been finally accepted. The
corporation currently expects that the software will be fully
completed, installed and operational on all of the Australia
aircraft by the end of 2004. While management believes that its
reserves are sufficient to cover estimated costs to complete the
program, the task of software integration is yet to come and that
task could present issues that are difficult to anticipate.
Except for post-production support, the program for New Zealand,
involving five aircraft with support to serve the Royal New
Zealand Navy, has been successfully completed. The contract has
a value of about $190 million (US), of which about 99% has been
recorded as sales through September 30, 2003.
In a smaller program, the corporation has completed work on the
reactivation of four existing SH-2G aircraft previously in
service with the U.S. Navy Reserves for the government of Poland.
The corporation has also completed training for pilots, sensor
operators and maintenance personnel. It is expected that the
aircraft will operate aboard two Polish Navy FFG-7 class frigates
that Poland also acquired from the U.S. Navy.
The corporation continues to pursue other opportunities for the
SH-2G helicopter in the international defense market. This market
is highly competitive and heavily influenced by economic and
political conditions. However, management continues to believe
that the aircraft is in a good competitive position to meet the
specialized needs of navies around the world that operate smaller
ships for which the SH-2G is ideally sized.
The corporation also maintains a consignment of the U.S. Navy's
inventory of SH-2 spare parts under a multi-year agreement that
provides the corporation the ability to utilize certain inventory
for support of its SH-2G programs.
With respect to its K-MAX helicopter, the corporation continues
to pursue both a sale and short-term lease program for existing
K-MAX aircraft inventory, which was written down to an estimated
fair market last year As previously reported, this approach
follows a 2002 market evaluation of the K-MAX helicopter program
which had experienced several years of significant market
- 14 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
difficulties. The corporation will produce additional aircraft
only upon firm order by a customer. During the third quarter of
2003, two K-MAXs were leased and two others were converted from
leases to sales. These sales produced pre-tax profit of $2.1
million.
The Aerospace segment also performs aerostructure and helicopter
subcontract work for a variety of aerospace manufacturers and
produces proprietary self-lubricating bearings. This business
generated sales of $25.7 million in the third quarter of 2003
(about 41% of Aerospace segment sales) compared to $31.2 million
for same period a year ago (about 48% of this segment's sales).
Aerostructures subcontract work involves commercial and military
aircraft programs. Current programs include production of
assemblies such as wing structures and other parts for virtually
all Boeing commercial aircraft and the C-17 military transport.
This element of the Aerospace segment continues to be an area of
strategic emphasis for the corporation. The low current and
projected build rates for commercial airliners affect this
business directly and the market has become increasingly
competitive and difficult on an industry-wide basis. The move
from Moosup to Jacksonville was specifically undertaken to
provide a lower cost base from which to compete. The physical
completion of that move has been accompanied by phase-out costs
in Moosup as well as learning curve and other ramp-up costs in
Jacksonville, which have resulted in lower profitability or
losses in certain aerostructures programs. While management
believes that these costs hit their peak in the third quarter of
2003, the opportunity to operate at lower cost in Jacksonville
remains evident and is an expectation for the future. The
Jacksonville facility is now ready to accept additional business,
which may take time to develop in the present environment.
Helicopter subcontract work involves commercial and military
programs. Current work includes multi-year contracts for
production of fuselages and rotor systems for various MD
Helicopters, Inc. aircraft. Total orders received from MDHI
have run at significantly lower rates than originally
anticipated due to lower than expected demand. The corporation's
investment in these contracts consists of $4.5 million in billed
receivables as of October 1, and $16.9 million in recoverable
costs - not billed (which includes start-up costs and other program
expenditures). The corporation has received several partial
payments in 2003, including a payment received on October 1, 2003.
The recoverability of unbilled costs will depend to a significant
extent upon MDHI's future requirements. The corporation has
stopped production on these programs while working with MDHI to
resolve overall payment issues and establish conditions under
which production can be resumed.
- 15 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The segment's Kamatics operation manufactures proprietary
self-lubricating bearings used in aircraft flight controls,
turbine engines and landing gear and produces driveline
couplings for helicopters. This business had increased sales in
the reporting period with military sales helping to offset
continued softness in commercial and regional aircraft
manufacturing. Kamatics' products are in wide use in commercial
airliners operated by major and regional airlines, and Boeing is
Kamatics' largest customer. The acquisition a year ago of RWG
Frankenjura-Industrie Flugwerklager GmbH (RWG), a small German
specialty bearing manufacturer, is expected to strengthen Kaman's
presence in European markets. Airbus Industrie is RWG's largest
customer.
The Aerospace segment also produces advanced technology products.
Sales for the third quarter of 2003 were $15.8 million
(approximately 25% of Aerospace segment sales) compared to $13.7
million in the prior year period (about 21% of this segment's
sales). These products involve systems, devices and assemblies
for a variety of military and commercial applications, including
safe, arm and fuzing devices for several missile and bomb
programs; precision non-contact measuring systems for industrial
and scientific use; electro-optic systems for mine detection and
other applications; and high reliability memory systems for
airborne, shipboard, and ground-based programs.
The corporation's Kaman Dayron operation, which was acquired in
July 2002, is a weapons fuze manufacturer for a variety of
munitions programs and has the contract to develop a fuze for the
U.S. Air Force and Navy Joint Programmable Fuze (JPF) program.
Securing the JPF program was the principal motivation for making
the Dayron acquisition, as the program is expected to generate
substantial business for the corporation once final qualification
has been achieved and production orders have been received. As a
result of qualification test results received during the first
quarter of 2003, the corporation is implementing certain changes
to the fuze design and production process and is conducting
internal testing. This additional qualification work has delayed
production unit sales and has increased program costs.
Management understands that successful completion of final
qualification testing is critical and now expects to resume that
testing by the end of 2003 and begin production in 2004.
The corporation has divested two non-core portions of the
Aerospace segment. Specifically, in the second quarter of 2002,
the corporation sold its microwave products line. That product
line was formerly associated with the Kaman Sciences Corp.
subsidiary which was sold in 1997. Microwave product sales were
about $2.1 million in the first nine months of 2002. In January
2003, the corporation sold its Electromagnetics Development
- 16 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Center (EDC), an electric motor and drive business that had
sales of approximately $9.8 million during the first nine months
of 2002.
Industrial Distribution segment net sales for the third quarter
of 2003 were $122.6 million compared to $120.3 million a year
ago. Net sales for the nine-month period of 2003 were $364.7
million compared to $358.7 million a year ago. This segment is
the third largest U.S. industrial distributor servicing the
bearings, electrical/mechanical power transmission, fluid power,
motion control and materials handling market in the United States.
This segment offers more than 1.5 million items, as well as value
added services, through a network of nearly 200 branches and
regional distribution centers in the U.S., Canada, and Mexico.
The company currently covers 68 out of the top 100 industrial
markets in the U.S., with a customer base of over 50,000
businesses in nearly every sector of heavy and light industry.
As a result, this segment is directly affected by national
macroeconomic variables such as the percentage of plant capacity
utilization within the U.S. industrial base, and the business
tends to track the U.S. Industrial Production Index with a short
lag. Conditions for manufacturers have remained soft since the
second half of 2000, with capacity utilization remaining
considerably below the 80 percent threshold considered at recession
level by the U.S. government. As manufacturing continues to move
off shore and customers permanently close facilities, recovery in
industrial production becomes even more difficult. Management
believes that signs of meaningful national economic recovery have
been inconsistent and inconclusive with the tone of the market at
the beginning of the fourth quarter remaining weak.
Management believes that it has the appropriate platforms,
including the technology, systems management and customer and
supplier relationships to compete effectively in the evolving
industrial distribution industry. The company's size and scale
of operations allow it to attract highly skilled personnel and
realize internal operating efficiencies, and also to take
advantage of vendor incentives in the form of rebates, which tend
to favor the larger distributors. Management believes that the
company's resources and product knowledge enable it to offer a
comprehensive product line and invest in sophisticated inventory
management and control systems while its position in the industry
enhances its ability to rebound during economic recoveries and
grow through acquisitions.
Success in this market requires a combination of competitive
pricing and value-added services that save the customer money
while helping it become more efficient and productive. Over the
past several years, large companies have increasingly
centralized their purchasing through suppliers that can service
all of their plant locations across a wide geographic area. As
- 17 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
this trend continues, the corporation has expanded its presence in
geographic markets considered key to winning these customers
through acquisitions in the upper midwest and Mexico, and the
selective opening of new branches. Furthering this strategy,
early in the fourth quarter of 2003, the company acquired the
net assets and business of Industrial Supplies, Inc., (ISI) of
Birmingham, AL, a distributor of a wide variety of bearing,
conveyor, electrical, fluid power and power transmission
components used by manufacturing, mining, steel, lumber, pulp
and paper, food and other industries. ISI maintained a total of
four Alabama facilities and one Florida facility. This
acquisition expands the company's presence in the increasingly
important southeast industrial market. Management's goal is to
grow the Industrial Distribution segment by expanding into
additional areas that enhance its ability to compete for large
regional and national customer accounts.
As previously reported, this segment has experienced an increase
in the number of "John Doe" type legal proceedings filed against
it, generally relating to parts allegedly supplied to the U.S.
Navy's shipyard in San Diego, California by a predecessor company
over 25 years ago, that may have contained asbestos. While
management believes that the segment has good defenses to these
claims, which it intends to assert, certain claims have been
settled for immaterial amounts, with contribution from insurance
carriers. Approximately sixty-one claims are currently
outstanding, involving the company among many other defendants.
Management does not currently expect that this situation will
have a material adverse effect on the corporation.
Music Distribution segment net sales for the third quarter of
2003 were $37.9 million, including $4.3 million from Latin
Percussion, Inc. (LP) which was acquired in October 2002,
compared to $32.8 million for the same period last year. For the
first nine months of 2003, net sales were $103.5 million,
including $13.2 million contributed by LP, compared to $90.5
million in the same period of 2002. This segment had good results
for the third quarter of 2003, although the base business did not
grow since consumers have generally taken a cautious approach to
the economy. The strength of the Christmas season is expected to
be an important factor in segment results for the year.
This segment is America's largest independent distributor of
music instruments and accessories, offering more than 15,000
products from five facilities in the U.S. and Canada to retailers
of all sizes for musicians of all capabilities. This segment's
business is directly affected by consumer confidence levels and
results in the base business to date in 2003 reflect a somewhat
weak consumer environment, although this has been more than
offset by LP's performance. LP is considered the world leader in
hand percussion instruments. The segment's array of other
- 18 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
instruments includes premier and proprietary products, such as
the company's Ovation (registered trademark) and Hamer (registered
trademark) guitars, and Takamine (registered trademark) guitars
under its exclusive North American distribution agreement. The
segment has significantly extended its line of percussion products
and accessories over the past two years, augmenting its CB,
Toca (registered trademark) and Gibraltar (registered trademark)
lines with the addition of an exclusive distribution agreement
with Gretsch (registered trademark) drums in 2001, the
acquisition of LP in 2002, and in the third quarter of 2003 the
acquisition of Genz Benz Enclosures, Inc., a small manufacturer
of amplification and sound reinforcement equipment. Genz Benz
had been working closely with the company for several years
through an exclusive distribution agreement, so the acquisition
brings this segment control of the product sources rather than
immediate incremental sales.
The corporation's segments, in total, had net operating profits
of $7.3 million for the third quarter of 2003 compared to $12.5
million for the comparable period of 2002. For the nine months
ended September 30, 2003, the corporation's segments, in total,
had net operating profits of $30.5 million compared to a net loss
of $48.3 million for the 2002 period. The 2002 nine-month period
includes pre-tax charges of $86.0 million taken in the second
quarter of that year to cover the write-down of K-MAX helicopter
assets, principally inventories; for cost growth associated with
the Australian SH-2G(A) helicopter program; and to phase out
operations at the corporation's Moosup plant.
For the third quarter of 2003, the Aerospace segment had
operating profits of $1.7 million (including the effect of $946
thousand in ongoing relocation and re-certification costs related
to the Moosup plant closure)compared to $7.2 million last year.
In the first nine months of 2003, this segment had operating
profits of $15.5 million (including the effect of $2.1 million in
ongoing relocation and re-certification costs related to the Moosup
plant closure) compared to an operating loss of $61.7 million a
year earlier as a result of the pre-tax charges. Aerospace segment
results for the quarter and nine-month period ended September 30,
2003 were affected by the same factors described in the previous
discussion of net sales for those periods. Closure of the
corporation's Moosup plant is scheduled to occur by the end of
2003. In connection with that plant closure, the corporation
recorded a charge of about $3.3 million in the second quarter of
2002 relating to severance costs at the Moosup and Bloomfield,
Connecticut locations which is expected to involve the separation
from service of approximately 400 employees (of which $1.6
million had been paid for 365 such separations as of September 30,
2003).
- 19 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Operating profits in the Industrial Distribution segment were
$2.8 million in the third quarter of 2003 compared to $3.0
million in the prior year period. This segment's operating
profits for the first nine months of 2003 were $9.0 million
compared to $9.1 million in the same period last year. These
results reflect the softness in industrial production that has
existed since the second half of 2000 and increasingly intense
price competition which has resulted from manufacturing plant
closures and the movement of many other manufacturers off-shore.
