<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CUNO INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 3569 06-1159240
(PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
(STATE OR OTHER CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
400 RESEARCH PARKWAY, MERIDEN, CONNECTICUT 06450, (203) 237-5541
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PAUL J. POWERS
CHIEF EXECUTIVE OFFICER
CUNO INCORPORATED
400 RESEARCH PARKWAY, MERIDEN, CONNECTICUT 06450, (203) 237-5541
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
HERBERT S. WANDER, ESQ., P.C. DEWEY B. CRAWFORD, ESQ.
DAVID J. KAUFMAN, ESQ. GARDNER, CARTON & DOUGLAS
KATTEN MUCHIN & ZAVIS 321 NORTH CLARK STREET
525 WEST MONROE STREET SUITE 3400-QUAKER TOWER
CHICAGO, ILLINOIS 60661 CHICAGO, ILLINOIS 60610
(312) 902-5200 (312) 644-3000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value................. 2,300,000 $15.375 $35,362,500 $10,716
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 300,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 27, 1997
PROSPECTUS 2,000,000 SHARES
LOGO
CUNO INCORPORATED
COMMON STOCK
--------------
All of the 2,000,000 shares of Common Stock, $.001 par value per share (the
"Common Stock"), offered hereby are being sold by CUNO Incorporated ("CUNO" or
the "Company"). The Company's Common Stock is traded on the Nasdaq National
Market under the symbol "CUNO." On February 26, 1997, the last reported sale
price of the Company's Common Stock was $15.625 per share, as reported on the
Nasdaq National Market. See "Price Range of Common Stock."
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION DISCUSSED
UNDER THE CAPTION "RISK FACTORS" AT PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE PROCEEDS
TO UNDERWRITING TO
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................................... $ $ $
- --------------------------------------------------------------------------------
Total(3)........................................ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses, estimated at $300,000, all of which are payable
by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
300,000 additional shares of Common Stock on the same terms and conditions
as set forth above to cover over-allotments, if any. If the Underwriters
exercise the over-allotment option in full, the total Price to Public will
be $ , the total Underwriting Discount will be $ and the total
Proceeds to Company will be $ . See "Underwriting."
--------------
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and subject
to their right to reject orders in whole or in part. It is expected that
delivery of the certificates representing shares of Common Stock will be made
on or about , 1997 through The Depository Trust Company or at the offices
of Robert W. Baird & Co. Incorporated, Milwaukee, Wisconsin.
ROBERT W. BAIRD & CO.
INCORPORATED
CLEARY GULL REILAND & MCDEVITT INC.
GOLDMAN, SACHS & CO.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS AND OTHER SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
2
<PAGE>
Health Care
. Bioprocessing/Pharmaceuticals
. Food & Beverage
. Diagnostic/Laboratory
Pressures to contain health care costs; demands for rapid and cost
effective diagnostic tests; and increased governmental regulations are three of
the forces driving this $900 million market. The Health Care market is estimated
to be growing at 10% per year and contributes 27%* of CUNO sales revenue.
CUNO manufactures an extensive range of filtration systems for
bioprocessing and biological manufacturing procedures ranging from prefiltration
products to sterilizing grade final membrane filters. These systems are used in
the sterile filtration of pharmaceutical products, clarification of human blood
plasma products, production of therapeutic drugs from genetically engineered
organisms, and clarification of beer, wine and soft drinks. Additionally, the
systems are used to purify water and gas for product formulation and equipment
cleaning and the removal of endotoxins from various solutions. Worldwide, CUNO
holds more than 200 patents for its products.
*Based on 1996 sales of $179 million
ARTWORK
[PICTURE OF TEST TUBES]
- -----------------
Zetapor(R) is available in flat stock and cartridge form.
CUNO filtration products, such as Zetabind(R), are used extensively for
diagnostic testing.
<PAGE>
Fluid Processing
. Electronics
. Coatings
. Chemicals/Petrochemicals
This $1.2 billion dollar market is estimated to be growing at 8% per year
and contributes 46%* of CUNO's sales revenues. Fluid processing customers
requirements for purer chemical solutions; high quality industrial and
automotive finish paints and coatings; ultra pure process water demands of
electronics manufacturers as well as government regulations to reduce potential
exposure to toxic materials assure this market's continued growth.
CUNO is recognized as a leading manufacturer of filtration systems for
paints and coatings, electronics and petrochemical/chemical markets and provides
filtration systems for many industry leaders across the spectrum of these
activities. These systems may provide the ultra pure water used in the
manufacture of microchips, or remove chemical or physical contaminants from
automotive coatings. These systems remove undesirable substances from
transformer coolants, improving the efficiency of these devices and can be found
in gas processing plants where they remove corrosive chemicals. CUNO has
steadily invested in research and manufacturing technology to ensure that its
products continue to hold leadership positions in every major area of fluid
purification for processing applications.
* Based on 1996 sales of $179 million
ARTWORK
[PICTURE OF CAR BEING PAINTED]
Betapure(R) absolute rated paint filter cartridge.
<PAGE>
Potable Water/Consumer
. Residential & Commercial
. Food Service
The Potable Water market is driven by dramatically increased water safety
concerns; consumer's desire for better tasting water and other beverages; and
restaurant standardization of soft drink quality and taste. This $800 million
market is estimated to be growing at 8% per year and contributes 27%* of CUNO's
sales revenue.
Water filtration products for home and commercial uses are the focus of
CUNO's Aqua-Pure(R) and Water Factory(R) filtration systems. Aqua-Pure offers a
range of filters for home use that includes water softening devices, whole house
filtration systems that remove iron, scale and other contaminants from the
incoming water supply and point-of-use filter systems. Water Factory reverse
osmosis systems include devices for home and commercial filtration of water at
the molecular level for uses as diverse as home water consumption to spot-free
car wash rinses. CUNO offers more National Sanitation Foundation recognized
water filtration devices than any other manufacturer.
*Based on 1996 sales of $179 million
Aqua-Pure whole house and point-of-use filtration systems
ARTWORK
[GLASS OF WATER]
Water Factory reverse osmosis carafe home water system.
<PAGE>
PROSPECTUS SUMMARY
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under
the caption "Risk Factors," which could cause actual results to differ
materially from those indicated in such forward-looking statements.
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
The Company is a world leader in the design, manufacture and marketing of a
comprehensive line of filtration products for the separation, clarification and
purification of liquids and gases. The Company's products, which include
proprietary depth filters and semi-permeable membrane filters, are used in the
health care, fluid processing and potable water markets. These products, most
of which are disposable, effectively remove contaminants that range in size
from molecules to sand particles. Significant customers include Amgen Inc.,
Boston Chicken, Inc., Eli Lilly and Company, Genzyme Corporation, KFC
Corporation, McDonald's Corporation, Monsanto Company and Minnesota Mining and
Manufacturing Company ("3M"). Approximately 52% of the Company's net sales in
fiscal year 1996 were derived from its international operations.
The Company's objective is to provide high value-added products and premium
customer service. The Company's proprietary manufacturing processes provide
longer lasting, higher quality and more efficient filters that lower customers'
operating expenses and improve the quality of customers' end products. As part
of its commitment to customer service, the Company's scientists, each of whom
possesses particular industry expertise, collaborate with customers on specific
projects to ensure product satisfaction and to develop new products.
In mid-1994, the Company realigned its business to accelerate sales growth
and improve operating margins. A new senior management team developed and
implemented the following initiatives, which are key elements of its ongoing
growth strategy: (i) develop new products for specific markets, (ii) decrease
product development cycle times, (iii) develop pre/final filter systems, (iv)
increase customer focus, (v) improve operating efficiencies and (vi) pursue
selective acquisitions. Due principally to these initiatives, net sales
increased by 25.1% from $143 million to $179 million from fiscal year 1994 to
fiscal year 1996 and operating margins (excluding distribution and other
nonrecurring costs) improved from 3.5% to 9.8% over the same period. These
initiatives resulted in the introduction of 15 new products or product
extensions that produced over $18 million in aggregate net sales in the 24
months prior to the Spin-off (as defined below). The Company has scheduled the
introduction of 13 new products in fiscal year 1997, nine of which have already
been introduced.
On September 10, 1996 (the "Distribution Date"), the Company's businesses and
operations and the associated assets and liabilities were spun-off from
Commercial Intertech Corp. ("Commercial Intertech") to its stockholders through
a dividend distribution of the Common Stock of the Company (the "Spin-off").
The Company was incorporated in Delaware on May 23, 1985. Its principal
executive offices are located at 400 Research Parkway, Meriden, Connecticut,
06450 and its telephone number is (203) 237-5541.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.... 2,000,000 shares
Common Stock to be outstanding after
the Offering.......................... 15,822,076 shares(1)
Use of Proceeds........................ For repayment of indebtedness, working
capital and other general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market Symbol.......... CUNO
</TABLE>
- --------
(1) Excludes as of January 31, 1997: (i) 374,790 shares of Common Stock
issuable upon the exercise of outstanding options at a weighted average
exercise price of $13.72 per share; and (ii) 562,150 shares of Common Stock
reserved for issuance in the future under the CUNO Incorporated 1996 Stock
Incentive Plan (the "Employee Stock Plan") and the CUNO Incorporated Non-
Employee Directors' Stock Plan (the "Directors Stock Plan" together with
the Employee Stock Plan, the "Stock Plans"). See "Capitalization,"
"Management--Stock Plans" and Note K of Notes to Consolidated Financial
Statements.
4
<PAGE>
SUMMARY FINANCIAL AND OTHER DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary financial and other data of the
Company. The income statement data for the fiscal years ended October 31, 1993,
1994, 1995 and 1996 are derived from audited Consolidated Financial Statements
of the Company. The income statement data for the fiscal year ended October 31,
1992 and the three months ended January 31, 1996 and 1997 and the balance sheet
data as of January 31, 1996 and 1997 are derived from the unaudited
Consolidated Financial Statements of the Company. The data should be read in
conjunction with the Consolidated Financial Statements (including the notes
thereto) and other financial information included elsewhere herein and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
THREE MONTHS
YEAR ENDED OCTOBER 31, ENDED JANUARY 31,
------------------------------------------------ --------------------
1992 1993 1994 1995 1996(2) 1996 1997
-------- -------- -------- -------- -------- -------- --------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:(1)
Net sales.............. $128,195 $130,771 $143,111 $162,699 $179,068 $ 41,004 $ 44,839
Gross profit........... 38,383 40,605 50,604 62,927 74,220 15,748 19,201
Distribution and other
nonrecurring costs.... -- -- -- -- (5,564) -- --
Operating income
(loss)................ (2,538) (1,678) 4,978 10,840 11,906 2,636 3,927
Interest expense, net.. (1,458) (114) (618) (546) (664) (70) (555)
Other (expense) income,
net................... (818) (757) (2,317) (731) (231) 75 (68)
Income (loss) before
income taxes.......... (4,814) (2,549) 2,043 9,563 11,011 2,641 3,304
(Provision) benefit for
income taxes.......... 514 1,848 (236) (3,462) (5,418) (790) (1,239)
Net income (loss)...... (4,300) (701) 1,807 6,101 5,593 1,851 2,065
Net income (loss) per
share(3).............. $ (0.32) $ (0.05) $ 0.13 $ 0.45 $ 0.41 $ 0.14 $ 0.15
PRO FORMA DATA:
Pro forma net income
per share(3).......... $ 0.70(4) $ 0.11(5) $ 0.15
OTHER DATA:
Depreciation and
amortization.......... $ 8,276 $ 7,664 $ 8,154 $ 7,929 $ 7,475 $ 2,032 $ 1,779
Capital expenditures... 6,729 3,245 2,927 5,234 6,325 1,050 1,001
</TABLE>
<TABLE>
<CAPTION>
AS OF
JANUARY 31, 1997
--------------------
AS
ACTUAL ADJUSTED(6)
-------- -----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 16,144 $ 16,144
Total assets.............................................. 135,098 135,098
Short-term debt........................................... 13,218 13,218
Long-term debt, excluding current maturities.............. 35,577 6,424
Total stockholders' equity................................ 44,151 73,304
</TABLE>
- --------
(1) Operating income has been reduced by an amount equal to the Company's
estimate of the charges and expenses the Company would have incurred during
those time periods presented prior to the Spin-off if it had operated as a
separate, stand-alone entity.
(2) Included in determining fiscal year 1996 operating income, net income and
net income per share were distribution and other nonrecurring costs
associated with the Spin-off equal to $5,564, $4,858 and $0.36,
respectively.
(3) Shares used to calculate net income (loss) per share were 13,566 for fiscal
years 1992 through 1996 and the three months ended January 31, 1996 and
13,810 for the three months ended January 31, 1997. Excludes as of January
31, 1997: (i) 374,790 shares of Common Stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $13.72 per
share; and (ii) 562,150 shares of Common Stock reserved for issuance in the
future under the Stock Plans. See "Capitalization," "Management--Stock
Plans" and Note K of Notes to Consolidated Financial Statements.
(4) Reflects elimination of $5,564 of distribution and other nonrecurring costs
($0.36 per share) and incurrence of $30.0 million of debt for a full fiscal
year at an 8.5% interest rate, net of related federal and state taxes.
(5) Reflects incurrence of $30.0 million of debt for the quarter at an 8.5% per
annum interest rate, net of related federal and state taxes.
(6) As adjusted to give effect to the sale of the 2,000,000 shares of Common
Stock offered hereby at an assumed public offering price of $15.625 per
share and the application of the estimated net proceeds therefrom. See "Use
of Proceeds."