Vendor incentives in the form of rebates (i.e., vendors provide
inventory purchase rebates to distributors at specified
volume-purchasing levels) continue to be an important contributor
to this segment's operating profits.
The Music Distribution segment's operating profits for the third
quarter of 2003 were $2.8 million compared to $2.3 million the
previous year while operating profits for the nine-month period
were $6.0 million compared to $4.4 million for the 2002 period.
The 2003 results are primarily due to the addition of LP.
Management is closely monitoring the upcoming Christmas season as
the strength of consumer spending at that time will be an
important factor in segment results for the year.
Net earnings for the third quarter of 2003 were $1.2 million, or
$0.05 per share diluted, including an after-tax gain of about
$700 thousand, or approximately $0.03 per share diluted, as the
result of post-closing adjustments associated with the sale of
businesses in prior periods, compared to $5.6 million, or $0.25
per share diluted in the same quarter of 2002. For the nine
months ended September 30, 2003, net earnings were $18.4 million,
or $0.81 per share diluted, including a $10.6 million after-tax
gain, or $0.48 per share ($17.4 million on a pre-tax basis) on the
sale of EDC, compared to a net loss of $39.5 million, or $1.76 net
loss per share diluted in the comparable period of 2002. The 2002
nine-month period results also include a pre-tax gain of
$1.9 million from the sale of the corporation's microwave products
line during that period.
For the nine months ended September 30, 2003, net interest
expense increased by 42.9% to $2.3 million compared to the same
period of 2002.
The consolidated effective income tax rate for the nine-month
period ended September 30, 2003 was 38.9% compared to a tax
recovery rate of 34.0% for the same period last year.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States
- 20 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant accounting
policies are disclosed in the Notes to Consolidated Financial
Statements in the corporation's Annual Report on Form 10-K for the
year ended December 31, 2002. The most significant current areas
involving management judgments and estimates are described below.
Actual results could differ from those estimates.
LONG-TERM CONTRACTS - REVENUE RECOGNITION
- -----------------------------------------
Sales and estimated profits under long-term contracts are
principally recognized on the percentage-of-completion method of
accounting, generally using either a ratio that costs incurred
bear to estimated total costs, after giving effect to estimates of
costs to complete based upon most recent information for each
contract, or units-of-delivery as the measurement basis for effort
accomplished. Reviews of contracts are made regularly throughout
their lives and revisions in profit estimates are recorded in the
accounting period in which the revisions are made. Any
anticipated contract losses are charged to operations when first
indicated.
ACCOUNTS RECEIVABLE
- -------------------
Trade accounts receivable consist of amounts billed and currently
due from customers. The allowance for doubtful accounts reflects
management's best estimate of probable losses inherent in the
trade accounts receivable balance. Management determines the
allowance for doubtful accounts based on known troubled accounts,
historical experience, and other currently available evidence.
Billed amounts for U.S. Government, commercial, and other
government contracts consist of amounts billed and currently due
from customers. Recoverable costs and accrued profit - not billed
for U.S. Government, commercial, and other government contracts
primarily relate to costs incurred on contracts which are expected
to become billable upon future deliveries, achievement of specific
contract milestones or completion of engineering and service type
contracts.
INVENTORIES
- -----------
Inventory of merchandise for resale is stated at cost (using the
average costing method) or market, whichever is lower. Contracts
and work in process, and finished goods are valued at production
- 21 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
cost represented by material, labor and overhead, including
general and administrative expenses where applicable. Contracts
and work in process, and finished goods are not recorded in excess
of net realizable values.
GOODWILL AND OTHER INTANGIBLE ASSETS ACCOUNTING
- -----------------------------------------------
Goodwill and certain other intangible assets are evaluated at
least annually for impairment. The corporation utilizes discounted
cash flow models to determine fair value used in the goodwill and
other intangible asset impairment evaluations. Management's
estimates of fair value are based upon factors such as projected
sales and cash flows and other elements requiring significant
judgments. The corporation utilizes the best available
information to prepare its estimates and perform impairment
evaluations; however, actual results could differ significantly,
resulting in the future impairment of recorded goodwill and other
intangible asset balances.
VENDOR INCENTIVES
- -----------------
The corporation enters into agreements with certain vendors
providing for inventory purchase rebates that are generally earned
upon achieving specified volume-purchasing levels. The corporation
recognizes these rebates as a reduction in cost of goods sold as
rebates are earned. While management believes that the
corporation will continue to receive rebates from vendors, there
can be no assurance that vendors will continue to provide
comparable amounts in the future.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the nine-month period of 2003, operating activities used a net
$5.0 million of cash, principally due to increased accounts
receivable and inventories in the Aerospace segment. In the
Aerospace segment, accounts receivable increased primarily due to
the Australia SH-2G program and inventories increased primarily
due to K-MAX helicopter program and aerostructures subcontracting
activities. This was offset in part by a decrease in inventories
in the Industrial Distribution segment.
During the first nine months of 2003, the largest element of cash
provided from investing activities consisted of the proceeds from
the sale of the EDC operation. Cash used in financing activities
for the nine-month period of 2003 consisted of reductions in
long-term debt and payments of dividends to shareholders.
- 22 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
At September 30, 2003, the corporation had $21.6 million of its 6%
convertible subordinated debentures outstanding. The debentures
are convertible into shares of Class A common stock at any time on
or before March 15, 2012 at a conversion price of $23.36 per
share, generally at the option of the holder. Pursuant to a
sinking fund requirement that began March 15, 1997, the
corporation redeems approximately $1.7 million of the outstanding
principal of the debentures each year.
In November 2000, the corporation's board of directors approved a
replenishment of the corporation's stock repurchase program,
providing for repurchase of an aggregate of 1.4 million Class A
common shares for use in administration of the corporation's
stock plans and for general corporate purposes. As of September 30,
2003, a total of about 269,000 shares had been repurchased under
this replenishment program.
Total average bank borrowings were $43.7 million for the nine-month
period of 2003 compared to $12.9 million in the same period of
2002.
The corporation maintains a revolving credit agreement involving
a group of financial institutions. The agreement currently provides
a maximum unsecured line of credit of $225 million which consists
of a $150 million commitment for five years (expiring in November
2005)and a $75 million commitment under a "364 day" arrangement
which is scheduled for renewal in November 2003. In order to take
advantage of the current interest rate environment, management is
considering the potential for a fixed rate financing to replace
the "364 day" facility and as a result, will not renew the
"364 day" facility.
The most restrictive of the covenants contained in the current
revolving credit agreement requires the corporation to have
EBITDA, as defined, at least equal to 300% of net interest expense,
on the basis of a rolling four quarters and a ratio of consolidated
total indebtedness to total capitalization of not more than 55%.
In the third quarter of 2003, the revolving credit agreement was
amended to permit potential lenders under a fixed rate financing
of up to $75 million to obtain the same covenant and guarantee
protections that the revolving credit agreement lenders possess.
In connection with the acquisition of RWG, in July 2002 the
corporation established a 9.5 million Euro term loan and revolving
credit facility with Wachovia Bank, National Association, one of
its revolving credit agreement lenders having offices in London.
In general, the agreement contains the same financial covenants as
the revolving credit agreement described previously and the term of
this facility will expire at the same time as the revolving credit
agreement. During the third quarter of 2003, this agreement was
amended to conform with the previously described amendment to the
- 23 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
revolving credit agreement. In the third quarter of 2003, the
corporation entered into an arrangement with Wachovia Bank,
National Association which permits the corporation to lock in a
fixed rate of interest for the RWG financing.
Letters of credit are generally considered borrowings for purposes
of the revolving credit agreement. A total of $29.8 million in
letters of credit were outstanding at September 30, 2003. During
the second quarter of 2003, the letter of credit for the
helicopter production portion of the Australia SH-2G program was
reduced to a balance of $20 million, which will remain in place
until final acceptance of the aircraft by the RAN.
Management believes that the corporation's annual cash flow from
operations and available unused bank lines of credit under its
revolving credit agreement will be sufficient to finance its
working capital and other recurring capital requirements for the
foreseeable future.
FORWARD-LOOKING STATEMENTS
- --------------------------
This report contains forward-looking information relating to the
corporation's business and prospects, including the SH-2G and
K-MAX helicopter programs, aerostructures and helicopter
subcontract programs and components, advanced technology products,
the industrial and music distribution businesses, operating cash
flow, and other matters that involve a number of uncertainties
that may cause actual results to differ materially from
expectations. Those uncertainties include, but are not limited
to: 1) the successful conclusion of competitions and thereafter
contract negotiations with government authorities, including
foreign governments; 2) political developments in countries where
the corporation intends to do business; 3) standard government
contract provisions permitting renegotiation of terms and
termination for the convenience of the government; 4) economic
and competitive conditions in markets served by the corporation,
particularly industrial production and commercial aviation, and
global economic conditions; 5) satisfactory completion of the
Australian SH-2G(A)program, including successful completion and
integration of the full ITAS software; 6) recovery of the
corporation's investment in the MD Helicopters, Inc. contracts;
7) actual costs for moving equipment and recertifying products
and processes in connection with phase out of the Moosup,
Connecticut facility; 8) JPF program final qualification test
results and receipt of production orders; 9)achievement of
enhanced business base in the Aerospace segment in order to
better absorb overhead and general and administrative expenses;
10) successful sale or lease of existing K-MAX inventory; 11)
- 24 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
the condition of consumer markets for musical instruments,
including the strength of the Christmas season; 12) profitable
integration of acquired businesses into the corporation's
operations; 13) changes in supplier sales or vendor incentive
policies; 14) the effect of price increases or decreases; and
15) currency exchange rates, taxes, changes in laws and
regulations, inflation rates, general business conditions and
other factors. Any forward-looking information should be
considered with these factors in mind.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
There has been no significant change in the corporation's
exposure to market risk during the nine-month period ended
September 30, 2003. Please see the corporation's annual report on
Form 10-K for the year ended December 31, 2002 for discussion of
the corporation's exposure to market risk.
Item 4. Controls and Procedures
(a) Disclosure Controls and Procedures. The corporation's
management, with the participation of the corporation's Chief
Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the corporation's disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) as of the end of the period covered by this
report. Based on such evaluation, the corporation's Chief
Executive Officer and Chief Financial Officer have concluded that,
as of the end of such period, the corporation's disclosure
controls and procedures were effective.
We note, however, that even the most well designed and executed
control systems are subject to inherent limitations and as a
result, the control system can provide reasonable but not absolute
assurance that its objectives will be met under all potential
future conditions. The corporation's Chief Executive Officer and
Chief Financial Officer have concluded that the corporation's
disclosure controls and procedures are effective at a reasonable
assurance level.
(b) Internal Control Over Financial Reporting. There have not
been any changes in the corporation's internal control over
financial reporting (as such term is defined in Rules 13a-15(f)
and 15d-15 (f) under the Exchange Act) during the fiscal quarter
to which this report relates that have materially affected, or are
reasonably likely to materially affect, the corporation's internal
control over financial reporting.
- 25 -
KAMAN CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The corporation has previously reported on the matter of Arthur
Rocque, Jr. (Commissioner of the Department of Environmental
Protection of the State of Connecticut) v. Kaman Aerospace
Corporation, Kamatics Corporation and the Ovation Division of
Kaman Music Corporation in its reports on Form 10-K for the a)
fiscal year ended December 31, 2000, Document No. 0000054381-01-
500005 filed with the Securities and Exchange Commission on
March 15, 2001, and b) fiscal year ended December 31, 2002,
Document No. 0000054381-03-000079, filed with the Securities and
Exchange Commission on March 26, 2003. This matter involved
allegations of certain regulatory violations at facilities
located in Connecticut related to routine inspections which took
place between 1988 and 1998. Management believes that in all cases
where corrective action was required at the time of such
inspections, such action was promptly taken at that time. The
parties have now reached a settlement in the matter and a
Stipulation for Judgment was entered by the Superior Court on
October 8, 2003. The settlement includes a civil penalty of
$420,000, payable in installments through January 2005, a
permanent injunction applicable to the affected facilities for
a period of ten years, and annual environmental compliance audits
for a period of three years. Management believes that resolution
of this matter is not material to the business or financial
condition of the corporation.
- 26 -
KAMAN CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION, Continued
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits to Form 10-Q:
4.1 Amendment No. 2 to Revolving Credit Agreement
between the corporation and The Bank of Nova
Scotia and Fleet National Bank as Co-
Administrative Agents and Bank One, N.A. as the
Documentation Agent and The Bank of Nova Scotia
and Fleet Securities, Inc. as the Co-Lead
Arrangers and Various Financial Institutions
dated as of September 12, 2003.
4.2 Amendment to Credit Agreement between the
corporation, RWG Frankenjura-Industrie
Flugwerklager GmbH, and Wachovia Bank, N.A.,
dated September 12, 2003.
4.3 International Swap Dealers Association, Inc.
Master Agreement dated as of October 25, 2002
between Wachovia Bank, National Association and
the corporation.