5
<PAGE>
RISK FACTORS
Because the Company wants to provide investors with more meaningful and
useful information, this Prospectus contains certain forward-looking
statements (as such term is defined in the rules promulgated pursuant to the
Securities Act of 1933, as amended (the "Securities Act")) that reflect the
Company's current expectations regarding the future results of operations and
performance and achievements of the Company. Such forward-looking statements
are subject to the safe harbor created by the Private Securities Litigation
Reform Act of 1995. The Company has tried, wherever possible, to identify
these forward-looking statements by using words such as "anticipate,"
"believe," "estimate," "expect" and similar expressions. These statements
reflect the Company's current beliefs and are based on information currently
available to it. Accordingly, these statements are subject to certain risks,
uncertainties and assumptions, including the factors set forth in the
following Risk Factors, which could cause the Company's future results,
performance or achievements to differ materially from those expressed in, or
implied by, any of these statements. The Company undertakes no obligation to
release publicly the results of any revisions to any such forward-looking
statements that may be made to reflect events or circumstances after the date
of this Prospectus or to reflect the occurrence of unanticipated events.
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following Risk Factors before
purchasing any of the Common Stock offered hereby.
LIMITED HISTORY AS A STAND-ALONE COMPANY
The Company has operated as a stand-alone company only since the Spin-off
and Commercial Intertech has no obligation to provide assistance to the
Company or any of its subsidiaries except as described in "Certain Related
Party Transactions--Arrangements Between the Company and Commercial
Intertech." There can be no assurance that services provided to the Company by
Commercial Intertech under such arrangements, which are scheduled to expire in
September 1997, will continue to be provided and, if not, whether, or on what
terms, such services could be replaced. Any termination of the arrangements
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Certain Related Party Transactions--
Arrangements Between the Company and Commercial Intertech."
LIMITED RELEVANCE OF HISTORICAL FINANCIAL INFORMATION
The financial information included herein may not necessarily reflect the
results of operations, financial position and cash flows of the Company in the
future or what the results of operations, financial position and cash flows
would have been had the Company been a separate, stand-alone entity during the
periods presented prior to the Spin-off. Such financial information does not
completely reflect additional changes that will occur in the future funding
and operations of the Company as a result of the Spin-off. In addition, the
financial statements of the Company for the periods prior to the Spin-off
include allocations and other estimates of certain assets, liabilities and
expenses that were not historically recorded at the level of, but were
associated with, the businesses transferred to the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview" and the Consolidated Financial Statements (including the notes
thereto) appearing elsewhere in this Prospectus.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Approximately 50%, 54% and 52% of the Company's net sales for fiscal years
1994, 1995 and 1996, respectively, were derived from its international
operations. Consequently, the Company's operations may be adversely affected
by significant fluctuations in the value of the U.S. dollar in comparison to
local currencies in the countries in which the Company operates. The Company
manufactures products in Japan, Brazil, France and Australia. The Company's
international operations may be affected by economic, political and
governmental conditions in some of the countries where the Company has
manufacturing facilities or where its products are sold. In addition, changes
in economic or political conditions in any of the countries in which the
Company
6
<PAGE>
operates could result in unfavorable taxation policies, exchange rates, new or
additional currency or exchange controls, governmental regulations or other
restrictions being imposed on the operations of the Company or expropriation.
See Note J of Notes to Consolidated Financial Statements.
PATENTS AND PROPRIETARY TECHNIQUES
The Company has a patent portfolio as well as other proprietary information
and manufacturing techniques and has applied, and will continue to apply, for
patents to protect its technology. The Company's success depends in part upon
its ability to protect its technology and proprietary products under U.S. and
foreign patent and other intellectual property laws. Trade secrets and
confidential know-how which are not patented are protected through
confidentiality agreements, contractual provisions and internal Company
administrative procedures. There can be no assurance that such arrangements
will provide meaningful protection for the Company in the event of any
unauthorized use or disclosure. There can be no assurance that third parties
will not assert infringement claims against the Company or that a license or
similar agreement will be available on reasonable terms in the event of an
unfavorable ruling on any such claim. In addition, any such claim may require
the Company to incur substantial litigation expenses or subject the Company to
significant liabilities and could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Trademarks and Patents."
TECHNOLOGICAL AND REGULATORY CHANGE
The filtration and separations industry is characterized by changing
technology, competitively imposed process standards and regulatory
requirements, each of which influences the demand for the Company's products
and services. Changes in legislative, regulatory or industrial requirements or
competitive technologies may render certain of the Company's filtration and
separations products and processes obsolete. Acceptance of new products may
also be affected by the adoption of new government regulations requiring
stricter standards. The Company's ability to anticipate changes in technology
and regulatory standards and to develop and introduce new and enhanced
products successfully on a timely basis will be a significant factor in the
Company's ability to grow and to remain competitive. There can be no assurance
that the Company will be able to achieve the technological advances that may
be necessary for it to remain competitive or that certain of its products will
not become obsolete. The Company is also subject to the risks generally
associated with new product introductions and applications, including lack of
market acceptance, delays in product development and failure of products to
operate properly. See "Business--Competition" and "--Research and Development,
Product Development and Engineering."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Commercial Intertech structured the Spin-off to qualify as tax-free under
Section 355 of the Internal Revenue Code (the "Code"). However, no ruling was
requested from the Internal Revenue Service ("IRS") concerning the federal
income tax consequences of the transaction. There is no assurance that the
Spin-off will be treated as tax-free by the IRS. If the Spin-off were
determined to not be a tax-free distribution, the Company could be liable for
significant federal income taxes. See "Certain Related Party Transactions--
Certain Federal Income Tax Consequences of the Spin-off."
RISKS ASSOCIATED WITH ACQUISITIONS
The Company's business strategy depends in part on its ability to effect
acquisitions. Future acquisitions could be financed by internally generated
funds, bank borrowings, public offerings or private placements of equity or
debt securities, a combination of the foregoing or effectuated in stock-for-
stock transactions. If the Company completes acquisitions, it will encounter
various associated risks, including the possible inability to integrate an
acquired business into the Company's manufacturing systems, increased goodwill
amortization, diversion of management's attention and unanticipated problems
or liabilities, some or all of which could have a material adverse effect on
the Company's business, financial condition and results of operations. As a
result of the Spin-off, the Company will not be able to account for any
acquisition as a pooling of interests until September 11, 1998. There can be
no assurance that the Company will be able to make acquisitions on terms
favorable to the Company. See "Business--Growth Strategy."
7
<PAGE>
COMPETITION
The filtration and separations markets in which the Company competes are
highly competitive. The Company competes with many domestic and international
companies in its global markets. There can be no assurance that the Company's
products will continue to compete successfully with the products of its
competitors. The principal methods of competition in the markets in which the
Company competes are product specifications, performance, quality, knowledge,
reputation, technology, distribution capabilities, service and price. The
Company is under constant pressure from its customers to increase product
efficiency while reducing cost. The Company has a significant number of
competitors, some of which are larger and have greater financial and other
resources than the Company. See "Business--Market Overview" and "--
Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend in a large part upon its ability to attract
and retain highly qualified management, marketing, sales and research and
development ("R&D") personnel. Due to the specialized nature of the Company's
business it may be difficult to locate and hire qualified personnel. The loss
of the services of key personnel, or the inability of the Company to attract
and retain other key personnel, would have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
does not have any employment agreements with management other than the
employment agreement with Mark Kachur, which expires in April 1997. See
"Management."
AGREEMENTS WITH COMMERCIAL INTERTECH; LACK OF ARM'S-LENGTH NEGOTIATIONS
In connection with the Spin-off, the Company entered into three agreements
with Commercial Intertech for the purpose of defining the ongoing relationship
with Commercial Intertech. While these agreements were not the result of arm's-
length negotiations between independent parties, the Company believes such
agreements contain terms comparable to those that would have resulted from
negotiations between unaffiliated parties, although there can be no assurance
that the parties would have agreed upon comparable terms. However, such
agreements contain certain provisions dealing with corporate opportunities
presented to the Company's officers or members of the Company's Board of
Directors who are also officers of Commercial Intertech or members of
Commercial Intertech's Board of Directors. Although such provisions would not
necessarily have been included if Commercial Intertech and the Company had been
unaffiliated parties negotiating at arm's-length, the Company and Commercial
Intertech believe that the intercompany agreements as a whole reflect the
results that would have been reached by unaffiliated parties negotiating at
arm's-length. See "Certain Related Party Transactions--Arrangements Between the
Company and Commercial Intertech."
POTENTIAL CONFLICTS OF INTEREST OF BOARD OF DIRECTORS AND MANAGEMENT
Paul J. Powers, Chairman of the Board of Directors, President, Chief
Executive Officer and Chief Operating Officer of Commercial Intertech, is also
Chairman of the Board of Directors and Chief Executive Officer of the Company.
In addition, four of the nine members of the Company's Board of Directors are
also members of the Commercial Intertech Board of Directors. See "Management."
These relationships and the contractual and other ongoing relationships between
the Company and Commercial Intertech may give rise to potential conflicts of
interest should the interests of the Company and Commercial Intertech be
different. The Distribution and Interim Services Agreement provides that any
corporate opportunity, transaction, agreement or other arrangement that becomes
known to a director or officer of the Company, which officer or director is
also an officer or director of Commercial Intertech or a subsidiary of
Commercial Intertech, shall not be the property or corporate opportunity of the
Company, even if such opportunity, transaction, agreement or other arrangement
relates to the fluid purification business. See "Certain Related Party
Transactions--Arrangements Between the Company and Commercial Intertech--
Distribution and Interim Services Agreement."
8
<PAGE>
POSSIBLE VOLATILITY OF SHARE PRICE
The market price for the Common Stock may be significantly affected by
factors such as the announcement of new products or services by the Company or
its competitors, technological innovation by the Company or its competitors,
the growth and expansion of the Company's business, trends and uncertainties
affecting the filtration and separations industry as a whole, issuances and
repurchases of Common Stock, quarterly variations in the Company's operating
results or the operating results of the Company's competitors, investors'
expectations of the Company's prospects, changes in earnings estimates by
analysts or reported results that vary materially from such estimates and
general economic and other conditions. In addition, in recent years the stock
market has experienced extreme price fluctuations. This volatility has had a
substantial effect on the market prices of securities issued by many companies
for reasons unrelated to the operating performance of the specific companies.
These broad market fluctuations may adversely affect the market price of the
Common Stock. See "Price Range of Common Stock."
ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") and Amended and Restated Bylaws (the "Restated
Bylaws") contain provisions that (i) eliminate the stockholders' ability to
act by written consent, (ii) provide for a staggered board of directors, (iii)
require an affirmative vote of 80% of the stockholders entitled to vote to
remove directors (who can only be removed for cause), to amend certain
provisions of the Restated Certificate or to repeal or amend the Restated
Bylaws and (iv) allow the Company's Board of Directors, without obtaining
stockholder approval, to issue shares of preferred stock having rights that
could adversely affect the voting power and economic rights of holders of the
Common Stock. In addition, the Company cannot be acquired in a transaction
accounted for as a pooling of interests until September 11, 1998. In 1996, the
Company also adopted the Rights Plan (as defined below). Also, Section 203 of
the Delaware General Corporation Law restricts certain business combinations
with any "interested stockholder" as defined by such statute. Any of the
foregoing factors may delay, defer, make less attractive or prevent a change
in control of the Company, which could adversely affect the market price of
the Company's Common Stock. See "Description of Capital Stock--Stockholder
Rights Plan."
9
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of 2,000,000
shares of Common Stock offered hereby, after deducting the estimated
underwriting discount and offering expenses payable by the Company, are
estimated to be approximately $29.2 million ($33.6 million if the
Underwriters' over-allotment option is exercised in full) at an assumed
offering price of $15.625 per share.
The Company intends to use the net proceeds to repay a portion of the
indebtedness outstanding under the Company's Senior Unsecured Revolving Credit
Facility with Mellon Bank, N.A. (the "Credit Facility"), which was incurred to
replace debt assumed from Commercial Intertech in connection with the Spin-
off. The balance of the net proceeds will be used for working capital and
other general corporate purposes. The Credit Facility bears interest at the
rate of approximately 6% per annum and matures on October 31, 2001. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and the Consolidated Financial
Statements (including the notes thereto).
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "CUNO." The following table sets forth, for the periods indicated, the
high and low closing sales prices for the Common Stock on the Nasdaq National
Market. The Common Stock commenced trading on September 11, 1996. Prior
thereto, there was no public market for the Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR 1996:
Fourth Quarter (commencing September 11, 1996).............. $16.00 $14.50
FISCAL YEAR 1997:
First Quarter............................................... $17.75 $14.63
Second Quarter (through February 26, 1997).................. 17.13 14.88
</TABLE>
On February 26, 1997, the last reported sale price of the Common Stock on
the Nasdaq National Market was $15.625. As of January 31, 1997, there were
approximately 3,550 registered holders of record.
DIVIDEND POLICY
The Company has not declared or paid, and does not anticipate paying in the
near future, any cash dividends on its Common Stock, but intends instead to
retain future earnings, if any, for reinvestment in the future operation and
expansion of the Company's business and related development activities. Any
future determination to pay cash dividends will be at the discretion of the
Company's Board of Directors and will be dependent upon the Company's
financial condition, results of operations, capital requirements, general
business conditions, legal restrictions on the payment of dividends,
restrictions imposed by financing arrangements and other factors as the Board
of Directors deems relevant. The terms of the Credit Facility prohibit the
Company from declaring dividends during fiscal years 1997 and 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
10
<PAGE>
CAPITALIZATION
The table below sets forth the capitalization of the Company as of January
31, 1997 and as adjusted to reflect the application of the estimated net
proceeds from the issuance and sale by the Company of 2,000,000 shares of
Common Stock offered hereby (at an assumed offering price of $15.625 per
share) assuming all of the net proceeds are used to repay indebtedness under
the Credit Facility. See "Use of Proceeds." This table should be read in
conjunction with the Consolidated Financial Statements (including the notes
thereto).