11 Earnings (Loss) Per Share Computation
31.1 Certification of Chief Executive Officer
Pursuant to Rule 13a-14 under the
Securities and Exchange Act of 1934
31.2 Certification of Chief Financial Officer
Pursuant to Rule 13a-14 under the
Securities and Exchange Act of 1934
32.1 Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
- 27 -
KAMAN CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION, Continued
Item 6. Exhibits and Reports on Form 8-K (Continued)
(b) Reports on Form 8-K:
(1) A report on Form 8-K was filed on July 22, 2003,
reporting that the Company's financial results
for the second quarter and six months ended
June 30, 2003.
(2) A report on Form 8-K was filed on September 9,
2003 announcing that the Company has signed an
agreement to acquire Industrial Supplies, Inc.,
an Alabama corporation located in Birmingham,
Alabama.
(3) A report on Form 8-K was filed on October 31,2003
reporting the company's financial results for the
third quarter and nine months ended September 30,
2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
KAMAN CORPORATION
Registrant
Date: November 5, 2003 By: /s/ Paul R. Kuhn
-----------------------------
Paul R. Kuhn
Chairman, President and
Chief Executive Officer
(Duly Authorized Officer)
Date: November 5, 2003 By: /s/ Robert M. Garneau
-----------------------------
Robert M. Garneau
Executive Vice President and
Chief Financial Officer
- 28 -
KAMAN CORPORATION AND SUBSIDIARIES
Index to Exhibits
Exhibit 4.1 Amendment No. 2 to Revolving Credit Agreement
between the corporation and The Bank of Nova
Scotia and Fleet National Bank as Co-
Administrative Agents and Bank One, N.A. as the
Documentation Agent and The Bank of Nova Scotia
and Fleet Securities, Inc. as the Co-Lead
Arrangers and Various Financial Institutions dated
as of September 12, 2003. The Revolving Credit
Agreement dated as of November 13, 2000 was filed
as Exhibit 4 to Form 10-Q filed with the
Securities and Exchange Commission on November 14,
2000, Document No. 0000054381-00-500006, as
amended by Document No. 0000054381-02-000022 filed
as Exhibit 10 to Form 10-Q filed with the
Securities and Exchange Commission on August 14,
2002.
Exhibit 4.2 Amendment to Credit Agreement between the
corporation, RWG Frankenjura-Industrie
Flugwerklager GmbH, and Wachovia Bank, N.A., dated
September 12, 2003. The Credit Agreement dated
July 29, 2002 was filed as Exhibit 4c to Form 10-K
filed with the Securities and Exchange Commission
on March 26, 2003, Document No. 0000054381-03-
000079. Schedules and Exhibits to the Credit
Agreement, which are listed in its Table of
Contents, are omitted but will be provided to the
Commission upon request.
Exhibit 4.3 International Swap Dealers Association, Inc. Master
Agreement dated as of October 25, 2002 between
Wachovia Bank, National Association and the
corporation.
Exhibit 11 Earnings (Loss) Per Share Computation Attached
Exhibit 31.1 Certification of Chief Executive Officer
Pursuant to Rule 13a-14 under the
Securities and Exchange Act of 1934 Attached
Exhibit 31.2 Certification of Chief Financial Officer
Pursuant to Rule 13a-14 under the
Securities and Exchange Act of 1934 Attached
Exhibit 32.1 Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 Attached
Exhibit 32.2 Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 Attached
- 29 -
Exhibit 4.1
AMENDMENT NO. 2 TO
REVOLVING CREDIT AGREEMENT
This AMENDMENT NO. 2 TO REVOLVING CREDIT AGREEMENT (this
"Amendment") is made and dated as of September 12, 2003, by and
among (a) Kaman Corporation (the "Company"), (b) the Banks, and
(c) The Bank of Nova Scotia ("Scotiabank") and Fleet National Bank
("Fleet") as the Co-Administrative Agents for the Banks. Unless
otherwise defined herein, all capitalized terms used herein and
defined in the Credit Agreement are used herein as therein
defined.
WHEREAS, the Company, the Banks and the Co-Administrative
Agents and certain other parties have entered into that Revolving
Credit Agreement, dated as of November 13, 2000 (as amended by
Amendment No. 1 to Revolving Credit Agreement, dated as of June
28, 2002, and as further amended, supplemented, restated or
otherwise modified from time to time, the "Credit Agreement"),
pursuant to which the Banks have made, and have committed to make,
Loans and other credit extensions to the Company on the terms set
forth therein; and
WHEREAS, the Company has requested that the Banks amend the
Credit Agreement and the Banks, on the terms and subject to the
conditions set forth below, have agreed to amend the Credit
Agreement;
NOW, THEREFORE, in consideration of the foregoing premises,
the Company, the Banks and the Co-Administrative Agents agree as
follows:
Section 1. Amendments to the Credit Agreement.
(a) Section 5.3(c) of the Credit Agreement is hereby
amended by adding the following new clause (iii) to the end
thereof:
"(iii) each Subsidiary may guarantee the
Indebtedness and obligations of the Company under the Note
Purchase Agreement and the New Notes; provided that any Subsidiary
which guarantees the Company's Indebtedness and obligations under
the Note Purchase Agreement and New Notes shall also have signed a
Subsidiary Guarantee."
(b) Section 5.6 of the Credit Agreement is hereby
amended as follows:
Page 1
(i) The definition of "Reduction Amount" set forth
in Section 5.6 is hereby amended and restated in its entirety to
read as follows:
""Reduction Amount" shall mean, with respect to
each sale of assets pursuant to Section 5.6(b), (a) the book value
of such assets sold (including assets sold in transactions in
which the Company leases back such assets) or any portion thereof,
in respect of which the Aggregate Percentage determined in
connection with such sale exceeds the Designated Percentage
multiplied by (b) the Sharing Percentage."
(ii) The following new definition is hereby inserted
in Section 5.6 in the appropriate alphabetical location:
""Sharing Percentage" shall mean, with respect
to the Banks at any time of determination, the percentage equal to
(a) the Total Commitment divided by (b) the sum of (ii) the Total
Commitment at such time and (ii) the outstanding principal amount
of the New Notes at such time."
(c) Section 5.8(c) of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
"(c) any Subsidiary Guarantee contemplated hereunder
(except to the extent set forth in any intercreditor agreement
entered into between the Banks and the holders of the New Notes on
or after the Second Amendment Effective Date)."
(d) Article V of the Credit Agreement is hereby amended
by adding a new Section 5.10 as follows:
"Section 5.10 Provisions Regarding New Notes.
With respect to the New Notes, permit the terms of the New Notes
and the Note Purchase Agreement to (a) contain any financial
covenants other than those contained in Article VI of this
Agreement or (b) permit any such financial covenants to be more
restrictive than their respective counterparts contained in
Articles VI of this Agreement, unless prior to or concurrently
with the execution of the Note Purchase Agreement or any
amendment, modification or supplement thereto which would result
in a breach of the provisions of this Section 5.10, the Company
has offered to amend this Agreement in order to incorporate herein
such additional and/or more restrictive financial covenant.
(e) Section 9.2 of the Credit Agreement is hereby
amended by adding the following new definitions in the appropriate
alphabetical location:
Page 2
"Amendment No. 2" shall mean Amendment No. 2 to
Revolving Credit Agreement, dated as of September 12, 2003, among
the Company, the Banks, and Fleet and Scotiabank as the Co-
Administrative Agents for the Banks.
"Note Purchase Agreement" shall mean the note
purchase agreement pursuant to which the New Notes are issued.
"New Notes" shall mean the unsecured notes issued on
or prior to June 30, 2004 by the Company in an aggregate principal
amount not to exceed $75,000,000, which notes (a) are guaranteed
by one or more of the Subsidiaries of the Company, (b) are pari
passu in right of payment to the Obligations and (c) have a
maturity date no earlier than September 30, 2007.
"Second Amendment Effective Date" shall mean the
"Effective Date" as defined in Amendment No. 2, which shall be on
September 12, 2003."
Section 2. Termination of Revolver B Commitment, Etc. Each
of the Company, the Banks and the Co-Administrative Agents hereby
agree that, immediately upon the Company's issuance of the New
Notes, the entire amount of the Revolver B Commitment shall
automatically and permanently terminate and the Company shall:
(a) pay in full the aggregate amount of all outstanding
Revolver B Loans and Bid Auction B Advances;
(b) pay in full the aggregate amount of all outstanding
Reimbursement Obligations in respect of Letters of Credit B; and
(c) deliver to the Administrator cash collateral (to be
held in a cash collateral account pursuant to a cash collateral
agreement satisfactory to the Administrator) in an amount equal to
the then existing Stated Amount of all outstanding Letters of
Credit B or (ii) deliver to the Issuer each outstanding Letter of
Credit B, marked "terminated" by the beneficiary
in each case together with all accrued interest thereon to the
date of such payment (including any amounts owing to the Banks
with a Revolver B Commitment under Section 1.17 arising as a
result of the prepayment of any such Loans on a date other than
the last Business Day of the Interest Period(s) applicable to such
Loans) and all Fees and other amounts then due the Banks with a
Revolver B Commitment under the Credit Agreement and each other
Credit Document.
Section 3. Intercreditor Agreement. Each of the Banks and
the Co-Administrative Agents hereby covenant and agree that, to the
extent requested by the holders of the New Notes, the Banks and
the Co-Administrative Agent shall enter into an intercreditor
agreement with such holders to define certain rights and
Page 3
obligations with respect to each other relating to the sharing of
payments made by any Subsidiary of the Company pursuant to the
Subsidiary Guarantees and/or the guarantees executed by the
Subsidiaries of the Company in favor of the holders of the New
Notes; provided such intercreditor agreement is substantially on
the terms set forth in Exhibit A hereto and otherwise in form and
substance reasonably acceptable to the Co-Administrative Agents
and the Company.
Section 4. Representation and Warranties. The Company
represents and warrants to each of the Banks and the Co-
Administrative Agents as follows:
(a) The representations and warranties of the Company
contained in the Credit Agreement (i) were true and correct in all
material respects when made and (ii) shall be true and correct in
all material respects on and as of the Effective Date.
(b) The execution and delivery by the Company of this
Amendment and the performance by the Company of its agreements and
obligations under this Amendment are within its corporate
authority, have been duly authorized by all necessary corporate
action. Such execution, delivery, and performance by the Company,
do not and will not (a) contravene any provision of the Company's
Governing Documents, (b) conflict with, or result in a breach of
the terms, conditions or provisions of, or constitute a default
under or result in the creation of any Lien upon any of the
property of the Company, under any agreement, trust, deed,
indenture, mortgage or other instrument to which the Company is a
party or by which the Company or any of its properties are bound
or affected, or (c) require any waiver, consent or approval by any
creditors, shareholders, or public authority.
(c) This Amendment and the Credit Agreement, as amended
hereby, constitutes the legal, valid and binding obligations of
the Company, enforceable in accordance with their respective
terms, except as enforcement may be limited by principles of
equity, bankruptcy, insolvency, or other laws affecting the
enforcement of creditors' rights generally.
(d) After giving effect to this Amendment, no Default or
Event of Default has occurred and is continuing.
Section 5. Condition to Effectiveness. This Amendment shall
become effective as of the date hereof (the "Effective Date")
subject to satisfaction of the following conditions precedent:
(a) Amendment Agreement. This Amendment shall have been
duly authorized, executed and delivered to the Administrator by
the Company and each of the Banks.
Page 4
(b) Guarantor Consent. Each of the Obligors (other than
the Company) shall have duly authorized, executed and delivered to
the Administrator its consent to this Amendment, in form and
substance satisfactory to the Administrator.
(c) Officer's Certificate. The Administrator shall have
received from the Company a certificate, dated the Effective Date,
of its Secretary as to:
(i) resolutions of its Board of Directors then in
full force and effect authorizing the execution, delivery and
performance of the Amendment;
(ii) the incumbency and signatures of the officers
of the Company authorized to act with respect to the Amendment;
and
(iii)any amendments to the Governing Documents of the
Company since such Governing Documents were last certified to the
Co-Administrative Agents.
Such certificate shall be in form and substance satisfactory to
the Administrator.
Section 6. Expenses. The Company shall pay all reasonable
out-of-pocket expenses incurred by the Co-Administrative Agents in
connection with the preparation, negotiation, execution, delivery
and enforcement of this Amendment, including, but not limited to,
the reasonable fees and expenses of Bingham McCutchen LLP.
Section 7. Miscellaneous. From and after the date hereof,
this Amendment shall be deemed a Credit Document for all purposes
of the Credit Agreement and the other Credit Documents and each
reference to Credit Documents in the Credit Agreement and the
other Credit Documents shall be deemed to include this Amendment.
Any breach by any Obligor of the covenants and obligations of such
Obligor contained herein shall be an immediate Event of Default.
Except as expressly provided herein, this Amendment shall not, by
implication or otherwise, limit, impair, constitute a waiver of or
otherwise affect any rights or remedies of the Co-Administrative
Agents or the Banks under the Credit Agreement or the other Credit
Documents, nor alter, modify, amend or in any way affect any of
the obligations or covenants contained in the Credit Agreement or
any of the other Credit Documents, all of which are ratified and
confirmed in all respects and shall continue in full force and
effect.
Section 8. Counterparts. This Amendment may be executed in
any number of counterparts, but all of such counterparts shall
together constitute but one and the same agreement. Delivery of an
executed counterpart of a signature page by facsimile transmission
shall be effective as delivery of a manually executed counterpart
Page 5
of this Amendment. In making proof of this Amendment, it shall
not be necessary to produce or account for more than one such
counterpart.