<TABLE>
<CAPTION>
AS OF
JANUARY 31, 1997
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt(1)........................................ $13,218 $13,218
======= =======
Long-term debt:
Credit Facility......................................... $33,000 $ 3,847
Mortgages and other..................................... 2,577 2,577
------- -------
Total long-term debt.................................. 35,577 6,424
------- -------
Stockholders' equity:
Preferred Stock, $.001 par value; 2,000,000 shares
authorized; no shares outstanding...................... -- --
Common Stock, $.001 par value; 50,000,000 shares
authorized; 13,822,076 shares issued and outstanding
actual; 15,822,076 shares issued and outstanding as
adjusted(2)............................................ 14 16
Additional paid-in-capital.............................. 7,262 36,413
Retained earnings....................................... 35,701 35,701
Unearned compensation................................... (3,578) (3,578)
Minimum pension liability adjustment.................... (811) (811)
Translation adjustments................................. 5,563 5,563
------- -------
Total stockholders' equity............................ 44,151 73,304
------- -------
Total capitalization.................................. $79,728 $79,728
======= =======
</TABLE>
- --------
(1) Excludes as of January 31, 1997, $8.9 million of payables due to
Commercial Intertech. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
(2) Excludes as of January 31, 1997: (i) 374,790 shares of Common Stock
issuable upon the exercise of outstanding options at a weighted average
exercise price of $13.72 per share; and (ii) 562,150 shares of Common
Stock reserved for issuance in the future under the Stock Plans. See
"Management--Stock Plans" and Note K of Notes to Consolidated Financial
Statements.
11
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The following table sets forth selected financial and other data of the
Company. The balance sheet data as of October 31, 1994, 1995 and 1996 and the
income statement data for the fiscal years ended October 31, 1993, 1994, 1995
and 1996 are derived from Consolidated Financial Statements of the Company,
which have been audited by Ernst & Young LLP, independent auditors. The
balance sheet data as of October 31, 1992 and 1993 and as of January 31, 1996
and 1997 and the income statement data for the fiscal year ended October 31,
1992 and the three months ended January 31, 1996 and 1997 are derived from
unaudited consolidated financial statements. The unaudited consolidated
financial statements include all adjustments, consisting of normal recurring
accruals, that the Company considers necessary for a fair presentation of the
financial position and the results of operations for these periods. The
results of operations for the three months ended January 31, 1997 are not
necessarily indicative of results that may be expected for the full year. The
data should be read in conjunction with the Consolidated Financial Statements
(including the notes thereto), "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
included herein.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED OCTOBER 31, ENDED JANUARY 31,
------------------------------------------------- --------------------
1992 1993 1994 1995 1996 (2) 1996 1997
-------- -------- -------- -------- --------- -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:(1)
Net sales.............. $128,195 $130,771 $143,111 $162,699 $ 179,068 $41,004 $44,839
Cost of products sold.. (89,812) (90,166) (92,507) (99,772) (104,848) (25,256) (25,638)
-------- -------- -------- -------- --------- -------- --------
Gross profit........... 38,383 40,605 50,604 62,927 74,220 15,748 19,201
Selling, general and
administrative
expenses.............. (40,921) (42,283) (45,626) (52,087) (56,750) (13,112) (15,274)
Distribution and other
nonrecurring costs.... -- -- -- -- (5,564) -- --
-------- -------- -------- -------- --------- -------- --------
Operating income
(loss)................ (2,538) (1,678) 4,978 10,840 11,906 2,636 3,927
Interest expense, net.. (1,458) (114) (618) (546) (664) (70) (555)
Other (expense) income,
net................... (818) (757) (2,317) (731) (231) 75 (68)
-------- -------- -------- -------- --------- -------- --------
Income (loss) before
income taxes.......... (4,814) (2,549) 2,043 9,563 11,011 2,641 3,304
(Provision) benefit for
income taxes.......... 514 1,848 (236) (3,462) (5,418) (790) (1,239)
-------- -------- -------- -------- --------- -------- --------
Net income (loss)...... $ (4,300) $ (701) $ 1,807 $ 6,101 $ 5,593 $ 1,851 $ 2,065
======== ======== ======== ======== ========= ======== ========
Net income (loss) per
share(3).............. $ (0.32) $ (0.05) $ 0.13 $ 0.45 $ 0.41 $ 0.14 $ 0.15
PRO FORMA DATA:
Pro forma net income
per share(3).......... $ 0.70(4) $ 0.11(5) $ 0.15
OTHER DATA:
Depreciation and
amortization.......... $ 8,276 $ 7,664 $ 8,154 $ 7,929 $ 7,475 $ 2,032 $ 1,779
Capital expenditures... 6,729 3,245 2,927 5,234 6,325 1,050 1,001
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF OCTOBER 31, JANUARY 31,
-------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........ $ 35,784 $ 36,541 $ 42,227 $ 49,174 $ 11,557(6) $ 31,339 $ 16,144
Total assets........... 151,135 145,952 153,071 162,827 138,756 167,598 135,098
Short-term debt........ 9,135 9,816 10,840 11,476 11,653 11,803 13,218
Long-term debt,
excluding current
maturities............ 4,418 5,580 5,175 4,060 33,772(7) 3,858 35,577
Total stockholders'
equity................ 107,314 103,743 106,466 112,189 43,148(8) 112,611 44,151
</TABLE>
- --------
(1) Operating income has been reduced by an amount equal to the Company's
estimate of the charges and expenses the Company would have incurred
during those time periods presented prior to the Spin-off if it had
operated as a separate, stand-alone entity.
(2) Included in determining fiscal year 1996 operating income, net income and
net income per share were distribution and other nonrecurring costs to the
Company associated with the Spin-off equal to $5,564, $4,858 and $0.36,
respectively.
(3) Shares used to calculate net income (loss) per share were 13,566 for
fiscal years 1992 through 1996 and the three months ended January 31, 1996
and 13,810 for the three months ended January 31, 1997. Excludes as of
January 31, 1997: (i) 374,790 shares of Common Stock issuable upon the
exercise of outstanding options at a weighted average exercise price of
$13.72 per share; and (ii) 562,150 shares of Common Stock reserved for
issuance in the future under the Stock Plans. See "Capitalization,"
"Management Stock Plans" and Note K to Consolidated Financial Statements.
(4) Reflects elimination of $5,564 of distribution and other nonrecurring
costs ($0.36 per share) and incurrence of $30.0 million of debt for a full
fiscal year at an 8.5% interest rate, net of related federal and state
taxes.
(5) Reflects incurrence of $30.0 million of debt for the quarter at an 8.5%
per annum interest rate, net of related federal and state taxes.
(6) Reflects a $35.7 million dividend declared by the Company and payable to
Commercial Intertech in conjunction with the Spin-off.
(7) Reflects the allocation of $30.0 million of long-term debt from Commercial
Intertech to the Company in the form of a dividend, in conjunction with
the Spin-off, which was replaced with the $30.0 million Credit Facility.
(8) Reflects incurrence of $30.0 million of long-term debt described in (7)
above and a dividend of $35.7 million described in (6) above. See "Use of
Proceeds."
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The discussion below contains certain forward-looking statements that are
based on the beliefs of the Company's management, as well as assumptions made
by, and information currently available to, the Company's management. The
Company's future results, performance or achievements could differ materially
from those expressed in, or implied by, any such forward-looking statements.
See "Risk Factors" for a discussion of factors that could cause or contribute
to such material differences. The following presentation of management's
discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the Company's Consolidated
Financial Statements (including the notes thereto) and other financial
information included herein.
OVERVIEW
The Company's net sales, gross profit and operating income increased
significantly from fiscal year 1994 to fiscal year 1996. This improvement was
attributable to a number of business initiatives begun in 1994 by the new
senior management team. These initiatives included developing new products for
specific markets, decreasing product development cycle times, developing
pre/final filter systems, increasing customer focus and improving operating
efficiencies.
The Company's products are used in the health care, fluid processing and
potable water markets. The main factor supporting the worldwide industry
growth in these markets is the need to eliminate unwanted contaminants to
ensure safe, consistent products or services. This need is increasingly
important as the quality of the world's resources deteriorates, population
growth continues, world industrialization progresses, global manufacturing
becomes the norm, detection levels improve, global quality standards are
demanded and environmental consciousness grows.
The Company believes that its broad customer base and its geographic
diversity tend to insulate it from the adverse effects of softening demand in
any one market segment. In fiscal year 1996, approximately 52% of the
Company's net sales were derived from its international operations. Therefore,
the Company's operations may be affected by significant fluctuations in the
value of the U.S. dollar, particularly in Japan and Europe, as many products
for those major markets are manufactured in the U.S.
Selling price increases are implemented regularly by the Company to cover
the rising costs of wages, benefits, raw materials and purchased components.
Competitive pressures and price resistance in the marketplace can sometimes
limit the extent to which cost increases can be passed along to customers in
established product lines. Consequently, the Company relies upon economies of
scale efficiencies, productivity improvements and cost saving measures to
offset any shortfall in price increases and to maintain or improve profit
margins.
The Company's increased profitability is principally attributable to
operating cost leverage resulting from increasing net sales on a controlled
fixed-cost base and a change in the product mix to higher margin membrane
products. Although the Company's selling, general and administrative expenses
have increased in absolute dollar terms to support the Company's increased
sales effort, they have remained relatively constant as a percentage of net
sales on an annual basis.
Financial information described below may not necessarily be indicative of
future operating results or future financial condition. In particular, while
Commercial Intertech did not historically service debt specifically related to
the Company or its subsidiaries, $30.0 million of Commercial Intertech's long-
term debt was allocated to the Company in the form of a dividend as part of
the Spin-off, giving rise to additional interest expense in future periods. In
addition, the Company will incur additional compensation expense resulting
from the conversion of 30,737 restricted shares of Commercial Intertech common
stock into shares of restricted Common Stock that occurred following the Spin-
off. The compensation expense, which is determined by the underlying value of
the Common Stock, will be recognized over various vesting periods up to a
maximum of five years. The Company will also incur certain additional costs as
a stand-alone public company which it did not as a wholly-owned subsidiary.
Other than the expenses described above, the Company does not expect to incur
other costs materially different from historical results.
13
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain income statement data of the Company
expressed as a percentage of net sales for the periods presented:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------------------------------
THREE MONTHS
YEAR ENDED OCTOBER 31, ENDED JANUARY 31,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales.................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit................. 35.4 38.7 41.4 38.4 42.8
Selling, general and
administrative expenses..... (31.9) (32.0) (31.7) (32.0) (34.1)
Operating income............. 3.5 6.7 9.8(1) 6.4 8.8
</TABLE>
- --------
(1)Excludes distribution and other nonrecurring costs.
THREE MONTHS ENDED JANUARY 31, 1997 COMPARED TO THREE MONTHS ENDED JANUARY
31, 1996
Results of operations for the three months ended January 31, 1997 are not
comparable to the three months ended January 31, 1996 because the Spin-off
occurred in the last quarter of fiscal year 1996. Results for the first
quarter of fiscal year 1996 do not include increased interest expense related
to the $30.0 million in debt assumed in the Spin-off, a higher tax rate
resulting from the loss of certain foreign tax benefits previously realized
when the Company was a part of the Commercial Intertech combined tax group and
the amortization expense of performance shares.
Net Sales. Net sales of $44.8 million in the first quarter of fiscal year
1997 represented a 9.4% increase over net sales of $41.0 million in the first
quarter of fiscal year 1996. The effects of foreign currency fluctuations
reduced net sales by $3.8 million as compared to the first quarter in the
prior fiscal year. Net sales for the Company's U.S. operations increased by
15.0% over the same period, reflecting continued penetration of the health
care market by nylon membrane products.
Gross Profit. Gross profit in the first quarter of fiscal year 1997
increased by $3.5 million, or 21.9%, to $19.2 million from $15.7 million in
the first quarter of fiscal year 1996 and increased as a percentage of net
sales to 42.8% from 38.4%. This increase was a result of continued improvement
in manufacturing efficiencies, particularly in the U.S., in combination with
expanded sales of higher margin nylon membrane products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $2.2 million, or 16.5%, to $15.3 million
in the first quarter of fiscal year 1997 from $13.1 million in the first
quarter of fiscal year 1996 and increased as a percentage of net sales to
34.1% from 32.0% over the same period. Growth in these expenses stems from
continued investment in selling and engineering resources worldwide and from
projects related to new data processing systems in the U.S., Brazil and
Singapore.
Operating Income. Operating income increased by $1.3 million, or 49.0%, to
$3.9 million in the first quarter of fiscal year 1997 from $2.6 million in the
first quarter of fiscal year 1996, with most of that gain in the U.S., where
expanded sales, an improved product mix and greater efficiencies resulted in
an overall significant improvement in operating performance.
Interest Expense. Interest expense increased by $0.5 million to $0.6 million
in the first quarter of fiscal year 1997 from $0.1 million in the first
quarter of fiscal year 1996. The increase in interest expense primarily
resulted from the $30.0 million of debt assumed by the Company in conjunction
with the Spin-off.
14
<PAGE>
Income Taxes. The Company's effective income tax rate for the first quarter
of 1997 was 37.5% as compared to 30.0% during the first quarter of fiscal year
1996. The change reflects a loss of certain foreign tax benefits previously
realized when the Company was a part of the Commercial Intertech combined tax
group.
YEAR ENDED OCTOBER 31, 1996 COMPARED TO YEAR ENDED OCTOBER 31, 1995
Net Sales. Net sales of $179.1 million in fiscal year 1996 represented a
10.1% increase over net sales of $162.7 million in fiscal year 1995. The
effects of foreign currency fluctuations reduced net sales in fiscal year 1996
by $4.0 million as compared to fiscal year 1995.
Net sales for the Company's U.S. operations increased by $11.5 million to
$86.4 million in fiscal year 1996, a 15.4% increase over fiscal year 1995 net
sales of $74.9 million. The increase in U.S. net sales was generated primarily
by new product introductions in both the health care and fluid processing
markets, including proprietary nylon membrane products. Net sales of these
membrane products increased by more than 100% in the U.S. in fiscal year 1996.