Section 9. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
CONNECTICUT (WITHOUT REFERENCE TO CONFLICT OF LAWS).
[Remainder of Page Intentionally Left Blank]
Page 6
IN WITNESS WHEREOF, the undersigned have duly executed this
Amendment as a sealed instrument as of the date first set forth
above.
KAMAN CORPORATION
By: /s/ Russell H. Jones
Name: Russell H. Jones
Title: Sr. V.P., CIO & Treasurer
THE BANK OF NOVA SCOTIA,
as a Co-Administrative Agent
By: /s/ Todd S. Meller
Name: Todd S. Meller
Title: Managing Director
FLEET NATIONAL BANK,
as a Co-Administrative Agent
and the Administrator
By: /s/ Kenneth S. Struglia
Name: Kenneth S. Struglia
Title: Director
Page 7
BANKS
THE BANK OF NOVA SCOTIA,
as a Bank and as an Issuer
By /s/ Todd S. Meller
Name: Todd S. Meller
Title: Managing Director
FLEET NATIONAL BANK
By /s/ Kenneth S. Struglia
Name: Kenneth S. Struglia
Title: Director
CITIZENS BANK OF
MASSACHUSETTS
By /s/ Stephanie Epkins
Name: Stephanie Epkins
Title: Vice President
WEBSTER BANK
By /s / Peter F. Samson
Name: Peter F. Samson
Title: Vice President
WACHOVIA BANK, NATIONAL
ASSOCIATION
By /s/ Jeanette A. Griffin
Name: Jeanette A. Griffin
Title: Director
Page 8
JPMORGAN CHASE BANK
By /s/ Thomas D. McCormick
Name: Thomas D. McCormick
Title: Vice President
MELLON BANK, N.A.
By /s/ Nancy E. Gale
Name: Nancy E. Gale
Title: Vice President
KEYBANK NATIONAL ASSOCIATION
By /s/ Suzannah Harris
Name: Suzannah Harris
Title: Assistant Vice President
Page 9
CONSENT OF GUARANTORS
Each of the undersigned hereby acknowledges and consents to
Amendment No. 2 to Revolving Credit Agreement, dated as of
September 12, 2003, and agrees that each of the Subsidiary
Guarantees, dated as of November 13, 2000, executed by such Person
in favor of each of the Bank Parties (as defined therein), and all
of the other Credit Documents to which such Person is a party
remain in full force and effect, and such Person confirms and
ratifies all of its obligations thereunder.
KAMAN AEROSPACE GROUP, INC.
By: /s/ Robert M. Garneau
Name: Robert M. Garneau
Title: Vice President & Treasurer
KAMAN INDUSTRIAL TECHNOLOGIES
CORPORATION
By: /s/ Robert M. Garneau
Name: Robert M. Garneau
Title: Vice President & Treasurer
KAMAN MUSIC CORPORATION
By: /s/ Robert M. Garneau
Name: Robert M. Garneau
Title: Vice President & Treasurer
KAMAN AEROSPACE CORPORATION
By: /s/ Robert M. Garneau
Name: Robert M. Garneau
Title: Vice President & Treasurer
Page 10
KAMAN AEROSPACE INTERNATIONAL
CORPORATION
By: /s/ Robert M. Garneau
Name: Robert M. Garneau
Title: Vice President & Treasurer
KAMATICS CORPORATION
By: /s/ Robert M. Garneau
Name: Robert M. Garneau
Title: Vice President & Treasurer
KAMAN X CORPORATION
By: /s/ Robert M. Garneau
Name: Robert M. Garneau
Title: Vice President & Treasurer
KMI EUROPE, INC.
By: /s/ Robert M. Garneau
Name: Robert M. Garneau
Title: Vice President & Treasurer
K-MAX CORPORATION
By: /s/ Robert M. Garneau
Name: Robert M. Garneau
Title: Vice President & Treasurer
Page 11
KAMAN PLASTICFAB GROUP, INC.
By: /s/ Robert M. Garneau
Name: Robert M. Garneau
Title: Vice President & Treasurer
PLASTIC FABICATING COMPANY, INC.
By: /s/ Robert M. Garneau
Name: Robert M. Garneau
Title: Vice President & Treasurer
KAMAN DAYRON, INC.
By: /s/ Robert M. Garneau
Name: Robert M. Garneau
Title: Vice President & Treasurer
Page 12
Exhibit A
Summary of Intercreditor Terms Relating to
the Guarantee Obligations of Kaman Subsidiaries
-----------------------------------------------
This is a summary of the intercreditor terms relating to the
rights and obligations of the Banks and the holders of the New
Notes (the "Noteholders", and together with the Banks,
collectively, the "Lenders") with respect to each other such that,
after a Notice of Election to Share (as defined below) has been
sent and so long as such notice remains in effect, any payments by
a Subsidiary of the Company received by any Lender on account of
the Noteholder Obligations (as defined below) or the Bank
Obligations (as defined below) shall be shared among all Lenders
equally and ratably in accordance with their respective Sharing
Percentages (as defined below).
Sharing Arrangements
- --------------------
(a) Upon and during the continuance of an "Event of Default"
under the Note Purchase Agreement, the Noteholders may invoke the
sharing provisions by sending to the Banks a Notice of Election to
Share.
(b) Upon and during the continuance of an "Event of Default"
under the Credit Agreement, the Banks may invoke the sharing
provisions by sending to the Noteholders a Notice of Election to
Share.
(c) Each Lender (a "Receiving Lender") agrees that on and
after the delivery by such Lender of a Notice of Election to Share
or its receipt of a Notice of Election to Share, and so long as
such notice has not been terminated, any payment of any kind
thereafter received by it on account of the Obligations (such
payment, a "Shared Payment") from or on behalf of any Subsidiary
of the Company under a Subsidiary Guarantee or a Noteholder
Guaranty, as the case may be, is to be distributed to each Lender
equally and ratably in accordance with the respective Sharing
Percentage of such Lender in effect immediately prior to giving
effect to the distribution of such Shared Payment. A Shared
Payment shall include, without limitation, any payment resulting
from a set-off of a deposit account, any offset or any payment or
distribution made in the context of any insolvency or
reorganization proceeding, but shall not include any payment
resulting from any realization on collateral that does not consist
of (x) securities or other property of a Subsidiary, or (y)
deposits and other sums credited by or due from the Co-
Administrative Agents or any Lender to such Subsidiary.
Page 13
Any payments made by the Company in respect of the Bank
Obligations or the Noteholder Obligations shall not be subject to
any of the sharing arrangements set forth in this Exhibit A.
Definitions
- -----------
"Bank Obligations" means all "Obligations" as defined in the
Credit Agreement.
"Noteholder Guaranty"- means a guaranty by the Subsidiaries of the
Company in favor of the Noteholders in respect of the Company's
obligations to the Noteholders under the Note Purchase Agreement
and the New Notes.
"Noteholder Obligations" means, collectively, without duplication,
all amounts owing by the Company and its Subsidiaries to the
Noteholders, pursuant to the terms of the Note Purchase Agreement,
the New Notes and the Noteholder Guaranty, in respect of fees,
expenses, and principal of, and interest and make-whole amount on,
the New Notes, and other amounts due under the Note Purchase
Agreement and the other related documents.
"Notice of Election to Share" means a notice executed and
delivered by the Noteholders or the Banks, as the case may be,
which notice shall invoke the sharing provisions provided in the
intercreditor agreement.
"Obligations" means, collectively, the Bank Obligations and the
Noteholder Obligations.
"Sharing Percentage" means, with respect to any Lender at any time
of determination, the percentage equal to (a) the sum of the
amount of the Obligations owed to such Lender at such time divided
by (b) the sum of the amount of the Obligations owed to all
Lenders at such time.
Page 14
Exhibit 4.2
Wachovia Bank, N.A.
1339 Chestnut Street
Philadelphia, PA 19107
[Wachovia Logo] Wachovia Securities
September 12, 2003
Via Facsimile and Overnight Delivery Service
- --------------------------------------------
Kaman Corporation
1332 Blue Hills Avenue
Bloomfield, Connecticut 06002
Attention: Robert M. Garneau
Executive Vice President & Chief Financial Officer
Re: Amendment to Credit Agreement
-----------------------------
Dear Mr. Garneau:
Reference is hereby made to:
(a) The Credit Agreement dated as of July 29, 2002 (as
amended, restated, supplemented or otherwise modified, the "Credit
Agreement") by and among Wachovia Bank, National Association, as
Lender ("Wachovia"), Kaman Corporation, as borrower and guarantor
("Kaman"), and RWG Frankenjura-Industrie Flugwerklager GmBH, as
borrower; and
(b) The Revolving Credit Agreement dated as of November 13,
2000 (as amended, restated, supplemented or otherwise modified,
the "Revolving Credit Agreement"), by and among Kaman, the banks
party thereto and The Bank of Nova Scotia ("Scotiabank") and Fleet
National Bank ("Fleet") as the Co-Administrative Agents for the
banks.
All capitalized undefined terms used in this letter shall
have the meanings assigned thereto in the Credit Agreement.
You have informed us that the Revolving Credit Agreement has
been amended as of the date hereof by Amendment No.2 to Revolving
Credit Agreement dated as of September 12, 2003 ("Amendment No.2")
Page 1
in the form attached hereto as Exhibit A Wachovia, as a bank under
the Revolving Credit Agreement has approved Amendment No.2.
Pursuant to the terms of Section 11.17 of the Credit Agreement,
Wachovia hereby amends the Credit Agreement to incorporate the
terms of Amendment No. 2 as applicable to the Credit Agreement.
Except as expressly set forth herein, the Credit Agreement
shall continue to be, and shall remain, in full force and effect.
This letter shall not be deemed to be a modification or amendment
of any other term or condition of the Credit Agreement or to
prejudice any other right or remedies which the Lender may now
have or may have in the future under or in connection with the
Credit Agreement or any other Loan Document or any of the
instruments or agreements referred to therein, as the same may be
amended, restated or otherwise modified from time to time. This
document is part of the Credit Agreement and constitutes a Loan
Document thereunder.
This letter and the rights and obligations of the parties
hereunder shall be construed in accordance with and be governed by
the laws of the State of Connecticut, without reference to the
conflicts or choice of law principles thereof
Very truly yours,
WACHOVIA BANK, NATIONAL ASSOCIATION
By: /s/ James S. Conville
Name: James S. Conville
Title: Assistant Vice President
ACKNOWLEDGED AND AGREED TO:
KAMAN CORPORATION
By: /s/ Russell H. Jones
Name: Russell H. Jones
Title: Sr. V.P., CIO and Treasurer
RWG FRANKENJURA-INDUSTRIE
FLUGWERKLAGER GMBH
By: /s/ Robert M. Garneau
Name: Robert M. Garneau
Title: Procurist
Page 2
Exhibit 4.3
ISDA (Registered Trademark)
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of October 25, 2002
WACHOVIA BANK, NATIONAL ASSOCIATION and KAMAN CORPORATION
have entered and/or anticipate entering into one or more
transactions (each a "Transaction") that are or will be governed
by this Master Agreement, which includes the schedule (the
"Schedule"), and the documents and other confirming evidence (each
a "Confirmation") exchanged between the parties confirming those
Transactions.
Accordingly, the parties agree as follows: -
1. Interpretation
(a) Definitions. The terms defined in Section 14 and in the
Schedule will have the meanings therein specified for the purpose
of this Master Agreement.
(b) Inconsistency. In the event of any inconsistency between the
provisions of the Schedule and the other provisions of this Master
Agreement, the Schedule will prevail. In the event of any
inconsistency between the provisions of any Confirmation and this
Master Agreement (including the Schedule), such Confirmation will
prevail for the purpose of the relevant Transaction.
(c) Single Agreement. All Transactions are entered into in
reliance on the fact that this Master Agreement and all
Confirmations form a single agreement between the parties
(collectively referred to as this "Agreement"), and the parties
would not otherwise enter into any Transactions.
2. Obligations
(a) General Conditions.
(i) Each party will make each payment or delivery
specified in each Confirmation to be made by it, subject to
the other provisions of this Agreement.
(ii) Payments under this Agreement will be made on the due
date for value on that date in the place of the account
specified in the relevant Confirmation or otherwise pursuant
to this Agreement, in freely transferable funds and in the
Page 1
manner customary for payments in the required currency. Where
settlement is by delivery (that is, other than by payment),
such delivery will be made for receipt on the due date in the
manner customary for the relevant obligation unless otherwise
specified in the relevant Confirmation or elsewhere in this
Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is
subject to (1) the condition precedent that no Event of
Default or Potential Event of Default with respect to the
other party has occurred and is continuing, (2) the condition
precedent that no Early Termination Date in respect of the
relevant Transaction has occurred or been effectively
designated and (3) each other applicable condition precedent
specified in this Agreement.
(b) Change of Account. Either party may change its account for
receiving a payment or delivery by giving notice to the other
party at least five Local Business Days prior to the scheduled
date for the payment or delivery to which such change applies
unless such other party gives timely notice of a reasonable
objection to such change.