General economic conditions combined with the new sales programs increased the
sale of core products. The sale of both new and existing products also
benefited from management initiatives that placed more focus on in-field
customer service and improved customer support. Much of this new customer
support, especially in the health care and fluid processing markets, has been
provided through the Scientific Application Support Service ("SASS") staff, a
program implemented in fiscal year 1995. The Company continued to increase the
SASS staff in fiscal year 1996. Engineering employment in the Company,
including SASS positions, increased by 28% since the beginning of fiscal year
1994.
Net sales for the Company's U.S. operations into the potable water market
increased by 7.6% overall in fiscal year 1996, with certain markets up
sharply. Net sales to the food service segment of this market, which includes
restaurants and institutions, increased significantly in fiscal year 1996 due
to new products as well as successful collaborative projects with key
customers. The sale of home and commercial water purification products
improved in fiscal year 1996 due to the creation of a dedicated sales force
for the product line and the success of new product sales.
Net sales from international operations increased by $4.9 million to $92.7
million in fiscal year 1996 from $87.8 million in fiscal year 1995. Net sales
improved in all international operations in fiscal year 1996 when compared in
local currencies. Europe's net sales improved as a result of new product
introductions and further penetration of the Eastern European market. Japan's
net sales, when adjusted for the changes in the value of the Yen, increased by
8.4%, but in U.S. dollar terms decreased by $1.7 million. Net sales in other
international markets increased by $3.8 million overall in fiscal year 1996,
or 12.7%, as compared to fiscal year 1995. A portion of the growth in these
other markets was due to product line extensions launched over the past two
years, as well as to the introduction of SASS into these markets during fiscal
year 1995.
Gross Profit. Gross profit increased by $11.3 million to $74.2 million in
fiscal year 1996 from $62.9 million in fiscal year 1995 and increased as a
percentage of net sales to 41.4% from 38.7% over the same period.
Approximately $6.3 million of this increase was attributable to higher sales
volume and $5.0 million to a shift to higher margin new products, improved
operating efficiencies in the U.S. and Europe and the extension of certain
product lines into the Brazilian market. A portion of the intangible assets
carried by the Company became fully amortized, reducing amortization expense
by $0.9 million.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, excluding distribution and other nonrecurring costs,
increased by 9.0% in fiscal year 1996 as compared to fiscal year 1995, but
decreased by 0.3% as a percentage of net sales. Although all operations
reported increased expenses in fiscal year 1996, no one operation increased
proportionally more than the others. Generally, the increase in selling,
general and administrative expenses stemmed from sales and engineering
personnel recruitment, increased sales training for both Company and
distributor personnel and improved sales and marketing promotional support.
15
<PAGE>
Fiscal year 1996 selling, general and administrative expenses included
charges for services provided to the Company by its former parent, Commercial
Intertech. Similar services were provided in fiscal year 1995 and fiscal year
1994. Under an agreement signed prior to the Spin-off, Commercial Intertech
will continue to provide services in fiscal year 1997 as part of the
transition of the Company to stand-alone status. These expenses will be
charged to the Company on a basis consistent with prior years, but are
expected to be less than prior years. These services are not expected to
continue beyond fiscal year 1997. See "Certain Related Party Transactions--
Arrangements Between the Company and Commercial Intertech."
Operating Income. As a result of the above, operating income increased by
9.8% to $11.9 million in fiscal year 1996 from $10.8 million in fiscal year
1995.
YEAR ENDED OCTOBER 31, 1995 COMPARED TO YEAR ENDED OCTOBER 31, 1994
Net Sales. Net sales of $162.7 million in fiscal year 1995 represented a
$19.6 million, or 13.7%, increase over net sales of $143.1 million in fiscal
year 1994. Exchange rate fluctuations in fiscal year 1995 primarily benefited
operations in Japan and Europe. All operations recorded increased net sales in
fiscal year 1995.
Net sales for the Company's U.S. operations increased by $2.9 million to
$74.9 million in fiscal year 1995 from $72.0 million in fiscal year 1994.
Strength in the electronics segment of the fluid processing market supported
the growth. In addition, management initiatives, such as a market focused
sales organization, the creation of the SASS teams to support customers in
certain markets and closer interaction with distributors, which began during
the last half of fiscal year 1994, started to favorably affect net sales
during the last six months of fiscal year 1995.
Net sales from international operations increased by $16.7 million to $87.8
million in fiscal year 1995 from $71.1 million in fiscal year 1994. All of the
geographic regions reported improvements in fiscal year 1995. Net sales in
Europe increased in fiscal year 1995 by $6.0 million, or 27.9%, as compared to
fiscal year 1994, with much of the gain attributable to the health care
market.
Gross Profit. Gross profit for the Company increased by $12.3 million to
$62.9 million in fiscal year 1995 from $50.6 million in fiscal year 1994 and
increased as a percentage of net sales from 35.4% to 38.7% over the same
period. Much of the improvement was from U.S. operations and was the result of
increased sales in the potable water market and the divestment in fiscal year
1994 of an underperforming operation servicing the fluid processing market.
Additionally, new management in the European manufacturing operation improved
efficiencies in fiscal year 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $6.5 million, or 14.2%, to $52.1 million
in fiscal year 1995 from $45.6 million in fiscal year 1994 and increased as a
percentage of net sales to 32.0% from 31.9% over the same period. Much of the
increase in these expenses related to the costs associated with enlarging the
sales staff worldwide. From the end of fiscal year 1994 to the end of fiscal
year 1995, the number of sales personnel in the Company increased by 19.0%.
Operating Income. As a result of the above, operating income increased by
118% to $10.8 million in fiscal year 1995 from $4.9 million in fiscal year
1994.
OTHER MATTERS
Distribution and Other Nonrecurring Costs. The Company recorded $5.6 million
in distribution and other nonrecurring costs during fiscal year 1996 ($4.9
million after tax or $0.36 per share), of which $3.5 million was related
directly to the Spin-off, $1.6 million was associated with establishing the
Company as a stand-alone entity and $0.5 million was related to the
improvement of certain foreign distribution channels in conjunction with
stand-alone activities. Certain of these costs are not tax-deductible.
16
<PAGE>
Nonoperating Activity. Net nonoperating income and expenses improved by $0.4
million in fiscal year 1996 and $1.7 million in fiscal year 1995. Fiscal year
1996 was favorably impacted by a $0.3 million reduction in exchange losses and
$0.1 million gain on the sale of idle assets. In fiscal year 1995 exchange
losses were $0.5 million less than fiscal year 1994. Additionally, a $1.1
million loss on the sale of assets was recorded in fiscal year 1994 as the
result of the Company's disposition of an underperforming operation.
Taxes. The Company's effective tax rate for fiscal year 1996 was 49%,
primarily as a result of the nondeductibility of certain distribution expenses
related to the Spin-off which increased the rate by 12 percentage points. The
adjusted fiscal year 1996 tax rate is comparable to the fiscal year 1995
effective rate of 36%. The fiscal year 1994 effective tax rate of 12% was the
result of the reversal of tax valuation adjustments associated with certain
foreign operations.
Inflation Effects on Operations. Inflation had a negligible effect on the
Company's operations during fiscal years 1996 and 1995. The Company estimates
that inflationary effects, in aggregate, were generally recovered or offset
through increased pricing or cost reductions in both fiscal years.
SELECTED QUARTERLY RESULTS AND SEASONALITY
The following table sets forth certain quarterly operating information for
each of the nine quarters ending January 31, 1997, both in dollars and as a
percentage of net sales. This information was derived from the unaudited
financial statements of the Company, which, in the opinion of management, were
prepared on the same basis as the Consolidated Financial Statements contained
elsewhere in this Prospectus and includes all adjustments, consisting of
normal recurring accruals, which management considers necessary for the fair
presentation of the information for the periods presented. The financial data
given below should be read in conjunction with the Consolidated Financial
Statements (including the notes thereto). Results for any previous fiscal
quarter are not necessarily indicative of results for the full year or for any
future quarter.
The Company's business is typically not seasonal. However, net sales in the
first quarter of each year tend to be lower than the other quarters due to the
holiday season and customary year-end distributor inventory reductions.
<TABLE>
<CAPTION>
QUARTERLY RESULTS
-------------------------------------------
GROSS PROFIT OPERATING INCOME
------------- --------------------
% OF % OF
NET NET NET
SALES AMOUNT SALES AMOUNT SALES
------- ------- ----- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FISCAL YEAR 1995:
Quarter ended January 31........ $37,713 $13,926 36.9% $ 2,416 6.4%
Quarter ended April 30.......... 39,630 14,995 37.8 2,276 5.7
Quarter ended July 31........... 43,467 17,025 39.2 2,643 6.1
Quarter ended October 31........ 41,889 16,981 40.5 3,505 8.4
FISCAL YEAR 1996:
Quarter ended January 31........ $41,004 $15,748 38.4% $ 2,636 6.4%
Quarter ended April 30.......... 45,090 18,460 40.9 4,988 11.1
Quarter ended July 31........... 48,542 20,796 42.8 6,128(1) 12.6
Quarter ended October 31........ 44,432 19,216 43.2 3,718(1) 8.4
FISCAL YEAR 1997:
Quarter ended January 31........ $44,839 $19,201 42.8% $ 3,927 8.8%
</TABLE>
- --------
(1) Before deducting distribution and other nonrecurring costs of $2,876
(quarter ended July 31) and $2,688 (quarter ended October 31) associated
with the Spin-off.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During fiscal year 1996, the Company generated cash from normal operating
activities of $11.7 million, with a total amount generated from operating
activities of $36.7 million. Of this total amount, $25.0 million is related to
the net decrease in the receivable from Commercial Intertech. Such decrease
resulted from: (i) the declaration of a $35.7 million dividend payable to
Commercial Intertech; (ii) obligations paid by Commerical Intertech on behalf
of the Company related to the Spin-off and for services provided by Commercial
Intertech; and (iii) the Company's positive cash flows generated to Commercial
Intertech prior to the Spin-off. In the first quarter of fiscal year 1997, the
Company generated cash from operations of $0.6 million before reducing its
related party payables to Commercial Intertech by $3.2 million, resulting in
net cash used in operations of $2.6 million. In addition, the Company reduced
its dividends payable to Commercial Intertech by $2.4 million. By October
1997, the Company expects to pay the balance of $8.9 million of payables due
to Commercial Intertech as of January 31, 1997, as well as amounts due to
Commercial Intertech under the Distribution and Interim Services Agreement.
As a result of the increased level of operations, both accounts receivable
and accounts payable increased, by a net of $2.6 million in fiscal year 1996
and a net of $2.4 million in fiscal year 1995. Due to a focused program to
improve inventory management, inventories declined by $3.2 million in fiscal
year 1996, increased $0.6 million in fiscal year 1995, and declined $1.3
million in fiscal year 1994.
During 1996, the Company entered into an interim agreement for a $55.0
million bridge loan to provide funding for $30.0 million in debt assumed from
Commercial Intertech at the time of the Spin-off and to support operating
requirements. On October 31, 1996, the bridge loan was replaced with the
Credit Facility. The Company pays variable interest rates under the Credit
Facility based upon prime interest or LIBOR rates, plus an applicable margin.
On January 31, 1997, the Company's interest rate was approximately 6.0%. The
Credit Facility prohibits the Company from declaring dividends during fiscal
years 1997 and 1998.
Capital expenditures were $6.3 million in fiscal year 1996, $5.2 million in
fiscal year 1995 and $2.9 million in fiscal year 1994. Budgeted fiscal year
1997 capital spending is $10.5 million. The Company believes that funds from
operations, current lines of credit and the net proceeds from the sale of
Common Stock offered hereby will be sufficient to meet its anticipated needs
for the next twelve months for working capital, capital expenditures and
general corporate purposes.
18
<PAGE>
BUSINESS
The discussion below contains certain forward-looking statements (as such
term is defined in the rules promulgated pursuant to the Securities Act) that
are based on the beliefs of the Company's management, as well as assumptions
made by, and information currently available to, the Company's management. The
Company's future results, performance or achievements could differ materially
from those expressed in, or implied by, any such forward-looking statements.
See "Risk Factors" for a discussion of factors that could cause or contribute
to such material differences.
GENERAL
The Company is a world leader in the design, manufacture and marketing of a
comprehensive line of filtration products for the separation, clarification
and purification of liquids and gases. The Company's products, which include
proprietary depth filters and semi-permeable membrane filters, are used in the
health care, fluid processing and potable water markets. These products, most
of which are disposable, effectively remove contaminants that range in size
from molecules to sand particles. Significant customers include Amgen Inc.,
Boston Chicken, Inc., Eli Lilly and Company, Genzyme Corporation, KFC
Corporation, McDonald's Corporation, Monsanto Company and 3M. Approximately
52% of the Company's net sales in fiscal year 1996 were derived from its
international operations.
The Company's objective is to provide high value-added products and premium
customer service. The Company's proprietary manufacturing processes provide
longer lasting, higher quality and more efficient filters that lower
customers' operating expenses and improve the quality of customers' end
products. As part of its commitment to customer service, the Company's
scientists, each of whom possesses particular industry expertise, collaborate
with customers on specific projects to ensure product satisfaction and to
develop new products.
In mid-1994, the Company realigned its business to accelerate net sales
growth and improve operating margins. A new senior management team developed
and implemented the following initiatives, which are key elements of its
ongoing growth strategy: (i) develop new products for specific markets, (ii)
decrease product development cycle times, (iii) develop pre/final filter
systems, (iv) increase customer focus, (v) improve operating efficiencies and
(vi) pursue selective acquisitions. Due principally to these initiatives, net
sales increased by 25.1% from $143 million to $179 million from fiscal year
1994 to fiscal year 1996 and operating margins (excluding distribution and
other nonrecurring costs) improved from 3.5% to 9.8% over the same period.
These initiatives resulted in the introduction of 15 new products or product
extensions that produced over $18 million in aggregate net sales in the 24
months prior to the Spin-off. The Company has scheduled the introduction of 13
new products in fiscal year 1997, nine of which have already been introduced.
MARKET OVERVIEW
Filtration is the process of separating particles of various sizes from
liquids or gases. The mechanics of filtration range from the removal of coarse
contaminants, most often particulates, as large as 200 microns, such as sand
and sediment, to the elimination of bacteria and viruses at less than .01
micron (human hair is typically 20 microns in diameter). A filtration device
consists of a plastic or metal housing and a filtration medium. Filtration
media, which can be manufactured out of a variety of substances, act as the
separator or barrier in the filtration process.
Filtration media include microporous membranes, glass, synthetic and
cellulosic fibers, porous metals and ceramics. Microporous membranes are thin,
film-like materials with millions of uniform microscopic holes. Membranes are
the most widely used filtration media because they remove specifically-sized
particles and can be configured into a variety of shapes and sizes.
19
<PAGE>
The Company estimates, based on 1995 industry data, that the potential size
and growth rate of the three markets it serves are as follows:
<TABLE>
<CAPTION>
ESTIMATED WORLD ESTIMATED
WIDE POTENTIAL ANNUAL
MARKET MARKET SIZE GROWTH RATE
------ --------------- -----------
(IN MILLIONS)
<S> <C> <C>
Health Care.................................... $ 900 10%
Fluid Processing............................... 1,200 8%
Potable Water.................................. 800 8%
------
Total........................................ $2,900
======
</TABLE>
Health Care
The health care market is experiencing rapid growth as a result of the
intensive research efforts to find cures for diseases, the increasing use of
more rapid and simpler diagnostic tests to help reduce health care costs, the
trend towards finer and more cost-efficient filtration and increased
governmental regulation. When harmful elements are identified, they are often
regulated or new medical standards of care are implemented to decrease or
eliminate contact. In many cases, fluid filtration can play a key role in
eliminating contact with many harmful elements. Performance and reliability of
the product, rather than price, are the primary factors in the customers'
filtration decision process.
The health care market includes pharmaceutical and biotechnology companies,
which require cost-efficient filtration and high levels of purity for
production of sterile, contaminate free drugs, and producers of diagnostic
test kits, which require highly efficacious membranes. In addition,
applications include bacteria-free water and food and beverage products.
Fluid Processing
The fluid processing market's major segments include chemical, petrochemical
and oil and gas processors, manufacturers of paints and resins, electronics
and semiconductors, and power generation facilities. As the use of
sophisticated manufacturing processes and the adoption of practices focused on
quality increase, the Company believes the demand for filtration products will
also increase. In part, this trend is driven by the enhanced ability to detect
contaminants in process streams. As automation increases, focus on quality
control increases, and as the ability to detect contaminants progresses, fluid
filtration will play a greater role in the manufacturing process.
A rapidly growing segment of the fluid processing market is electronics
manufacturing. Ultra pure water is used to rinse the components during
manufacturing in order to ensure that the product is particle free with no
residual contamination. The industry uses corrosive, high purity chemicals and
gases for the manufacture of computer chips, hard disks, video terminals and
other components. All of the chemicals and gases used are processed through
very fine filtration systems. The rapidly expanding demand for electronic
products and the wider use of computer chips is fueling industry growth.
Potable Water
The potable water market includes residential, commercial and food service
customers. Demand is driven both by consumers' desire to improve the taste and
quality of their drinking water and by the expanded concern of regulatory
agencies. The largest growth in this market may occur in Asia/Pacific Rim and
South American countries where the quality of drinking water has been found to
be severely deficient in several regions. According to industry data, it is
estimated that 1.2 billion people in the world do not have safe drinking
water. Water safety concerns have driven the growth of the U.S. consumer
bottled water market to over $2 billion, as well as driven the growth in the
water filtration market.
20
<PAGE>
In particular, the food service industry has an increasing demand for
consistent global product quality. Food service includes water used for
fountain beverages, steam ovens, coffee and tea. Specifically, restaurants
have become increasingly aware of the need for water filtration and control of
the taste and quality of the water used in their businesses.
GROWTH STRATEGY
Key elements of the Company's growth strategy include:
Develop New Products for Specific Markets. The Company has initiated a
strategy to develop high value-added products for specific markets based on
its core technologies. Historically, the Company offered non-differentiated
products and often competed solely on price. To gain a better understanding of
specific markets and guide new product development, the Company introduced
Scientific Application Support Services ("SASS"). Scientists with post-
graduate degrees who are experts in specific industries are integral to SASS
teams. These scientists collaborate with customers who are developing and
implementing new processes or products that have specific filtration
requirements. Often these relationships lead to the development of new market
specific products. The Company has scheduled the introduction of 13 new
products in fiscal 1997, nine of which have already been introduced. Many of
these new products are in the health care market, and therefore offer high
growth and above average margins. The Company believes that these products
offer its customers greater efficiency, quality, safety and ease of use. The
Company introduced 15 new products or product extensions in the 24 months
prior to the Spin-off that have generated aggregate sales of $18 million.
Decrease Product Development Cycle Times. The Company has decreased its
product development cycle times from an average of four to five years to
approximately 18 to 24 months. This improvement has resulted from increased
market focus, collaboration with leading-edge customers through SASS teams and
the formation of cross-functional product launch teams. The Company believes
it can continue to shorten product development cycle times through these same
methods.
Develop Pre/Final Filter Systems. Many filtration systems have one or more
prefilters to remove large contaminants from the liquid or gas before it
passes through the final filter, prolonging the life of the more expensive
final filter. When these filters are designed together in a system, the
performance of the system is enhanced. The Company has a leading prefilter
market position and is expanding the number of final filters it offers. This
allows the Company to provide its customers with a total filter solution from
one vendor.
Increase Customer Focus. The Company has traditionally sold through
distributors, who in turn sell to the end-user. The Company's current goal is
to provide unmatched customer service to its end-user customers, while
providing resources for its distributors. In many cases the customer is unable
to define its filtration needs accurately and seeks outside resources to
identify and choose the best filtration alternative. The Company's SASS
professionals meet this need. Management has been training and focusing
distributors on specific markets and providing additional sales and marketing
support. This support enables distributors to provide customers with superior
industry expertise and Company-specific product knowledge.
Improve Operating Efficiencies. The Company believes it can improve
operating efficiencies by implementing cost controls, productivity gains and
profit-based compensation for its employees as well as by shifting product mix
to higher margin health care and fluid processing products and outsourcing
production of certain processes. The Company has recently initiated a $10
million capital investment program designed to (i) implement cell-based
manufacturing, (ii) provide higher yields from raw materials, (iii) improve
inventory management, (iv) lower labor costs, (v) reduce manufacturing cycle
times and (vi) reduce scrap rates. The Company had gross profit margins of
35.4%, 38.7%, 41.4% and 42.8% in fiscal years 1994, 1995, 1996 and in the
first quarter of fiscal year 1997, respectively.
Pursue Selective Acquisitions. The Company believes that the continuing
trend towards consolidation in each of its markets, together with recent
systems trends (pre/final filter), will provide the Company with
21
<PAGE>
attractive opportunities to acquire high-quality companies and subsequently
allow the Company to expand into new geographic markets, add new customers,
provide new products, manufacturing and service capabilities or increase the
Company's penetration with existing customers. The Company evaluates
acquisition candidates on a regular basis. In addition, management of the
Company believes that the Spin-off has enabled the Company to be in a better
position to use its Common Stock, which is directly tied to the performance of
the Company's business, to acquire other companies in the industry.
PRODUCTS
The Company manufactures a full range of products targeted for each of its
markets, offering its customers solutions to a wide range of filtration
requirements. Many of the products manufactured by the Company use
electrokinetic adsorption, a proprietary chemical process developed by the
Company that alters both membrane and depth filter media surfaces.
Electrokinetic adsorption uses molecular charges on dissolved ions to bind
finer contaminants to the filter surface. This attribute significantly enhances
filtration efficiency by removing contaminants smaller than the micron rating
of the filter. The Company groups its products into the following categories.
Membranes
The typical polymer and nylon membranes that the Company produces resemble
plastic films, except for the molecular size pores that are engineered into the
surface and depth of the membrane. By varying pore size and altering the
physical or chemical properties of the membrane, the quantity and type of
substances that can pass through the membrane can be regulated with absolute
certainty. The Company manufactures "absolute rated" products where no particle
above a certain size can pass through the membrane. In many applications, these
membranes can be integrity tested to ensure specific performance both at the
beginning and end of a particular process. A membrane can be employed in a
variety of configurations, including flat sheets, discs and pleated cartridges.
Containers for filter media or housings can be manufactured from various
metals or plastics and are designed to allow the application of pressure to
create the required flow of liquid through the membrane. The frequency of the
replacement of membranes depends on the application and intensity with which
they are used. In some applications, such as in pharmaceutical or
biotechnology, they are changed for each batch. In very clean applications or
in totally enclosed environments, they may be changed weekly, monthly or
annually.
Uses of membranes include water purification for electronics and applications
in semiconductor manufacturing, pharmaceutical, biotechnology and other
applications, as well as for residential drinking water.
The Company's membrane products include those sold under the following
labels: Zetapor(R), Microfluor(R), Polypro(R), ZetaBind(R), Electropor(TM),
BevASSURE(TM), Synchro(R), Acro(R), AC/PH Lithowater(R) and Water Factory
Systems(R).
Depth Filters
The Company's disposable depth filters are constructed from a matrix or
formation of very fine and micro-fine fibers such as polypropylene, cotton,
polyester, glass fiber, acrylic, rayon, polymer, carbon and other materials.
The fiber matrix is then processed into a rigid filter media using techniques
such as thermal bonding, resin bonding, pleating or winding. The Company's
technology strongly emphasizes graded density attributes and electrokinetic
adsorption. Graded density depth technology allows filter media to be
manufactured with very open porous outer layers, progressively becoming smaller
in the size of the pores or void volume through the depth of the filter media.
Graded density construction extends filter life in many applications and
reduces pressure loss across the filtration process, thereby reducing energy
costs. The structure of graded density filter media allows particles to be
trapped throughout the depth of the cartridge, which minimizes surface binding,
allows for high contaminant capacity and lowers pressure drops rather than
solely trapping particles on the surface of the media.
22
<PAGE>
The Company manufactures depth filters in a wide variety of cartridge and
pore sizes with "absolute" particulate ratings. The filter cartridges are used
in filter housings that can be manufactured in a broad range of metals or
plastics to suit particular customer specifications. Filter housings are
designed for a wide range of temperatures and pressures.
The Company's depth filter products include those sold under the following
labels: Zeta Plus(R), Betafine(R), Micro-Klean(R), Beta-Klean(R), Betapure(R),
MicroWynd(R) and PetroFit(R).
Cleanable Filters
The Company designs and manufactures an extensive range of self-cleaning disc
filters, backwash strainers and recleanable metal filters. The self-cleaning
disc filters and backwash strainers can be electrically or mechanically
operated with automatic controls to provide for specific requirements in
process applications. The recleanable metal filter elements are constructed of
sintered porous stainless steel or metal screens in tubular and pleated
construction. The recleanable elements can be cleaned in place in a filter
housing or removed for mechanical, ultrasonic or chemical cleaning.
The Company's cleanable filter products include those sold under the
following labels: Poro-Klean(R), Micro-Screen(R) and Auto-Klean(R).
Housings and Systems
The Company designs and manufactures a wide variety of filter housings to
suit specific process and customer applications. The housings can be of plastic
or metal construction utilizing a broad range of materials including
polypropylene, PVC, nylon, aluminum, copper, brass, steel, stainless steel and
other specialized metals, such as titanium.
Specialized designs include sanitary, electropolished and coated finishes for
chemical resistance and ease of sterilization, sanitization or cleaning. The
Company supplies a broad range of standard housings manufactured from type 316
stainless steel in sanitary, polished and electropolished finishes for
enhancing pharmaceutical and electronic applications. Finish specifications can
be measured in terms of Roughness Average (Ra) with average variations in
surface finish measured in microns down to 0.45 micron, the size of small
bacteria.
The Company designs and manufactures proprietary housings and systems such as
CTG-Klean(TM) with patented features and a totally enclosed disposable filter
media pack for use in critical applications where housing cleanliness is
essential or when physical separation of toxic or corrosive chemicals from the
metal housing is desired.
The Company's range of housings are designed and manufactured to regulatory
pressure vessel codes, particularly for applications in the oil and gas,
refinery and petrochemicals industries. The Company designs and markets
housings to meet the local regulatory requirements in most countries.
23
<PAGE>
The Company's products are principally sold into the health care, fluid
processing and potable water markets. In many cases, the Company's products
are sold into more than one of these end markets. The following table
summarizes the end markets into which the Company's products are sold.