(c) Netting. If on any date amounts would otherwise be payable: -
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's
obligation to make payment of any such amount will be
automatically satisfied and discharged and, if the aggregate
amount that would otherwise have been payable by one party exceeds
the aggregate amount that would otherwise have been payable by the
other party, replaced by an obligation upon the party by whom the
larger aggregate amount would have been payable to pay to the
other party the excess of the larger aggregate amount over the
smaller aggregate amount.
The parties may elect in respect of two or more Transactions that
a net amount will be determined in respect of all amounts payable
on the same date in the same currency in respect of such
Transactions, regardless of whether such amounts are payable in
respect of the same Transaction. The election may be made in the
Schedule or a Confirmation by specifying that subparagraph (ii)
above will not apply to the Transactions identified as being
subject to the election, together with the starting date (in which
case subparagraph (ii) above will not, or will cease to, apply to
such Transactions from such date). This election may be made
separately for different groups of Transactions and will apply
Page 2
separately to each pairing of Offices through which the parties
make and receive payments or deliveries.
(d) Deduction or Withholding for Tax.
(i) Gross-Up. All payments under this Agreement will be
made without any deduction or withholding for or on account
of any Tax unless such deduction or withholding is required
by any applicable law, as modified by the practice of any
relevant governmental revenue authority, then in effect. If a
party is so required to deduct or withhold, then that party
("X") will: -
(1) promptly notify the other party ("Y") of such
requirement;
(2) pay to the relevant authorities the full amount
required to be deducted or withheld (including the
full amount required to be deducted or withheld from
any additional amount paid by X to Y under this
Section 2(d)) promptly upon the earlier of determining
that such deduction or withholding is required or
receiving notice that such amount has been assessed
against Y;
(3) promptly forward to Y an official receipt (or a
certified copy), or other documentation reasonably
acceptable to Y, evidencing such payment to such
authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in
addition to the payment to which Y is otherwise
entitled under this Agreement, such additional amount
as is necessary to ensure that the net amount actually
received by Y (free and clear of Indemnifiable Taxes,
whether assessed against X or Y) will equal the full
amount Y would have received had no such deduction or
withholding been required. However, X will not be
required to pay any additional amount to Y to the
extent that it would not be required to be paid but
for: -
(A) the failure by Y to comply with or perform
any agreement contained in Section 4(a)(i),
4(a)(iii) or 4(d); or
(B) the failure of a representation made by Y
pursuant to Section 3(f) to be accurate and true
unless such failure would not have occurred but
for (I) any action taken by a taxing authority,
or brought in a court of competent jurisdiction,
on or after the date on which a Transaction is
Page 3
entered into (regardless of whether such action
is taken or brought with respect to a party to
this Agreement) or (II) a Change in Tax Law.
(ii) Liability. If: -
(1) X is required by any applicable law, as
modified by the practice of any relevant
governmental revenue authority, to make any
deduction or withholding in respect of which X
would not be required to pay an additional amount
to Y under Section 2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is
assessed directly against X,
then, except to the extent Y has satisfied or then satisfies
the liability resulting from such Tax, Y will promptly pay to
X the amount of such liability (including any related
liability for interest, but including any related liability
for penalties only if Y has failed to comply with or perform
any agreement contained in Section 4(a)(i), 4(a)(iii) or
4(d)).
(e) Default Interest; Other Amounts. Prior to the occurrence or
effective designation of an Early Termination Date in respect of
the relevant Transaction, a party that defaults in the performance
of any payment obligation will, to the extent permitted by law and
subject to Section 6(c), be required to pay interest (before as
well as after judgment) on the overdue amount to the other party
on demand in the same currency as such overdue amount, for the
period from (and including) the original due date for payment to
(but excluding) the date of actual payment, at the Default Rate.
Such interest will be calculated on the basis of daily compounding
and the actual number of days elapsed. If, prior to the occurrence
or effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance
of any obligation required to be settled by delivery, it will
compensate the other party on demand if and to the extent provided
for in the relevant Confirmation or elsewhere in this Agreement.
3. Representations
Each party represents to the other party (which representations
will be deemed to be repeated by each party on each date on which
a Transaction is entered into and, in the case of the
representations in Section 3(f), at all times until the
termination of this Agreement) that: -
(a) Basic Representations.
Page 4
(i) Status. It is duly organised and validly existing
under the laws of the jurisdiction of its organisation or
incorporation and, if relevant under such laws, in good standing;
(ii) Powers. It has the power to execute this Agreement and
any other documentation relating to this Agreement to which it is
a party, to deliver this Agreement and any other documentation
relating to this Agreement that it is required by this Agreement
to deliver and to perform its obligations under this Agreement and
any obligations it has under any Credit Support Document to which
it is a party and has taken all necessary action to authorise such
execution, delivery and performance;
(iii) No Violation or Conflict. Such execution, delivery and
performance do not violate or conflict with any law applicable to
it, any provision of its constitutional documents, any order or
judgment of any court or other agency of government applicable to
it or any of its assets or any contractual restriction binding on
or affecting it or any of its assets;
(iv) Consents. All governmental and other consents that are
required to have been obtained by it with respect to this
Agreement or any Credit Support Document to which it is a party
have been obtained and are in full force and effect and all
conditions of any such consents have been complied with; and
(v) Obligations Binding. Its obligations under this
Agreement and any Credit Support Document to which it is a party
constitute its legal, valid and binding obligations, enforceable
in accordance with their respective terms (subject to applicable
bankruptcy, reorganisation, insolvency, moratorium or similar laws
affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general application
(regardless of whether enforcement is sought in a proceeding in
equity or at law)).
(b) Absence of Certain Events. No Event of Default or Potential
Event of Default or, to its knowledge, Termination Event with
respect to it has occurred and is continuing and no such event or
circumstance would occur as a result of its entering into or
performing its obligations under this Agreement or any Credit
Support Document to which it is a party.
(c) Absence of Litigation. There is not pending or, to its
knowledge, threatened against it or any of its Affiliates any
action, suit or proceeding at law or in equity or before any
court, tribunal, governmental body, agency or official or any
arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support
Document to which it is a party or its ability to perform its
obligations under this Agreement or such Credit Support Document.
Page 5
(d) Accuracy of Specified Information. All applicable information
that is furnished in writing by or on behalf of it to the other
party and is identified for the purpose of this Section 3(d) in
the Schedule is, as of the date of the information, true, accurate
and complete in every material respect.
(e) Payer Tax Representation. Each representation specified in
the Schedule as being made by it for the purpose of this Section
3(e) is accurate and true.
(f) Payee Tax Representations. Each representation specified in
the Schedule as being made by it for the purpose of this Section
3(f) is accurate and true.
4. Agreements
Each party agrees with the other that, so long as either party has
or may have any obligation under this Agreement or under any
Credit Support Document to which it is a party: -
(a) Furnish Specified Information. It will deliver to the other
party or, in certain cases under subparagraph (iii) below, to such
government or taxing authority as the other party reasonably
directs:-
(i) any forms, documents or certificates relating to
taxation specified in the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any
Confirmation; and
(iii) upon reasonable demand by such other party, any form
or document that may be required or reasonably requested in
writing in order to allow such other party or its Credit
Support Provider to make a payment under this Agreement or
any applicable Credit Support Document without any deduction
or withholding for or on account of any Tax or with such
deduction or withholding at a reduced rate (so long as the
completion, execution or submission of such form or document
would not materially prejudice the legal or commercial
position of the party in receipt of such demand), with any
such form or document to be accurate and completed in a
manner reasonably satisfactory to such other party and to be
executed and to be delivered with any reasonably required
certification,
in each case by the date specified in the Schedule or such
Confirmation or, if none is specified, as soon as reasonably
practicable.
(b) Maintain Authorisations. It will use all reasonable efforts
to maintain in full force and effect all consents of any
Page 6
governmental or other authority that are required to be obtained
by it with respect to this Agreement or any Credit Support
Document to which it is a party and will use all reasonable
efforts to obtain any that may become necessary in the future.
(c) Comply with Laws. It will comply in all material respects
with all applicable laws and orders to which it may be subject if
failure so to comply would materially impair its ability to
perform its obligations under this Agreement or any Credit Support
Document to which it is a party.
(d) Tax Agreement. It will give notice of any failure of a
representation made by it under Section 3(f) to be accurate and
true promptly upon learning of such failure.
(e) Payment of Stamp Tax. Subject to Section 11, it will pay any
Stamp Tax levied or imposed upon it or in respect of its execution
or performance of this Agreement by a jurisdiction in which it is
incorporated, organised, managed and controlled, or considered to
have its seat, or in which a branch or office through which it is
acting for the purpose of this Agreement is located ("Stamp Tax
Jurisdiction") and will indemnify the other party against any
Stamp Tax levied or imposed upon the other party or in respect of
the other party's execution or performance of this Agreement by
any such Stamp Tax Jurisdiction which is not also a Stamp Tax
Jurisdiction with respect to the other party.
5. Events of Default and Termination Events
(a) Events of Default. The occurrence at any time with respect to
a party or, if applicable, any Credit Support Provider of such
party or any Specified Entity of such party of any of the
following events constitutes an event of default (an "Event of
Default") with respect to such party: -
(i) Failure to Pay or Deliver. Failure by the party to
make, when due, any payment under this Agreement or
delivery under Section 2(a)(i) or 2(e) required to be made
by it if such failure is not remedied on or before the
third Local Business Day after notice of such failure is
given to the party;
(ii) Breach of Agreement. Failure by the party to comply
with or perform any agreement or obligation (other than an
obligation to make any payment under this Agreement or
delivery under Section 2(a)(i) or 2(e) or to give notice of
a Termination Event or any agreement or obligation under
Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or
performed by the party in accordance with this Agreement if
such failure is not remedied on or before the thirtieth day
after notice of such failure is given to the party;
Page 7
(iii) Credit Support Default.
(1) Failure by the party or any Credit Support
Provider of such party to comply with or perform any
agreement or obligation to be complied with or
performed by it in accordance with any Credit Support
Document if such failure is continuing after any
applicable grace period has elapsed;
(2) the expiration or termination of such Credit
Support Document or the failing or ceasing of such
Credit Support Document to be in full force and effect
for the purpose of this Agreement (in either case
other than in accordance with its terms) prior to the
satisfaction of all obligations of such party under
each Transaction to which such Credit Support Document
relates without the written consent of the other
party; or
(3) the party or such Credit Support Provider
disaffirms, disclaims, repudiates or rejects, in whole
or in part, or challenges the validity of, such Credit
Support Document;
(iv) Misrepresentation. A representation (other than a
representation under Section 3(e) or (f)) made or repeated or
deemed to have been made or repeated by the party or any
Credit Support Provider of such party in this Agreement or
any Credit Support Document proves to have been incorrect or
misleading in any material respect when made or repeated or
deemed to have been made or repeated;
(v) Default under Specified Transaction. The party, any
Credit Support Provider of such party or any applicable
Specified Entity of such party (1) defaults under a Specified
Transaction and, after giving effect to any applicable notice
requirement or grace period, there occurs a liquidation of,
an acceleration of obligations under, or an early termination
of, that Specified Transaction, (2) defaults, after giving
effect to any applicable notice requirement or grace period,
in making any payment or delivery due on the last payment,
delivery or exchange date of, or any payment on early
termination of, a Specified Transaction (or such default
continues for at least three Local Business Days if there is
no applicable notice requirement or grace period) or (3)
disaffirms, disclaims, repudiates or rejects, in whole or in
part, a Specified Transaction (or such action is taken by any
person or entity appointed or empowered to operate it or act
on its behalf);
(vi) Cross Default. If "Cross Default" is specified in the
Schedule as applying to the party, the occurrence or
Page 8
existence of (1) a default, event of default or other similar
condition or event (however described) in respect of such
party, any Credit Support Provider of such party or any
applicable Specified Entity of such party under one or more
agreements or instruments relating to Specified Indebtedness
of any of them (individually or collectively) in an aggregate
amount of not less than the applicable Threshold Amount (as
specified in the Schedule) which has resulted in such
Specified Indebtedness becoming, or becoming capable at such
time of being declared, due and payable under such agreements
or instruments, before it would otherwise have been due and
payable or (2) a default by such party, such Credit Support
Provider or such Specified Entity (individually or
collectively) in making one or more payments on the due date
thereof in an aggregate amount of not less than the
applicable Threshold Amount under such agreements or
instruments (after giving effect to any applicable notice
requirement or grace period);
(vii) Bankruptcy. The party, any Credit Support Provider of
such party or any applicable Specified Entity of such party: -
(1) is dissolved (other than pursuant to a
consolidation, amalgamation or merger); (2) becomes
insolvent or is unable to pay its debts or fails or
admits in writing its inability generally to pay its
debts as they become due; (3) makes a general
assignment, arrangement or composition with or for
the benefit of its creditors; (4) institutes or has
instituted against it a proceeding seeking a judgment
of insolvency or bankruptcy or any other relief under
any bankruptcy or insolvency law or other similar law
affecting creditors' rights, or a petition is
presented for its winding-up or liquidation, and, in
the case of any such proceeding or petition
instituted or presented against it, such proceeding
or petition (A) results in a judgment of insolvency
or bankruptcy or the entry of an order for relief or
the making of an order for its winding-up or
liquidation or (B) is not dismissed, discharged,
stayed or restrained in each case within 30 days of
the institution or presentation thereof; (5) has a
resolution passed for its winding-up, official
management or liquidation (other than pursuant to a
consolidation, amalgamation or merger); (6) seeks or
becomes subject to the appointment of an
administrator, provisional liquidator, conservator,
receiver, trustee, custodian or other similar
official for it or for all or substantially all its
assets; (7) has a secured party take possession of
all or substantially all its assets or has a
distress, execution, attachment, sequestration or
Page 9
other legal process levied, enforced or sued on or
against all or substantially all its assets and such
secured party maintains possession, or any such
process is not dismissed, discharged, stayed or
restrained, in each case within 30 days thereafter;
(8) causes or is subject to any event with respect to
it which, under the applicable laws of any
jurisdiction, has an analogous effect to any of the
events specified in clauses (1) to (7) (inclusive); or
(9) takes any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any
of the foregoing acts; or
(viii) Merger Without Assumption. The party or any Credit
Support Provider of such party consolidates or amalgamates
with, or merges with or into, or transfers all or
substantially all its assets to, another entity and, at the
time of such consolidation, amalgamation, merger or
transfer: -
(1) the resulting, surviving or transferee entity
fails to assume all the obligations of such party or
such Credit Support Provider under this Agreement or
any Credit Support Document to which it or its
predecessor was a party by operation of law or
pursuant to an agreement reasonably satisfactory to
the other party to this Agreement; or
(2) the benefits of any Credit Support Document fail
to extend (without the consent of the other party) to
the performance by such resulting, surviving or
transferee entity of its obligations under this
Agreement.