MARKET REPRESENTATIVE APPLICATION REPRESENTATIVE
COMPANY PRODUCTS
- -------------------------------------------------------------------------------
HEALTH CARE
Pharmaceutical Manufacturing injectable Activated carbon, Zeta
drugs Plus(R), Zetapor(R),
Microfluor(R),
PolyPro(R), ZetaBind(R),
BevASSURE(TM) and
sanitary filter housings
Biological
Blood plasma
fractionation
Diagnostics
Biotechnology Membranes for test kits
Food and Beverage Cell debris removal
Wine and beer production
- -------------------------------------------------------------------------------
FLUID PROCESSING
Electronics Plating bath solutions Microfluor(R),
Betafine(R), Betafine-
D(R), Betapure(R),
Electropor(TM), filter
housings,
MicroWynd(R)II, Beta-
Klean(TM), Micro-
Klean(R)II, Auto-
Klean(R), Poro-Klean(R)
and Micro-Screen(R)
Semiconductors High purity water,
chemicals and gases for
manufacturing computer
chips
Coatings Processors Paint and resin
filtration
Chemical Product clarification
equipment protection
Oil, Gas and
Petrochemical Removing contaminants
from oil and gas
streams
Magnetic Media Coating purity/optical
(recording tape and clarity
floppy disk)
Manufacturers
Printers and Graphic
Art Companies Manufacturing of high
quality inks
Power Generation Filtration of insulating
oils
- -------------------------------------------------------------------------------
POTABLE WATER
Residential Drinking and cooking CUNO Food Service, CUNO
water and appliance System ONE(TM), Aqua-
protection Pure(R), CUNO OCS(TM),
Water Factory
Systems(R),
FaucetMATE(TM) and
CoolerMATE(R),
Synchro(R), Acro(R), PHP
and Lithowater(R)
Commercial and
Industrial
Apartment buildings,
offices, car washes and
printers
Food Service
Fountain beverages,
steam ovens, coffee and
tea
24
<PAGE>
NEW PRODUCTS
A part of the Company's growth strategy is to develop new products for
specific markets and to decrease product development cycle times. The Company
has introduced 15 new products or product extensions in the 24 months prior to
the Spin-off that have generated aggregate net sales of $18 million. The
Company has introduced or plans to introduce the following new products in
fiscal year 1997:
<TABLE>
<CAPTION>
FISCAL YEAR 1997
MARKET NEW PRODUCT INTRODUCTION DESCRIPTION
- -----------------------------------------------------------------------------------
<C> <C> <C> <S>
HEALTH CARE
Pharmaceutical and PolyPro(R) XL Second Quarter* Very high surface area
Biopharmaceutical filters designed to
protect valuable
membrane filters
Zetapor(R) II Fourth Quarter Uncharged Nylon66
cartridges validated
for bacteria retention
Zeta Plus(R) Second Quarter* A self-contained version
BioCap(TM) of Zeta Plus(R) media
that allows small to
medium volume
filtration for
laboratory and pilot
scale development
Food and Beverage BevASSURE(TM)II Third Quarter Nylon66 membrane filter
with improved
sanitization cycles
Diagnostic and ZetaBind(R) II Third Quarter Further advancements in
Laboratory the development of
ZetaBind(R) Nylon66
charged membrane to
enhance the membrane's
adaptability for
specific applications
- -----------------------------------------------------------------------------------
FLUID PROCESSING
Electronics Zeta Plus(R) EC Second Quarter* A media for polishing
filtration with
enhanced adsorption
characteristics
Electropor(TM) II Second Quarter* Higher flow rate Nylon66
membrane filter
Oil, Gas and Petro-Klean(TM) Second Quarter* New generation rigid
Petrochemical resin bonded depth
filter with greater
life
Chemical Z2 Beta-Klean(TM) Second Quarter* New generation absolute
rated, rigid resin-
bonded depth filter for
a wide variety of
chemical uses
- -----------------------------------------------------------------------------------
POTABLE WATER
Residential Aqua-Pure(R) DWS Second Quarter* Drinking water system
Aqua-Pure(R) Fourth Quarter Purification system for
countertop filter above counter use
Commercial and AC-PHP (PRO-SFR) First Quarter* Automated reverse
Industrial osmosis systems for car
wash rinse water
Food Service ScaleGard(TM) First Quarter* Reduce scale buildup in
filters steam ovens
</TABLE>
* Already introduced.
25
<PAGE>
COMPETITION
The Company competes with many domestic and international companies in its
global markets including Millipore Corporation, Pall Corporation, Memtec Ltd.,
Osmonics, Inc. and Culligan Water Technologies, Inc. No one company has a
significant presence in all the Company's markets. The principal methods of
competition are product specifications, performance, quality, knowledge,
reputation, technology, distribution capabilities, service and price. Some of
the Company's other competitors are multi-line companies with other principal
sources of income who have substantially greater resources than the Company;
many others are local product assemblers or service companies that purchase
components and supplies such as valves and tanks from more specialized
manufacturers than the Company. Through its SASS teams, the Company has
developed many products by collaborating with its customers throughout the
design and development process. The Company believes that these relationships
provide it with a competitive advantage over other manufacturers.
RESEARCH AND DEVELOPMENT, PRODUCT DEVELOPMENT AND ENGINEERING
The Company's research and development activities are conducted in its own
laboratories, supplemented by on-site development and application of custom
design and engineering. The Company's research, development and engineering
expenditures, which mainly relate to the development of new products, product
applications and manufacturing processes, for fiscal year 1994, 1995 and 1996
were approximately $7.8 million, $8.3 million and $9.9 million, respectively,
representing 5.4%, 5.1% and 5.5% of net sales, respectively. The Company also
incurs additional internal costs related to its sales and service personnel
for product development.
MANUFACTURING
The Company's manufacturing is largely vertically integrated, using unique,
proprietary and patented processes, with many of the major components of its
filtration units manufactured and assembled in its own plants. As stated
above, the Company has begun to outsource some of its manufacturing processes,
such as metal housing manufacturing. The Company believes that it has
sufficient manufacturing capacity for the foreseeable future. The Company has
developed a new, more efficient membrane manufacturing process, which it
believes provides a competitive advantage through the production of superior
products at lower costs. All of the Company's manufacturing facilities are ISO
9002 certified.
RAW MATERIALS
The primary raw materials used by the Company are cotton, nylon, acrylic,
cellulose and various resins, plastics and metals. The Company has not
experienced a shortage of any of its raw materials in the past three years.
The Company believes that there is an adequate supply of all of its raw
materials at competitive prices available from a variety of suppliers.
DISTRIBUTION AND SALES
The Company has over 150 independent distributors of its products in 65
countries. Distributors represent the primary channel in the marketing of the
Company's health care and fluid processing products. The Company has
agreements with all of its major distributors in the U.S. In certain markets
outside the U.S., the Company uses dedicated sales people. The Company's
potable water products are sold directly to wholesalers, such as plumbing
suppliers, water quality dealers and major resellers, and through
manufacturers representatives and sales managers.
The Company's agreements with its U.S. distributors are generally for a
period of two years. Such agreements usually assign an exclusive territory,
prohibit distributors from carrying competing products, require that
distributors share market and customer related information with the Company
and require that distributors carry an adequate stock of its products. The
Company does not believe that the loss of any one of its distributors would
have an adverse effect on the Company. The Company's top ten distributors
accounted for approximately 25% of its net sales in fiscal year 1996.
The Company believes that no end-user of any of its products accounts for
more than 5% of net sales. As of January 31, 1997, the Company employed over
250 sales people, of which over 160 are located overseas.
26
<PAGE>
PROPERTIES
The Company's world headquarters is located in Meriden, Connecticut, which
facility also contains manufacturing and assembly operations. The following
table sets forth the location and approximate size of the Company's principal
properties and facilities, all of which are owned by the Company.
<TABLE>
<CAPTION>
APPROXIMATE
FACILITY SIZE
LOCATION (SQ. FT.)
-------- -------------
<S> <C>
Meriden, Connecticut......................................... 189,000
Enfield, Connecticut......................................... 120,000
Stafford Springs, Connecticut................................ 165,000
Kita-Ibaragi, Japan.......................................... 40,000
Marinque, Brazil............................................. 65,000
Calais, France............................................... 50,000
Mazeres, France.............................................. 40,000
Sydney, Australia*........................................... 290,000
</TABLE>
--------
* 40% of this facility is sublet to an unrelated third party.
In addition to the properties listed above, the Company leases one facility
in the U.S. and 18 facilities outside the U.S. These facilities are generally
used as warehouses and/or sales offices. Management believes that the current
properties are sufficient for the Company's operations.
TRADEMARKS AND PATENTS
Trademarks and brand name recognition are important to the Company. The
Company generally owns the trademarks under which its products are marketed.
The Company has registered its trademarks and will continue to do so as they
are developed or acquired. The Company has over 300 registered trademarks
throughout the world. The Company protects such trademarks and believes that
there is significant value associated with them.
The Company has over 200 active patents throughout the world and at least 36
patent applications pending worldwide. The Company additionally relies on
proprietary, non-patented technologies to a certain extent. Certain of the
Company's employees sign non-disclosure and assignment of proprietary rights
agreements.
The Company protects its intellectual property and believes there is
significant value associated with it. However, the Company believes that the
loss of one or more of its trademarks and patents would not have a material
adverse effect, as it is not heavily dependent on any one or few and is
continually expanding its intellectual estate through new additions.
GOVERNMENT REGULATIONS
Management believes that the Company is in substantial compliance with
applicable regulations of Federal, state and local authorities relating to the
discharge of materials into the environment.
The Company manufactures certain filtration products that are used as
components in medical devices and the Company must use the Food and Drug
Administration ("FDA") listed materials in the manufacture of these products.
Certain medical devices marketed and manufactured by the Company's customers
are subject to extensive regulation by the FDA and, in some instances, by
foreign governments. Noncompliance with FDA requirements can result in, among
other things, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, failure of the government
to grant premarket clearance or premarket approval for devices, withdrawal of
marketing approvals or criminal prosecution. Before a new device can be
introduced into the market, the manufacturer must generally obtain FDA
clearance through either a 510(k) notification or a
27
<PAGE>
premarket approval application ("PMA"). A 510(k) clearance will be granted if
the submitted information establishes that the proposed device is
"substantially equivalent" to a legally marketed Class I or II medical device,
or to a Class III medical device for which the FDA has not called for PMAs.
The FDA recently has been requiring a more rigorous demonstration of
substantial equivalence than in the past. It generally takes from four to
twelve months from submission to obtain a 510(k) clearance, but it may take
longer. The FDA may determine that a proposed device is not substantially
equivalent to a legally marketed device, or that additional information is
needed before a substantial equivalence determination can be made.
In many areas, the sale and promotion of water treatment devices is
regulated at the state level by product registration, advertising
restrictions, water testing, product disclosure and other regulations specific
to the water treatment industry. In some local areas, certain types of water
treatment products, including those manufactured by the Company, are
restricted because of a concern with the amount and type of contaminants per
volume of water discharged.
EMPLOYEES
At January 31, 1997, the Company employed over 1,200 people worldwide
(exclusive of employees of independent distributors), with over 700 employees
in the U.S. and over 500 employees in other countries. In the U.S.,
approximately 145 employees are members of a union under a contract that
expires on October 31, 1997. Locations outside the U.S. also employ
approximately 130 union members. The Company believes its employee relations
are generally good.
LEGAL PROCEEDINGS
The Company is a party to various legal proceedings and claims in the
ordinary course of business. The Company does not believe that the outcome of
any pending matters will, individually or in the aggregate, materially
adversely affect its business, financial condition or results of operations.
28
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND EMPLOYEES
The executive officers, directors and employees of the Company as of January
31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Paul J. Powers.................. 62 Chief Executive Officer and Chairman of the
Board
Mark G. Kachur.................. 53 President, Chief Operating Officer and
Director
Michael H. Croft................ 53 Senior Vice President
Ronald C. Drabik................ 50 Senior Vice President and Chief Financial
Officer
Timothy B. Carney............... 44 Vice President and Controller
John A. Tomich.................. 39 Counsel and Secretary
Joel B. Alvord.................. 58 Director
Charles L. Cooney............... 52 Director
Norbert A. Florek............... 57 Director
John M. Galvin.................. 64 Director
Gerald C. McDonough............. 68 Director
C. Edward Midgley............... 60 Director
David L. Swift.................. 60 Director
</TABLE>
Paul J. Powers. Mr. Powers has been a director of the Company since 1986,
when the Company was a subsidiary of Commercial Intertech, and Chief Executive
Officer of the Company as of July 1996. He has also been President and Chief
Operating Officer of Commercial Intertech since 1984 and Chief Executive
Officer since 1987. He is Chairman of the Board of Directors for both the
Company and Commercial Intertech. He holds a bachelor's degree in Economics
from Merrimack College and a master's degree in Business Administration from
George Washington University. Mr. Powers is also a director of Commercial
Intertech, Ohio Edison Company, Global Marine, Inc. and Twin Disc, Inc.
Mark G. Kachur. Mr. Kachur has been a director of the Company since July
1996, and President and Chief Operating Officer of the Company as of September
1996. From 1994 until the Spin-off, Mr. Kachur was a Senior Vice President of
Commercial Intertech and President of the Company. From 1992 until 1994, he
was President and CEO of Biotage Inc., and from 1971 to 1991, he was with Pall
Corporation, the last seven years as a Group Vice President. He holds a
bachelor of science degree in Mechanical Engineering from Purdue University
and a master's degree in Business Administration from the University of
Hartford.
Michael H. Croft. Mr. Croft has been Senior Vice President of the Company
since the Spin-off. From 1993 until the Spin-off, Mr. Croft was President--
U.S. Operations of the Company. From 1984 until 1993, he was with Cuno Pacific
Rim operations serving as Managing Director of Cuno Pacific, Cuno Asia with
oversight of Cuno K.K. (Japan). He holds a bachelor's degree in Engineering
(Chemistry) from The University of Sydney and a Certificate in Marketing from
the University of New South Wales.
Ronald C. Drabik. Mr. Drabik has been Senior Vice President and Chief
Financial Officer of the Company since the Spin-off. From July 1996 until
joining the Company, he was a Vice President of Commercial Intertech. From
1995 until 1996, he was Vice President of Acme-Cleveland Corporation, a
manufacturer of communications, motion control and measurement products. From
1993 until 1995, he was with Met-Coil Systems Corp., a machine tool builder,
for which he served at various times as President, Executive Vice President,
Senior Vice President, Chief Financial Officer and an outside consultant. From
1989 until 1992, he was Vice President of Finance and Chief Financial Officer
of RB&W Corporation, a manufacturer/distributor of engineered fasteners. He
holds a bachelor of arts degree from Baldwin-Wallace College.