(b) Termination Events. The occurrence at any time with respect
to a party or, if applicable, any Credit Support Provider of such
party or any Specified Entity of such party of any event specified
below constitutes an Illegality if the event is specified in (i)
below, a Tax Event if the event is specified in (ii) below or a
Tax Event Upon Merger if the event is specified in (iii) below,
and, if specified to be applicable, a Credit Event Upon Merger if
the event is specified pursuant to (iv) below or an Additional
Termination Event if the event is specified pursuant to (v)
below: -
(i) Illegality. Due to the adoption of, or any change in,
any applicable law after the date on which a Transaction is
entered into, or due to the promulgation of, or any change
in, the interpretation by any court, tribunal or regulatory
authority with competent jurisdiction of any applicable law
after such date, it becomes unlawful (other than as a result
Page 10
of a breach by the party of Section 4(b)) for such party
(which will be the Affected Party): -
(1) to perform any absolute or contingent obligation
to make a payment or delivery or to receive a payment
or delivery in respect of such Transaction or to
comply with any other material provision of this
Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of
such party to perform, any contingent or other
obligation which the party (or such Credit Support
Provider) has under any Credit Support Document
relating to such Transaction;
(ii) Tax Event. Due to (x) any action taken by a taxing
authority, or brought in a court of competent jurisdiction,
on or after the date on which a Transaction is entered into
(regardless of whether such action is taken or brought with
respect to a party to this Agreement) or (y) a Change in Tax
Law, the party (which will be the Affected Party) will, or
there is a substantial likelihood that it will, on the next
succeeding Scheduled Payment Date (1) be required to pay to
the other party an additional amount in respect of an
Indemnifiable Tax under Section 2(d)(i)(4) (except in respect
of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2)
receive a payment from which an amount is required to be
deducted or withheld for or on account of a Tax (except in
respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and
no additional amount is required to be paid in respect of
such Tax under Section 2(d)(i)(4) (other than by reason of
Section 2(d)(i)(4)(A) or (B));
(iii) Tax Event Upon Merger. The party (the "Burdened
Party") on the next succeeding Scheduled Payment Date will
either (1) be required to pay an additional amount in respect
of an Indemnifiable Tax under Section 2(d)(i)(4) (except in
respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or
(2) receive a payment from which an amount has been deducted
or withheld for or on account of any Indemnifiable Tax in
respect of which the other party is not required to pay an
additional amount (other than by reason of Section
2(d)(i)(4)(A) or (B)), in either case as a result of a party
consolidating or amalgamating with, or merging with or into,
or transferring all or substantially all its assets to,
another entity (which will be the Affected Party) where such
action does not constitute an event described in Section
5(a)(viii);
(iv) Credit Event Upon Merger. If "Credit Event Upon
Merger" is specified in the Schedule as applying to the
party, such party ("X"), any Credit Support Provider of X or
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and each Affected Transaction and will also give such other
information about that Termination Event as the other party
may reasonably require.
(ii) Transfer to Avoid Termination Event. If either an
Illegality under Section 5(b)(i)(1) or a Tax Event occurs and
there is only one Affected Party, or if a Tax Event Upon
Merger occurs and the Burdened Party is the Affected Party,
the Affected Party will, as a condition to its right to
designate an Early Termination Date under Section 6(b)(iv),
use all reasonable efforts (which will not require such party
to incur a loss, excluding immaterial, incidental expenses)
to transfer within 20 days after it gives notice under
Section 6(b)(i) all its rights and obligations under this
Agreement in respect of the Affected Transactions to another
of its Offices or Affiliates so that such Termination Event
ceases to exist.
If the Affected Party is not able to make such a transfer
it will give notice to the other party to that effect within
such 20 day period, whereupon the other party may effect such
a transfer within 30 days after the notice is given under
Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will
be subject to and conditional upon the prior written consent
of the other party, which consent will not be withheld if
such other party's policies in effect at such time would
permit it to enter into transactions with the transferee on
the terms proposed.
(iii) Two Affected Parties. If an Illegality under Section
5(b)(i)(1) or a Tax Event occurs and there are two Affected
Parties, each party will use all reasonable efforts to reach
agreement within 30 days after notice thereof is given under
Section 6(b)(i) on action to avoid that Termination Event.
(iv) Right to Terminate. If: -
(1) a transfer under Section 6(b)(ii) or an agreement
under Section 6(b)(iii), as the case may be, has not
been effected with respect to all Affected
Transactions within 30 days after an Affected Party
gives notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit
Event Upon Merger or an Additional Termination Event
occurs, or a Tax Event Upon Merger occurs and the
Burdened Party is not the Affected Party,
either party in the case of an Illegality, the Burdened Party
in the case of a Tax Event Upon Merger, any Affected Party in
Page 13
the case of a Tax Event or an Additional Termination Event if
there is more than one Affected Party, or the party which is
not the Affected Party in the case of a Credit Event Upon
Merger or an Additional Termination Event if there is only
one Affected Party may, by not more than 20 days notice to
the other party and provided that the relevant Termination
Event is then continuing, designate a day not earlier than
the day such notice is effective as an Early Termination Date
in respect of all Affected Transactions.
(c) Effect of Designation.
(i) If notice designating an Early Termination Date is
given under Section 6(a) or (b), the Early Termination Date
will occur on the date so designated, whether or not the
relevant Event of Default or Termination Event is then
continuing.
(ii) Upon the occurrence or effective designation of an
Early Termination Date, no further payments or deliveries
under Section 2(a)(i) or 2(e) in respect of the Terminated
Transactions will be required to be made, but without
prejudice to the other provisions of this Agreement. The
amount, if any, payable in respect of an Early Termination
Date shall be determined pursuant to Section 6(e).
(d) Calculations.
(i) Statement. On or as soon as reasonably practicable
following the occurrence of an Early Termination Date, each
party will make the calculations on its part, if any,
contemplated by Section 6(e) and will provide to the other
party a statement (1) showing, in reasonable detail, such
calculations (including all relevant quotations and
specifying any amount payable under Section 6(e)) and (2)
giving details of the relevant account to which any amount
payable to it is to be paid. In the absence of written
confirmation from the source of a quotation obtained in
determining a Market Quotation, the records of the party
obtaining such quotation will be conclusive evidence of the
existence and accuracy of such quotation.
(ii) Payment Date. An amount calculated as being due in
respect of any Early Termination Date under Section 6(e) will
be payable on the day that notice of the amount payable is
effective (in the case of an Early Termination Date which is
designated or occurs as a result of an Event of Default) and
on the day which is two Local Business Days after the day on
which notice of the amount payable is effective (in the case
of an Early Termination Date which is designated as a result
of a Termination Event). Such amount will be paid together
with (to the extent permitted under applicable law) interest
Page 14
thereon (before as well as after judgment) in the Termination
Currency, from (and including) the relevant Early Termination
Date to (but excluding) the date such amount is paid, at the
Applicable Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days
elapsed.
(e) Payments on Early Termination. If an Early Termination Date
occurs, the following provisions shall apply based on the
parties' election in the Schedule of a payment measure,
either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the
parties fail to designate a payment measure or payment method
in the Schedule, it will be deemed that "Market Quotation" or
the "Second Method", as the case may be, shall apply. The
amount, if any, payable in respect of an Early Termination
Date and determined pursuant to this Section will be subject
to any Set-off.
(i) Events of Default. If the Early Termination Date
results from an Event of Default: -
(1) First Method and Market Quotation. If the First
Method and Market Quotation apply, the Defaulting
Party will pay to the Non-defaulting Party the excess,
if a positive number, of (A) the sum of the Settlement
Amount (determined by the Non-defaulting Party) in
respect of the Terminated Transactions and the
Termination Currency Equivalent of the Unpaid Amounts
owing to the Non-defaulting Party over (B) the
Termination Currency Equivalent of the Unpaid Amounts
owing to the Defaulting Party.
(2) First Method and Loss. If the First Method and
Loss apply, the Defaulting Party will pay to the Non-
defaulting Party, if a positive number, the Non-
defaulting Party's Loss in respect of this Agreement.
(3) Second Method and Market Quotation. If the Second
Method and Market Quotation apply, an amount will be
payable equal to (A) the sum of the Settlement Amount
(determined by the Non-defaulting Party) in respect of
the Terminated Transactions and the Termination
Currency Equivalent of the Unpaid Amounts owing to the
Non-defaulting Party less (B) the Termination Currency
Equivalent of the Unpaid Amounts owing to the
Defaulting Party. If that amount is a positive number,
the Defaulting Party will pay it to the Non-defaulting
Party; if it is a negative number, the Non-defaulting
Party will pay the absolute value of that amount to
the Defaulting Party.
Page 15
(4) Second Method and Loss. If the Second Method and
Loss apply, an amount will be payable equal to the
Non-defaulting Party's Loss in respect of this
Agreement. If that amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting
Party; if it is a negative number, the Non-defaulting
Party will pay the absolute value of that amount to
the Defaulting Party.
(ii) Termination Events. If the Early Termination Date
results from a Termination Event: -
(1) One Affected Party. If there is one Affected
Party, the amount payable will be determined in
accordance with Section 6(e)(i)(3), if Market
Quotation applies, or Section 6(e)(i)(4), if Loss
applies, except that, in either case, references to
the Defaulting Party and to the Non-defaulting Party
will be deemed to be references to the Affected Party
and the party which is not the Affected Party,
respectively, and, if Loss applies and fewer than all
the Transactions are being terminated, Loss shall be
calculated in respect of all Terminated Transactions.
(2) Two Affected Parties. If there are two Affected
Parties: -
(A) if Market Quotation applies, each party will
determine a Settlement Amount in respect of the
Terminated Transactions, and an amount will be
payable equal to (I) the sum of (a) one-half of
the difference between the Settlement Amount of
the party with the higher Settlement Amount ("X")
and the Settlement Amount of the party with the
lower Settlement Amount ("Y") and (b) the
Termination Currency Equivalent of the Unpaid
Amounts owing to X less (II) the Termination
Currency Equivalent of the Unpaid Amounts
owing to Y; and
(B) if Loss applies, each party will determine
its Loss in respect of this Agreement (or, if
fewer than all the Transactions are being
terminated, in respect of all Terminated
Transactions) and an amount will be payable equal
to one-half of the difference between the Loss of
the party with the higher Loss ("X") and the Loss
of the party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay
it to X; if it is a negative number, X will pay the
absolute value of that amount to Y.
Page 16
(iii) Adjustment for Bankruptcy. In circumstances where an
Early Termination Date occurs because "Automatic Early
Termination" applies in respect of a party, the amount
determined under this Section 6(e) will be subject to such
adjustments as are appropriate and permitted by law to
reflect any payments or deliveries made by one party to the
other under this Agreement (and retained by such other party)
during the period from the relevant Early Termination Date to
the date for payment determined under Section 6(d)(ii).
(iv) Pre-Estimate. The parties agree that if Market
Quotation applies an amount recoverable under this Section
6(e) is a reasonable pre-estimate of loss and not a penalty.
Such amount is payable for the loss of bargain and the loss
of protection against future risks and except as otherwise
provided in this Agreement neither party will be entitled to
recover any additional damages as a consequence of such
losses.
7. Transfer
Subject to Section 6(b)(ii), neither this Agreement nor any
interest or obligation in or under this Agreement may be
transferred (whether by way of security or otherwise) by either
party without the prior written consent of the other party, except
that: -
(a) a party may make such a transfer of this Agreement pursuant
to a consolidation or amalgamation with, or merger with or into,
or transfer of all or substantially all its assets to, another
entity (but without prejudice to any other right or remedy under
this Agreement); and
(b) a party may make such a transfer of all or any part of its
interest in any amount payable to it from a Defaulting Party under
Section 6(e).