29
<PAGE>
Timothy B. Carney. Mr. Carney has been the Company's Vice President and
Controller since the Spin-off. From 1993 until joining the Company, he served
Commercial Intertech as Cuno Group Controller and from 1989 until 1993 he
served Commercial Intertech as General Manager and Controller of Water Factory
Systems. He holds a bachelor of science degree (Economics) and a master's
degree in Business Administration from Youngstown State University.
John A. Tomich. Mr. Tomich has been Counsel and Secretary of the Company
since September 1996. Before joining the Company, after the Spin-off, he was
Counsel and Assistant Secretary for Commercial Intertech, where he had been
employed since January 1990 and had been involved extensively with the legal
matters affecting the Company. He holds a bachelor of engineering degree
(Mechanical Engineering) from Youngstown State University and juris doctor
from the University of Akron, School of Law. He is a licensed Patent Attorney.
Joel B. Alvord. Mr. Alvord has been a director of the Company since August
1996. He is currently Chairman of the Executive Committee and a Director of
Fleet Financial Group, having served as its Chairman for the past two years.
His banking career began in 1963. He became President of Hartford National
Corporation in 1978 and served as Chief Executive Officer of Shawmut National
Corporation from 1988 to 1995 when it was merged into Fleet Financial Group.
He was educated at Loomis Chaffee School and Dartmouth College, from which he
holds a bachelor's degree in History and a master's degree in Business
Administration from the Amos Tuck School of Business Administration. Mr.
Alvord is also a director of the Hartford Steam Boiler Inspection & Insurance
Company and has been a member of the Board of Directors of the Federal Reserve
Bank of Boston.
Charles L. Cooney. Dr. Cooney has been a director of the Company since
August 1996. He has been a Professor of Chemical and Biochemical Engineering
at the Massachusetts Institute of Technology ("MIT") since 1982. At MIT he is
also the executive officer of the Department of Chemical Engineering and co-
director of the Program on the Pharmaceutical Industry. Since 1989, he has
served as the regional editor of Bioseparations, and in 1992, Dr. Cooney
became a founding Fellow for the American Institute for Medical and Biological
Engineering. He holds a bachelor of science degree in Chemical Engineering
from the University of Pennsylvania and a master's degree and a Ph.D. in
Biochemical Engineering from MIT. Dr. Cooney is also a director of Genzyme
Corporation.
Norbert A. Florek. Mr. Florek has been a director of the Company since
August 1996. Mr. Florek retired from the Allstate Insurance Company in 1995,
where he served as Chief Financial Officer since 1990 and as a member of the
Board of Directors. Since 1995, he has been a private financial consultant. He
is a CPA and holds a bachelor's degree in Business Administration from Loyola
University. Mr. Florek is also a director of U.S.A. Utilities Incorporated.
David L. Swift. Mr. Swift has been a director of the Company since August
1996. Mr. Swift retired in 1996 from Acme-Cleveland Corporation, a
manufacturer of communications, motion control and measurement products, where
he served as Chairman of the Board since 1993 and Chief Executive Officer and
President since 1988. He holds a bachelor of science degree from Ball State
University and a juris doctorate from the Salmon P. Chase College of Law. Mr.
Swift is also a director of Alltrista Corporation and Twin Disc, Inc.
John M. Galvin. Mr. Galvin has been a director of the Company since 1993,
when the Company was a subsidiary of Commercial Intertech. Since his
retirement in 1992 from The Irvine Company, a major landowner and developer
that also owns a major portfolio of income property, Mr. Galvin has been a
private investor and consultant. From 1987 until 1992, he was Vice Chairman
and Director of The Irvine Company. He holds a bachelor's degree in Business
Administration from Indiana University. Mr. Galvin is also a director of
Commercial Intertech, Global Marine, Inc. and Oasis Residential Inc.
Gerald C. McDonough. Mr. McDonough has been a director of the Company since
1992, when the Company was a subsidiary of Commercial Intertech. Mr. McDonough
retired from Leaseway Transportation Corporation, a trucking company, in 1988,
where he had served as Chairman of the Board and Chief Executive
30
<PAGE>
Officer since 1982. He holds a bachelor's degree in Business Administration
from Case Western Reserve University. Mr. McDonough is also a director of
Commercial Intertech, York International Corporation, Brush-Wellman
Corporation and Associated Estates Realty Corporation and a trustee of the
Fidelity Funds.
C. Edward Midgley. Mr. Midgley has been a director of the Company since
1995, when the Company was a subsidiary of Commercial Intertech. Mr. Midgley
has been associated with PaineWebber Incorporated since 1995 and is currently
a Managing Director. From 1992 until 1995, he was Co-Head of Investment
Banking, Executive Managing Director, Head of Mergers and Acquisitions and a
Member of the Board of Directors of Kidder, Peabody & Co. Incorporated. He
holds a bachelor of arts degree in Economics from Princeton University and a
master's degree in Business Administration from Harvard Business School. Mr.
Midgley is also a director of Commercial Intertech.
Mr. Powers is the only person who is an officer of both the Company and
Commercial Intertech. Mr. Powers receives a salary and other benefits as an
officer of Commercial Intertech. The Company pays Mr. Powers directly for his
services to the Company.
BOARD OF DIRECTORS
The nine member Board of Directors is divided into three classes. The Board
is composed of three Class I directors (Messrs. Galvin, Alvord and Dr.
Cooney), three Class II directors (Messrs. Kachur, McDonough and Florek) and
three Class III directors (Messrs. Midgley, Powers and Swift). The terms of
the Class I, Class II and Class III directors expire on the date of the 1997,
1998 and 1999 annual meetings, respectively. At each annual meeting,
successors to the class of directors whose term expires at that annual meeting
will be elected for a three-year term. Directors elected by the stockholders
may be removed only for cause.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee
The Audit Committee has the responsibility for recommending the selection of
independent auditors by the Board of Directors; reviewing with such auditors,
prior to the commencement of or during such audit for each fiscal year, the
scope of the examination to be made; reviewing with such auditors the audited
financial reports, any changes in accounting policies, the services rendered
by such auditors (including management consulting services) and the effect of
such services on the independence of such auditors; reviewing the Company's
internal audit and control functions; considering such other matters relating
to such audits and to the accounting procedures employed by the Company as the
Audit Committee may deem appropriate; and reporting to the full Board of
Directors regarding all of the foregoing. This Committee consists of the
following four members: Messrs. Midgley (Chairman), Alvord, Florek and Dr.
Cooney. No member of the Audit Committee is an employee of the Company.
Compensation Committee
The Compensation Committee determines annual salaries and bonuses for all
elected officers and senior management, administers the Company's various
stock option and award plans, and has the authority to approve incentive and
deferred compensation plans, and related funding arrangements, for elected
officers and senior management. This Committee consists of the following four
members: Messrs. McDonough (Chairman), Galvin, Midgley and Alvord. No member
of the Compensation Committee is an employee of the Company.
Executive and Finance Committee
The Executive and Finance Committee, during the intervals between the
meetings of the Board of Directors, possesses and may exercise all the powers
of the Board in the management of the business and affairs of the Company to
the extent permitted by law. The Executive and Finance Committee has the
responsibility for overseeing and ensuring that the Company's financial
resources are managed prudently and cost effectively, with
31
<PAGE>
emphasis on those issues that are long-term in nature, and makes
recommendations to the Board as to: (i) debt and capital structure; (ii)
issuance of shares or repurchase of outstanding shares; (iii) dividend policy
and the declaration of dividends; (iv) acquisitions and divestitures; and (v)
any other financial matters deemed appropriate by the Committee. The Executive
and Finance Committee shall also have such other powers and perform such other
duties as shall from time to time be prescribed by the Board of Directors. The
Executive and Finance Committee consists of the following five members:
Messrs. Powers (Chairman), Galvin, Midgley, McDonough and Swift.
Nominating and Pension Committee
The Nominating and Pension Committee has the responsibility to identify,
recruit and nominate prospective members of the Board of Directors. This
Committee also has the responsibility for overseeing and evaluating the
investments of the Company's pension plan trusts, selecting fund managers and
reviewing their performance, and designating the proportion of pension
contributions to be assigned to such managers. This Committee consists of the
following five members: Messrs. Galvin (Chairman), Swift, Florek, Powers and
Dr. Cooney.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. McDonough, Galvin, Midgley
and Alvord, none of whom is an employee of the Company. Messrs. McDonough,
Galvin and Midgley also serve as directors for Commercial Intertech, which has
entered into certain agreements with the Company that provided for the Spin-
off and govern various interim and ongoing relationships between and among the
two companies. See "Certain Related Party Transactions--Arrangements Between
the Company and Commercial Intertech."
COMPENSATION OF THE BOARD OF DIRECTORS
Directors who are not employees or officers of the Company receive an annual
retainer fee in the amount of $15,000, plus $1,000 for attending each meeting
of the Board and $600 for attending each committee meeting. Outside directors
have the option to make an annual election to receive the retainer and Board
meeting fees in deferred stock units instead of cash. Directors who opt for
the stock unit alternative receive a 20% premium in stock units versus the
cash option. Directors who are employees or officers of the Company do not
receive compensation for serving as directors. Directors are also reimbursed
for reasonable travel expenses to and from meetings of the Board and
committees. Outside directors receive non-qualified stock options to purchase
1,000 shares of Common Stock annually and receive 1,000 performance shares bi-
annually. The performance shares are earned based upon the achievement of
certain Company financial targets during a three year cycle. Mr. Powers, as an
officer of the Company, is not compensated for serving as a director of the
Company.
32
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the cash
compensation paid by the Company for services rendered during the fiscal years
ended October 31, for the years listed below to its Chief Executive Officer
and the other executive officers of the Company whose total annual salary and
bonus exceeded $100,000 during fiscal year 1996 (each, a "Named Executive
Officer"). The salary described in this table for 1994, 1995, and the first
three quarters of 1996 (prior to the Spin-off) for Paul J. Powers, Mark G.
Kachur and Michael H. Croft was paid by Commercial Intertech. Salary paid to
these three executive officers for the fourth quarter of 1996 was paid by the
Company as follows: $25,000 for Paul J. Powers, $45,865 for Mark G. Kachur and
$33,438 for Michael H. Croft. The salary paid to John A. Tomich by the Company
during the fourth quarter of 1996 was $12,716 and the remaining salary amount
was paid to him by Commercial Intertech.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ -----------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL OTHER ANNUAL AWARDS(2) OPTIONS COMPENSATION
POSITIONS YEAR SALARY ($) BONUS ($) COMPENSATION ($) ($) (#) ($)
- ------------------ ---- ---------- --------- ---------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul J. Powers.......... 1996 397,503 -0- -0- -0- 65,000 16,023(5)
Chairman and Chief 1995 481,667 440,000 -0- 131,995 34,000 15,810
Executive Officer 1994 461,667 400,000 -0- 835,634 37,500 15,876
Mark G. Kachur.......... 1996 263,179 152,000 10,883 45,601 74,658(4) 25,627(6)
President and Chief 1995 247,500 135,000 38,414 24,008 15,000 21,706
Operating Officer 1994 134,300 120,000 -0- 174,375 15,000 -0-
Michael H. Croft........ 1996 194,599 115,000 24,850 -0- 13,000 36,119(7)
Senior Vice President 1995 183,000 30,000 12,000 -0- -0- 32,685
Ronald C. Drabik(1)..... 1996 50,212 30,000 -0- 107,500(3) 13,000 1,865(8)
Senior Vice President
and Chief Financial
Officer
Timothy B. Carney....... 1996 99,795 40,000 -0- -0- 6,000 15,282(9)
Vice President and
Controller
John A. Tomich.......... 1996 89,316 12,000 -0- -0- 3,000 2,867(10)
Counsel and Secretary
</TABLE>
- --------
(1) Mr. Drabik became an officer of the Company on September 10, 1996 in
connection with the Spin-off. At present, Mr. Drabik's annual salary is
$175,000.
(2) This column shows the market value of restricted share awards on the date
of grant. The aggregate holdings/value of restricted stock held on
October 31, 1996 by the individuals listed in this table, not including
awards that were earned after the end of the fiscal year as part of the
Company's Executive Management Incentive Plan and were elected to be
taken in the form of restricted stock were: Paul J. Powers--
67,896/$1,086,336; Mark G. Kachur--22,400/$358,400; Michael H. Croft--
4,020/$64,320; Ronald C. Drabik--7,146/$114,336; Timothy B. Carney--
3,294/$52,704; and John A. Tomich--1,876/$30,016.
(3) Includes the value of shares of Commercial Intertech common stock awarded
and converted to shares of Common Stock in connection with the Spin-off.
(4) Includes options for 22,500 shares of Commercial Intertech common stock
granted and converted to options for 39,658 shares of Common Stock in
connection with the Spin-off.
(5) Includes Commercial Intertech matching contributions to the Commercial
Intertech Non-Qualified Stock Purchase Plan in the amount of $10,425;
Commercial Intertech matching contributions pursuant to the Commercial
Intertech 401(k) Plan in the amount of $4,500; and Commercial Intertech
contribution pursuant to the Commercial Intertech Employee Stock
Ownership Plan in the amount of $1,098.
(6) Includes Commercial Intertech matching contributions to the Commercial
Intertech Non-Qualified Stock Purchase Plan in the amount of $2,300;
Commercial Intertech contribution pursuant to the Commercial Intertech
Employee Stock Ownership Plan in the amount of $1,098; Commercial
Intertech reimbursement of relocation costs in the amount of $17,344;
Company matching contributions pursuant to the Company 401(k) Plan in the
amount of $288; and Company reimbursement of relocation costs in the
amount of $4,597.