Any purported transfer that is not in compliance with this Section
will be void.
8. Contractual Currency
(a) Payment in the Contractual Currency. Each payment under this
Agreement will be made in the relevant currency specified in this
Agreement for that payment (the "Contractual Currency"). To the
extent permitted by applicable law, any obligation to make
payments under this Agreement in the Contractual Currency will not
be discharged or satisfied by any tender in any currency other
than the Contractual Currency, except to the extent such tender
results in the actual receipt by the party to which payment is
owed, acting in a reasonable manner and in good faith in
converting the currency so tendered into the Contractual Currency,
Page 17
of the full amount in the Contractual Currency of all amounts
payable in respect of this Agreement. If for any reason the amount
in the Contractual Currency so received falls short of the amount
in the Contractual Currency payable in respect of this Agreement,
the party required to make the payment will, to the extent
permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to
compensate for the shortfall. If for any reason the amount in the
Contractual Currency so received exceeds the amount in the
Contractual Currency payable in respect of this Agreement, the
party receiving the payment will refund promptly the amount of
such excess.
(b) Judgments. To the extent permitted by applicable law, if any
judgment or order expressed in a currency other than the
Contractual Currency is rendered (i) for the payment of any amount
owing in respect of this Agreement, (ii) for the payment of any
amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another
court for the payment of any amount described in (i) or (ii)
above, the party seeking recovery, after recovery in full of the
aggregate amount to which such party is entitled pursuant to the
judgment or order, will be entitled to receive immediately from
the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in
such other currency and will refund promptly to the other party
any excess of the Contractual Currency received by such party as a
consequence of sums paid in such other currency if such shortfall
or such excess arises or results from any variation between the
rate of exchange at which the Contractual Currency is converted
into the currency of the judgment or order for the purposes of
such judgment or order and the rate of exchange at which such
party is able, acting in a reasonable manner and in good faith in
converting the currency received into the Contractual Currency, to
purchase the Contractual Currency with the amount of the currency
of the judgment or order actually received by such party. The term
"rate of exchange" includes, without limitation, any premiums and
costs of exchange payable in connection with the purchase of or
conversion into the Contractual Currency.
(c) Separate Indemnities. To the extent permitted by applicable
law, these indemnities constitute separate and independent
obligations from the other obligations in this Agreement, will be
enforceable as separate and independent causes of action, will
apply notwithstanding any indulgence granted by the party to which
any payment is owed and will not be affected by judgment being
obtained or claim or proof being made for any other sums payable
in respect of this Agreement.
(d) Evidence of Loss. For the purpose of this Section 8, it will
be sufficient for a party to demonstrate that it would have
suffered a loss had an actual exchange or purchase been made.
Page 18
9. Miscellaneous
(a) Entire Agreement. This Agreement constitutes the entire
agreement and understanding of the parties with respect to its
subject matter and supersedes all oral communication and prior
writings with respect thereto.
(b) Amendments. No amendment, modification or waiver in respect
of this Agreement will be effective unless in writing (including a
writing evidenced by a facsimile transmission) and executed by
each of the parties or confirmed by an exchange of telexes or
electronic messages on an electronic messaging system.
(c) Survival of Obligations. Without prejudice to Sections
2(a)(iii) and 6(c)(ii), the obligations of the parties under this
Agreement will survive the termination of any Transaction.
(d) Remedies Cumulative. Except as provided in this Agreement,
the rights, powers, remedies and privileges provided in this
Agreement are cumulative and not exclusive of any rights, powers,
remedies and privileges provided by law.
(e) Counterparts and Confirmations.
(i) This Agreement (and each amendment, modification and
waiver in respect of it) may be executed and delivered in
counterparts (including by facsimile transmission), each of
which will be deemed an original.
(ii) The parties intend that they are legally bound by the
terms of each Transaction from the moment they agree to those
terms (whether orally or otherwise). A Confirmation shall he
entered into as soon as practicable and may he executed and
delivered in counterparts (including by facsimile
transmission) or be created by an exchange of telexes or by
an exchange of electronic messages on an electronic messaging
system, which in each case will be sufficient for all
purposes to evidence a binding supplement to this Agreement.
The parties will specify therein or through another effective
means that any such counterpart, telex or electronic message
constitutes a Confirmation.
(f) No Waiver of Rights. A failure or delay in exercising any
right, power or privilege in respect of this Agreement will not be
presumed to operate as a waiver, and a single or partial exercise
of any right, power or privilege will not be presumed to preclude
any subsequent or further exercise, of that right, power or
privilege or the exercise of any other right, power or privilege.
(g) Headings. The headings used in this Agreement are for
convenience of reference only and are not to affect the
construction of or to be taken into consideration in interpreting
this Agreement.
Page 19
10. Offices; Multibranch Parties
(a) If Section 10(a) is specified in the Schedule as applying,
each party that enters into a Transaction through an Office other
than its head or home office represents to the other party that,
notwithstanding the place of booking office or jurisdiction of
incorporation or organisation of such party, the obligations of
such party are the same as if it had entered into the Transaction
through its head or home office. This representation will be
deemed to be repeated by such party on each date on which a
Transaction is entered into.
(b) Neither party may change the Office through which it makes
and receives payments or deliveries for the purpose of a
Transaction without the prior written consent of the other party.
(c) If a party is specified as a Multibranch Party in the
Schedule, such Multibranch Party may make and receive payments or
deliveries under any Transaction through any Office listed in the
Schedule, and the Office through which it makes and receives
payments or deliveries with respect to a Transaction will be
specified in the relevant Confirmation.
11. Expenses
A Defaulting Party will, on demand, indemnify and hold harmless
the other party for and against all reasonable out-of-pocket
expenses, including legal fees and Stamp Tax, incurred by such
other party by reason of the enforcement and protection of its
rights under this Agreement or any Credit Support Document to
which the Defaulting Party is a party or by reason of the early
termination of any Transaction, including, but not limited to,
costs of collection.
12. Notices
(a) Effectiveness. Any notice or other communication in respect
of this Agreement may be given in any manner set forth below
(except that a notice or other communication under Section 5 or 6
may not be given by facsimile transmission or electronic messaging
system) to the address or number or in accordance with the
electronic messaging system details provided (see the Schedule)
and will be deemed effective as indicated: -
(i) if in writing and delivered in person or by courier,
on the date it is delivered;
(ii) if sent by telex, on the date the recipient's
answerback is received;
(iii) if sent by facsimile transmission, on the date that
transmission is received by a responsible employee of the
Page 20
recipient in legible form (it being agreed that the burden of
proving receipt will be on the sender and will not be met by
a transmission report generated by the sender's facsimile
machine);
(iv) if sent by certified or registered mail (airmail, if
overseas) or the equivalent (return receipt requested), on
the date that mail is delivered or its delivery is attempted;
or
(v) if sent by electronic messaging system, on the date that
electronic message is received,
unless the date of that delivery (or attempted delivery) or that
receipt, as applicable, is not a Local Business Day or that
communication is delivered (or attempted) or received, as
applicable, after the close of business on a Local Business Day,
in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) Change of Addresses. Either party may by notice to the other
change the address, telex or facsimile number or electronic
messaging system details at which notices or other communications
are to be given to it.
13. Governing Law and Jurisdiction
(a) Governing Law. This Agreement will be governed by and
construed in accordance with the law specified in the Schedule.
(b) Jurisdiction. With respect to any suit, action or proceedings
relating to this Agreement ("Proceedings"), each party
irrevocably: -
(i) submits to the jurisdiction of the English courts, if
this Agreement is expressed to be governed by English law,
or to the non-exclusive jurisdiction of the courts of the
State of New York and the United States District Court
located in the Borough of Manhattan in New York City, if this
Agreement is expressed to be governed by the laws of the
State of New York; and
(ii) waives any objection which it may have at any time to
the laying of venue of any Proceedings brought in any such
court, waives any claim that such Proceedings have been
brought in an inconvenient forum and further waives the right
to object, with respect to such Proceedings, that such court
does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing
Proceedings in any other jurisdiction (outside, if this Agreement
is expressed to be governed by English law, the Contracting
Page 21
States, as defined in Section 1(3) of the Civil Jurisdiction and
Judgments Act 1982 or any modification, extension or re-enactment
thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing
of Proceedings in any other jurisdiction.
(c) Service of Process. Each party irrevocably appoints the
Process Agent (if any) specified opposite its name in the Schedule
to receive, for it and on its behalf, service of process in any
Proceedings. If for any reason any party's Process Agent is unable
to act as such, such party will promptly notify the other party
and within 30 days appoint a substitute process agent acceptable
to the other party. The parties irrevocably consent to service of
process given in the manner provided for notices in Section 12.
Nothing in this Agreement will affect the right of either party to
serve process in any other manner permitted by law.
(d) Waiver of Immunities. Each party irrevocably waives, to the
fullest extent permitted by applicable law, with respect to itself
and its revenues and assets (irrespective of their use or intended
use), all immunity on the grounds of sovereignty or other similar
grounds from (i) suit, (ii) jurisdiction of any court, (iii)
relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether
before or after judgment) and (v) execution or enforcement of any
judgment to which it or its revenues or assets might otherwise be
entitled in any Proceedings in the courts of any jurisdiction and
irrevocably agrees, to the extent permitted by applicable law,
that it will not claim any such immunity in any Proceedings.
14. Definitions
As used in this Agreement:
"Additional Termination Event" has the meaning specified in
Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
"Affected Transactions" means (a) with respect to any Termination
Event consisting of an Illegality, Tax Event or Tax Event Upon
Merger, all Transactions affected by the occurrence of such
Termination Event and (b) with respect to any other Termination
Event, all Transactions.
"Affiliate" means, subject to the Schedule, in relation to any
person, any entity controlled, directly or indirectly, by the
person, any entity that controls, directly or indirectly, the
person or any entity directly or indirectly under common control
with the person. For this purpose, "control" of any entity or
person means ownership of a majority of the voting power of the
entity or person.
Page 22
"Applicable Rate" means: -
(a) in respect of obligations payable or deliverable (or which
would have been but for Section 2(a)(iii)) by a Defaulting Party,
the Default Rate;
(b) in respect of an obligation to pay an amount under Section
6(e) of either party from and after the date (determined in
accordance with Section 6(d)(ii)) on which that amount is payable,
the Default Rate;
(c) in respect of all other obligations payable or deliverable
(or which would have been but for Section 2(a)(iii)) by a Non-
defaulting Party, the Non-default Rate; and
(d) in all other cases, the Termination Rate.
"Burdened Party" has the meaning specified in Section 5(b).
"Change in Tax Law" means the enactment, promulgation, execution
or ratification of, or any change in or amendment to, any law (or
in the application or official interpretation of any law) that
occurs on or after the date on which the relevant Transaction is
entered into.
"consent" includes a consent, approval, action, authorisation,
exemption, notice, filing, registration or exchange control
consent.
"Credit Event Upon Merger" has the meaning specified in Section
5(b).
"Credit Support Document" means any agreement or instrument that
is specified as such in this Agreement.
"Credit Support Provider" has the meaning specified in the
Schedule.
"Default Rate" means a rate per annum equal to the cost (without
proof or evidence of any actual cost) to the relevant payee (as
certified by it) if it were to fund or of funding the relevant
amount plus 1% per annum.
"Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance
with Section 6(a) or 6(b)(iv).
"Event of Default" has the meaning specified in Section 5(a) and,
if applicable, in the Schedule.
"Illegality" has the meaning specified in Section 5(b).
Page 23
"Indemnifiable Tax" means any Tax other than a Tax that would not
be imposed in respect of a payment under this Agreement but for a
present or former connection between the jurisdiction of the
government or taxation authority imposing such Tax and the
recipient of such payment or a person related to such recipient
(including, without limitation, a connection arising from such
recipient or related person being or having been a citizen or
resident of such jurisdiction, or being or having been organised,
present or engaged in a trade or business in such jurisdiction, or
having or having had a permanent establishment or fixed place of
business in such jurisdiction, but excluding a connection arising
solely from such recipient or related person having executed,
delivered, performed its obligations or received a payment under,
or enforced, this Agreement or a Credit Support Document).
"law" includes any treaty, law, rule or regulation (as modified,
in the case of tax matters, by the practice of any relevant
governmental revenue authority) and "lawful" and "unlawful" will
be construed accordingly.
"Local Business Day" means, subject to the Schedule, a day on
which commercial banks are open for business (including dealings
in foreign exchange and foreign currency deposits) (a) in relation
to any obligation under Section 2(a)(i), in the place(s) specified
in the relevant Confirmation or, if not so specified, as otherwise
agreed by the parties in writing or determined pursuant to
provisions contained, or incorporated by reference, in this
Agreement, (b) in relation to any other payment, in the place
where the relevant account is located and, if different, in the
principal financial centre, if any, of the currency of such
payment, (c) in relation to any notice or other communication,
including notice contemplated under Section 5(a)(i), in the city
specified in the address for notice provided by the recipient and,
in the case of a notice contemplated by Section 2(b), in the place
where the relevant new account is to be located and (d) in
relation to Section 5(a)(v)(2), in the relevant locations for
performance with respect to such Specified Transaction.
"Loss" means, with respect to this Agreement or one or more
Terminated Transactions, as the case may be, and a party, the
Termination Currency Equivalent of an amount that party reasonably
determines in good faith to be its total losses and costs (or
gain, in which case expressed as a negative number) in connection
with this Agreement or that Terminated Transaction or group of
Terminated Transactions, as the case may be, including any loss of
bargain, cost of funding or, at the election of such party but
without duplication, loss or cost incurred as a result of its
terminating, liquidating, obtaining or reestablishing any hedge or
related trading position (or any gain resulting from any of them).
Loss includes losses and costs (or gains) in respect of any
payment or delivery required to have been made (assuming
satisfaction of each applicable condition precedent) on or before
Page 24
the relevant Early Termination Date and not made, except, so as to
avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A)
applies. Loss does not include a party's legal fees and out-of-
pocket expenses referred to under Section 11. A party will
determine its Loss as of the relevant Early Termination Date, or,
if that is not reasonably practicable, as of the earliest date
thereafter as is reasonably practicable. A party may (but need
not) determine its Loss by reference to quotations of relevant
rates or prices from one or more leading dealers in the relevant
markets.
"Market Quotation" means, with respect to one or more Terminated
Transactions and a party making the determination, an amount
determined on the basis of quotations from Reference Market-
makers. Each quotation will be for an amount, if any, that would
be paid to such party (expressed as a negative number) or by such
party (expressed as a positive number) in consideration of an
agreement between such party (taking into account any existing
Credit Support Document with respect to the obligations of such
party) and the quoting Reference Market-maker to enter into a
transaction (the "Replacement Transaction") that would have the
effect of preserving for such party the economic equivalent of any
payment or delivery (whether the underlying obligation was
absolute or contingent and assuming the satisfaction of each
applicable condition precedent) by the parties under Section
2(a)(i) in respect of such Terminated Transaction or group of
Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have been required after that
date. For this purpose, Unpaid Amounts in respect of the
Terminated Transaction or group of Terminated Transactions are to
be excluded but, without limitation, any payment or delivery that
would, but for the relevant Early Termination Date, have been
required (assuming satisfaction of each applicable condition
precedent) after that Early Termination Date is to be included.
The Replacement Transaction would be subject to such documentation
as such party and the Reference Market-maker may, in good faith,
agree. The party making the determination (or its agent) will
request each Reference Market-maker to provide its quotation to
the extent reasonably practicable as of the same day and time
(without regard to different time zones) on or as soon as
reasonably practicable after the relevant Early Termination Date.
The day and time as of which those quotations are to be obtained
will be selected in good faith by the party obliged to make a
determination under Section 6(e), and, if each party is so
obliged, after consultation with the other. If more than three
quotations are provided, the Market Quotation will be the
arithmetic mean of the quotations, without regard to the
quotations having the highest and lowest values. If exactly three
such quotations are provided, the Market Quotation will be the
quotation remaining after disregarding the highest and lowest
quotations. For this purpose, if more than one quotation has the
same highest value or lowest value, then one of such quotations
Page 25
shall be disregarded. If fewer than three quotations are provided,
it will be deemed that the Market Quotation in respect of such
Terminated Transaction or group of Terminated Transactions cannot
be determined.
"Non-default Rate" means a rate per annum equal to the cost
(without proof or evidence of any actual cost) to the Non-
defaulting Party (as certified by it) if it were to fund the
relevant amount.
"Non-defaulting Party" has the meaning specified in Section 6(a).
"Office" means a branch or office of a party, which may be such
party's head or home office.
"Potential Event of Default" means any event which, with the
giving of notice or the lapse of time or both, would constitute an
Event of Default.
"Reference Market-makers" means four leading dealers in the
relevant market selected by the party determining a Market
Quotation in good faith (a) from among dealers of the highest
credit standing which satisfy all the criteria that such party
applies generally at the time in deciding whether to offer or to
make an extension of credit and (b) to the extent practicable,
from among such dealers having an office in the same city.
"Relevant Jurisdiction" means, with respect to a party, the
jurisdictions (a) in which the party is incorporated, organised,
managed and controlled or considered to have its seat, (b) where
an Office through which the party is acting for purposes of this
Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through
which such payment is made.
"Scheduled Payment Date" means a date on which a payment or
delivery is to be made under Section 2(a)(i) with respect to a
Transaction.
"Set-off" means set-off, offset, combination of accounts, right of
retention or withholding or similar right or requirement to which
the payer of an amount under Section 6 is entitled or subject
(whether arising under this Agreement, another contract,
applicable law or otherwise) that is exercised by, or imposed on,
such payer.
"Settlement Amount" means, with respect to a party and any Early
Termination Date, the sum of: -
(a) the Termination Currency Equivalent of the Market Quotations
(whether positive or negative) for each Terminated Transaction or
group of Terminated Transactions for which a Market Quotation is
determined; and
Page 26
(b) such party's Loss (whether positive or negative and without
reference to any Unpaid Amounts) for each Terminated Transaction
or group of Terminated Transactions for which a Market Quotation
cannot be determined or would not (in the reasonable belief of the
party making the determination) produce a commercially reasonable
result.
"Specified Entity" has the meanings specified in the Schedule.
"Specified Indebtedness" means, subject to the Schedule, any
obligation (whether present or future, contingent or otherwise, as
principal or surety or otherwise) in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any
transaction (including an agreement with respect thereto) now
existing or hereafter entered into between one party to this
Agreement (or any Credit Support Provider of such party or any
applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party
or any applicable Specified Entity of such other party) which is a
rate swap transaction, basis swap, forward rate transaction,
commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option,
foreign exchange transaction, cap transaction, floor transaction,
collar transaction, currency swap transaction, cross- currency
rate swap transaction, currency option or any other similar
transaction (including any option with respect to any of these
transactions), (b) any combination of these transactions and (c)
any other transaction identified as a Specified Transaction in
this Agreement or the relevant confirmation.
"Stamp Tax" means any stamp, registration, documentation or
similar tax.
"Tax" means any present or future tax, levy, impost, duty, charge,
assessment or fee of any nature (including interest, penalties and
additions thereto) that is imposed by any government or other
taxing authority in respect of any payment under this Agreement
other than a stamp, registration, documentation or similar tax.
"Tax Event" has the meaning specified in Section 5(b).
"Tax Event Upon Merger" has the meaning specified in Section 5(b).
"Terminated Transactions" means with respect to any Early
Termination Date (a) if resulting from a Termination Event, all
Affected Transactions and (b) if resulting from an Event of
Default, all Transactions (in either case) in effect immediately
before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies,
immediately before that Early Termination Date).
Page 27
"Termination Currency" has the meaning specified in the Schedule.
"Termination Currency Equivalent" means, in respect of any amount
denominated in the Termination Currency, such Termination Currency
amount and, in respect of any amount denominated in a currency
other than the Termination Currency (the "Other Currency"), the
amount in the Termination Currency determined by the party making
the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination
Date, or, if the relevant Market Quotation or Loss (as the case
may be), is determined as of a later date, that later date, with
the Termination Currency at the rate equal to the spot exchange
rate of the foreign exchange agent (selected as provided below)
for the purchase of such Other Currency with the Termination
Currency at or about 11:00 a. m. (in the city in which such
foreign exchange agent is located) on such date as would be
customary for the determination of such a rate for the purchase of
such Other Currency for value on the relevant Early Termination
Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e),
be selected in good faith by that party and otherwise will be
agreed by the parties.
"Termination Event" means an Illegality, a Tax Event or a Tax
Event Upon Merger or, if specified to be applicable, a Credit
Event Upon Merger or an Additional Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic
mean of the cost (without proof or evidence of any actual cost) to
each party (as certified by such party) if it were to fund or of
funding such amounts.
"Unpaid Amounts" owing to any party means, with respect to an
Early Termination Date, the aggregate of (a) in respect of all
Terminated Transactions, the amounts that became payable (or that
would have become payable but for Section 2(a)(iii)) to such party
under Section 2(a)(i) on or prior to such Early Termination Date
and which remain unpaid as at such Early Termination Date and (b)
in respect of each Terminated Transaction, for each obligation
under Section 2(a)(i) which was (or would have been but for
Section 2(a)(iii)) required to be settled by delivery to such
party on or prior to such Early Termination Date and which has not
been so settled as at such Early Termination Date, an amount equal
to the fair market value of that which was (or would have been)
required to be delivered as of the originally scheduled date for
delivery, in each case together with (to the extent permitted
under applicable law) interest, in the currency of such amounts,
from (and including) the date such amounts or obligations were or
would have been required to have been paid or performed to (but
excluding) such Early Termination Date, at the Applicable Rate.
Such amounts of interest will be calculated on the basis of daily
compounding and the actual number of days elapsed. The fair market
Page 28
value of any obligation referred to in clause (b) above shall be
reasonably determined by the party obliged to make the
determination under Section 6(e) or, if each party is so obliged,
it shall be the average of the Termination Currency Equivalents of
the fair market values reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the
respective dates specified below with effect from the date
specified on the first page of this document.
WACHOVIA BANK, NATIONAL ASSOCIATION
By: /s/ John Miechkowski
Name: John Miechkowski
Title: Vice President
KAMAN CORPORATION
By: /s/ P.C. Goldenberg
Name: Patricia C. Goldenberg
Title: Assistant Treasurer
Page 29
KAMAN CORPORATION AND SUBSIDIARIES
EXHIBIT 11 - EARNINGS (LOSS) PER SHARE COMPUTATION
(IN THOUSANDS EXCEPT PER SHARE AMOUNT)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- ------------------
2003 2002 2003 2002
---- ---- ---- ----
Basic:
Net earnings (loss) $ 1,188 $ 5,572 $ 18,438 $(39,453)
======= ======= ======= =======
Weighted average number of
shares outstanding 22,584 22,446 22,543 22,394
======= ======= ======= =======
Net earnings (loss) per share
- basic $ .05 $ .25 $ .82 $ (1.76)
======= ======= ======= =======
Diluted:
Net earnings (loss) $ 1,188 $ 5,572 $ 18,438 $(39,453)
Elimination of interest expense
on 6% subordinated convertible
debentures (net after taxes) 197 230 608 -
------- ------- ------- -------
Net earnings (loss)(as adjusted)$ 1,385 $ 5,802 $ 19,046 $(39,453)
======= ======= ======= =======
Weighted average number of
shares outstanding 22,584 22,446 22,543 22,394
Weighted average shares issuable
on conversion of 6%
subordinated convertible
debentures 923 994 942 -
Weighted average shares issuable
on exercise of diluted stock
options 78 81 31 -
------- ------- ------- -------
Total 23,585 23,521 23,516 22,394
======= ======= ======= =======
Net earnings (loss) per share
- diluted* $ .05 $ .25 $ .81 $ (1.76)
======== ======== ======== ========
*The calculated diluted per share amounts for the three months ended
September 30, 2003 and the nine months ended September 30, 2002 are
anti-dilutive, therefore, amounts shown are equal of the basic per share
calculation. Additional potentially diluted average shares outstanding of
1,186 for the nine months ended September 30, 2002 have been excluded
from the average diluted shares outstanding due to the loss from
operations in that year.
Exhibit 31.1
Certification Pursuant to Rule
13a-14 under the Securities and
Exchange Act of 1934
I, Paul R. Kuhn, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Kaman Corporation [the "Registrant"];
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being prepared;
(b) Intentionally omitted pursuant to the guidance
contained in SEC Release 33-8238.
(c) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the
registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter
that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over
financial reporting; and
Page 1 of 2 Pages
Exhibit 31.1 (continued)
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material
weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely
affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: November 5, 2003 By: /s/ Paul R. Kuhn
---------------------------
Paul R. Kuhn
Chairman, President and
Chief Executive Officer
- 2 -
Exhibit 31.2
Certification Pursuant to Rule
13a-14 under the Securities and
Exchange Act of 1934
I, Robert M. Garneau, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Kaman Corporation [the "Registrant"];
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being prepared;
(b) Intentionally omitted pursuant to the guidance
contained in SEC Release 33-8238.
(c) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the
registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter
that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over
financial reporting; and
Page 1 of 2 Pages
Exhibit 31.2 (continued)
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material
weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely
affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: November 5, 2003 By: /s/ Robert M. Garneau
---------------------------
Robert M. Garneau
Executive Vice President and
Chief Financial Officer
- 2 -
Exhibit 32.1
Certification Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Kaman Corporation
(the "Corporation") on Form 10-Q for the period ended September 30,
2003, as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Paul R. Kuhn, Chief Executive
Officer of the Corporation, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that to the best of my knowledge:
1) The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, and
2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Corporation.
By: /s/ Paul R. Kuhn
- --------------------
Paul R. Kuhn
Chairman, President and
Chief Executive Officer
November 5, 2003
Exhibit 32.2
Certification Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Kaman Corporation
(the "Corporation") on Form 10-Q for the period ended September 30,
2003, as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Robert M. Garneau, Chief Financial
Officer of the Corporation, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that to the best of my knowledge:
1) The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, and
2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Corporation.
By: /s/ Robert M. Garneau
- -------------------------
Robert M. Garneau
Executive Vice President
and Chief Financial Officer
November 5, 2003