(7) Includes Commercial Intertech matching contributions to the Commercial
Intertech Non-Qualified Stock Purchase Plan in the amount of $1,107;
Commercial Intertech matching contributions pursuant to the Commercial
Intertech 401(k) Plan in the amount of $3,245; Commercial Intertech
reimbursement of relocation costs in the amount of $650; Commercial
Intertech's amortized retirement of a loan in the amount of $10,880;
Company matching contributions pursuant to the Company 401(k) Plan in the
amount of $573; Company reimbursement of relocation costs in the amount
of $1,310; and Company payment to a supplemental executive retirement
plan in the amount of $18,354.
(8) Includes Company reimbursement of relocation costs in the amount of
$1,865.
(9) Includes Commercial Intertech matching contributions pursuant to the
Commercial Intertech 401(k) Plan in the amount of $2,489; Commercial
Intertech's amortized retirement of a loan in the amount of $12,429; and
Company matching contributions pursuant to the Company 401(k) Plan in the
amount of $364.
(10) Includes Commercial Intertech matching contributions pursuant to the
Commercial Intertech 401(k) Plan in the amount of $2,298 and Commercial
Intertech contribution pursuant to the Commercial Intertech Employee
Stock Ownership Plan in the amount of $569.
33
<PAGE>
The following table sets forth, for each of the Named Executive Officers,
options granted for the Common Stock during fiscal year 1996 pursuant to the
Employee Stock Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATE
SECURITIES OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR OPTION
OPTIONS EMPLOYEES EXERCISE OR TERM(3)
GRANTED IN FISCAL BASE PRICE EXPIRATION ---------------------------
NAME (#)(1) YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ---- ---------- ---------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Paul J. Powers.......... 65,000 19.2 15.125 9/25/06 618,386 1,567,101
Mark G. Kachur.......... 35,000 10.4 15.125 9/25/06 332,977 843,824
39,658(2) 11.7 10.709 1/23/06 267,122 676,936
Michael H. Croft........ 13,000 3.8 15.125 9/25/06 123,677 313,420
Ronald C. Drabik........ 13,000 3.8 15.125 9/25/06 123,677 313,420
Timothy B. Carney....... 6,000 1.8 15.125 9/25/06 57,082 144,656
John A. Tomich.......... 3,000 0.9 15.125 9/25/06 28,541 72,328
</TABLE>
- --------
(1) The options were granted subject to a three-year vesting period, with 50%
of the options granted becoming exercisable on each of the second and third
anniversaries of the grant date. No SARs were granted. The vesting of the
options may be accelerated in the event of a change in control.
(2) This represents a stock option granted to Mr. Kachur for shares of
Commercial Intertech common stock that were converted to the Company's
shares in connection with the Spin-off.
(3) Potential Realizable Value is presented net of the option exercise price
but before any federal or state income taxes associated with exercise.
These amounts represent certain assumed rates of appreciation only. Actual
gains are dependent on the future performance of the Common Stock and the
option holder's continued employment throughout the vesting period. The
amounts reflected in the table may not necessarily be achieved.
The following table sets forth, for each of the Named Executive Officers,
information regarding the exercise of options for the Common Stock during
fiscal year 1996 and unexercised options held as of the end of fiscal year 1996
pursuant to the Employee Stock Plan.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996 AND
FISCAL YEAR END 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTION AT FY END (#) AT FY END ($)(1)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- --------------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Paul J. Powers.......... -- -0- -0-/ 65,000 -0-/ 56,875
Mark G. Kachur.......... -- -0- -0-/114,317 -0-/468,150
Michael H. Croft........ -- -0- -0-/ 13,000 -0-/ 11,375
Ronald C. Drabik........ -- -0- -0-/ 13,000 -0-/ 11,375
Timothy B. Carney....... -- -0- -0-/ 6,000 -0-/ 5,250
John A. Tomich.......... -- -0- -0-/ 3,000 -0-/ 2,625
</TABLE>
- --------
(1) The value per option is calculated by subtracting the exercise price from
the October 31, 1996 closing sales price of the Common Stock on the Nasdaq
National Market of $16.00.
34
<PAGE>
The following table sets forth, for each of the Named Executive Officers,
long-term incentive awards made during fiscal year 1996 pursuant to the
Employee Stock Plan.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF PERFORMANCE OR NON-STOCK PRICE BASED PLANS
SHARES, UNITS OTHER PERIOD ----------------------------------
OR OTHER RIGHTS UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME (#) OR PAYOUT(1) (#) (#) (#)
- ---- --------------- ---------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Paul J. Powers.......... 50,000 10/31/99 12,500 50,000 75,000
Mark G. Kachur.......... 30,000 10/31/99 7,500 30,000 45,000
Michael H. Croft........ 10,000 10/31/99 2,500 10,000 15,000
Ronald C. Drabik........ 10,000 10/31/99 2,500 10,000 15,000
Timothy B. Carney....... 4,000 10/31/99 1,000 4,000 6,000
John A. Tomich.......... 2,000 10/31/99 500 2,000 2,000
</TABLE>
- --------
(1) The date in the column represents the date on which the three-year
performance period ends.
Employees may retire from the Company with unreduced benefits under the
Company's retirement plans at age 65 or later with 25 or more years of
service. The table below shows the estimated annual pension benefits provided
under the Company's defined benefit retirement plans for employees in higher
salary classifications retiring at age 65 or later.
ESTIMATED TOTAL ANNUAL RETIREMENT BENEFITS UNDER THE PENSION PLAN FOR
SALARIED EMPLOYEES AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$150,000 $ 40,684 $ 54,245 $ 67,806 $ 71,196 $ 74,587
200,000 55,684 74,245 92,806 97,446 102,087
250,000 70,684 94,245 117,806 123,696 129,587
300,000 85,684 114,245 142,806 149,946 157,087
400,000 115,684 154,245 192,806 202,446 212,087
</TABLE>
Benefits under the plans are calculated generally under a formula of 50% of
the participant's final average compensation reduced by 50% of the
participant's estimated social security benefits, reflected in the table in
the form of a straight life annuity. The compensation covered by the pension
plan is base salary as set forth in the Salary column of the Summary
Compensation Table above. The compensation covered by the supplemental
executive retirement plan is also base salary for Mr. Kachur, the only
participant in that plan. As of January 31, 1997, Mr. Kachur had two credited
years of service, Mr. Drabik had no credited years of service, Mr. Carney had
12 credited years of service and Mr. Tomich had seven credited years of
service with the Company. Mr. Croft has elected not to participate in the
pension plan. In addition, Mr. Powers is not a participant in the pension
plan.
THE EXECUTIVE MANAGEMENT INCENTIVE PLAN
The Executive Management Incentive Plan ("EMIP") was approved by Commercial
Intertech prior to the Spin-off and is a performance-based plan in which
payouts are set in accordance with the requirements of Section 162(m) of the
Code. The EMIP provides annual incentive compensation opportunities to the
Company's senior executives based solely on the achievement of predetermined
financial performance objectives (e.g., corporate net income).
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<PAGE>
THE MANAGEMENT INCENTIVE PLAN
The Management Incentive Plan ("MIP") provides compensation that is not
performance-based as defined in Code Section 162(m), but which will be based
on both objective and subjective evaluations of individual executive
performance. The MIP provides opportunities for executives to earn annual
incentives based on the achievement of a combination of financial goals
(operating and net income, return on net sales, return on assets and operating
cash flow) for the Company and individual objectives. A threshold net income
level will have to be achieved before any payments are made.
The Compensation Committee has selected 52 individuals for plan
participation in fiscal year 1997. Associated target award ranges will be
determined according to individual responsibility levels, business judgment
and median market data for comparably sized manufacturing companies.
For fiscal year 1996, the Compensation Committee extended an opportunity to
certain Company participants in Commercial Intertech's Senior Management
Target Incentive Plan and Salaried Employee Incentive Plan to elect to receive
up to 50% of their earned awards in restricted stock. For a number of
participants who elected to receive part of their fiscal year 1996
compensation in restricted stock, the Company increased the stock award by
20%. The vesting period associated with the stock award is three years, and in
the event a participant voluntarily leaves the Company or is terminated "for
cause," the shares will be forfeited. Beginning in fiscal year 1997, the
Compensation Committee will offer a 25% increase in the stock award and a
four-year vesting period.
EMPLOYMENT AGREEMENT
In connection with the Spin-off, the Company assumed the Employment
Agreement Mr. Kachur signed with Commercial Intertech on December 3, 1993,
which expires in April 1997. The Employment Agreement provides for a base
salary of $240,000 and grants of stock options as well as other Company
benefit programs, including group life insurance, hospitalization and medical
plans.
CHANGE OF CONTROL AGREEMENTS
The Company has entered into termination and change in control agreements
(each, a "Termination Agreement") with Messrs. Carney, Croft, Drabik, Kachur,
Powers and Tomich (each, an "Executive"). Under each Termination Agreement,
following a "Change in Control" (as defined in the Termination Agreement), if
an Executive is terminated without cause or if the Executive terminates his
own employment for certain reasons, such Executive could receive (in addition
to certain other benefits described below): (i) two to three times the sum of
the base salary and highest recent annual bonus during the three preceding
years; (ii) the value of any shares, dividends or other property payable
assuming maximum performance with respect to any performance shares held by
such Executive; (iii) accrued and unpaid base salary and pro rata portion of
his highest recent bonus; (iv) the actuarial value of accrued benefits under
such Executive's supplemental retirement plan; (v) all vested nonforfeitable
amounts owing under any comprehensive benefit plans; (vi) continuation of
certain benefits for two or three years, such as medical benefits; and (vii)
certain other benefits and payments. If a Change in Control occurs, the
Company is obligated to set aside, in trust, sufficient assets to fund all
obligations under the Termination Agreements. In addition, payment received by
an Executive in connection with a Change in Control could be "grossed up" for
any excise taxes imposed by the "Golden Parachute" provisions of the Code.
Under the Termination Agreements, each Executive may not compete with the
Company for a certain period of time.
STOCK PLANS
Prior to the Spin-off, the Board of Directors and Commercial Intertech, as
sole Company stockholder, adopted the CUNO Incorporated 1996 Stock Incentive
Plan (the "Employee Stock Plan") and the CUNO Incorporated Non-Employee
Directors' Stock Plan (the "Directors' Stock Plan" together with the Employee
Stock Plan, the "Stock Plans"). The purpose of the Stock Plans is to motivate
non-employee directors, officers, key employees and consultants to the Company
("Participants") by allowing them to participate in the
36
<PAGE>
Company's future, to recognize and reward Participants' contributions and
achievements and business performance through incentives linked to performance
objectives and to enable the Company to attract and retain these persons by
offering them an ownership interest in the Company. The Stock Plans are
administered by the Compensation Committee. The Employee Stock Plan authorizes
the issuance of up to 1,000,000 shares of Common Stock (plus any unused shares
under the Directors' Stock Plan) pursuant to the grant or exercise of stock
options, stock appreciation rights, restricted stock, performance shares,
annual incentive bonuses or deferred stock to officers, key employees and
consultants of the Company. The Directors' Stock Plan authorizes the issuance
of up to 200,000 shares of Common Stock (plus any unused shares under the
Employee Stock Plan) pursuant to the grant or exercise of stock options,
deferred stock or performance shares to non-employee directors of the Company.
Options granted to certain senior executives, management and other employees
will vest or become exercisable over varied periods that will be determined at
the time such options are granted. On the Distribution Date, directors who were
not employees of the Company or any affiliate ("Non-Employee Directors") were
automatically granted options to purchase 1,000 shares on the Distribution
Date, and Non-Employee Directors will be granted options for 1,000 shares of
Common Stock on the date of each annual stockholder's meeting beginning in
1997. Such options were, and shall be, granted at fair market value on the date
of grant. Non-Employee Directors will also be permitted to elect to receive
their retainer and meeting fees in the form of deferred stock instead of cash.
Non-Employee Directors who elect to receive their retainer or meeting fees in
such alternate form will receive shares of Common Stock with a value equal to
as much as 120% of the value of the retainer or meeting fees the Non-Employee
Director would have received in cash. Non-Employee Directors who held office on
the Distribution Date received 5,000 performance shares and will also receive
on a bi-annual basis performance shares for 1,000 shares of Common Stock, and
the right to receive such shares will be conditioned upon the successful
satisfaction of certain Company financial targets during a specified period.
Stock Options may be either "incentive stock options" (within the meaning of
Section 422 of the Code) or nonstatutory options (collectively, "Stock
Options"). Only nonstatutory stock options may be granted to Non-Employee
Directors. The exercise price per share purchasable under an option shall be
determined at the time of grant by the Compensation Committee. Generally,
Participants will be given ten years in which to exercise a Stock Option, or a
shorter period once a Participant terminates employment. Payment may be made in
cash or in the form of unrestricted shares the Participant already owns or by
other means. At the Company's option, it may provide a Participant with a loan
or guarantee of a loan for the exercise price of an option. The right to
exercise an option may be conditioned upon the completion of a period of
service or other conditions.
Stock Appreciation Rights ("SARs") entitle a Participant to receive an amount
in cash, shares or both, equal in value to (i) the excess of the fair market
value of one share over the exercise price per share specified in the related
Stock Option multiplied by (ii) the number of shares to which the SAR relates.
The right to exercise a SAR may be conditioned upon the completion of a period
of service or other conditions. Generally, Participants will be given ten years
in which to exercise a SAR, or a shorter period once a Participant terminates
employment.
Shares of Restricted Stock ("Restricted Stock") may also be awarded under the
Stock Plans, which requires the completion of a period of service or the
attainment of specified performance goals by the Participant or the Company or
a subsidiary, division or department of the Company or such other criteria as
the Compensation Committee may determine. Upon a participant's Termination of
Employment (as defined in the Stock Plans), the Restricted Stock still subject
to restriction generally will be forfeited by the Participant. The Compensation
Committee may waive these restrictions in the event of hardship or other
special circumstances.
Performance Share Awards ("Performance Shares") are grants of shares of
Common Stock or the right to receive shares in the future that are subject to
restrictions on transfer and retention based on satisfaction of certain
performance criteria of the Company, the Participant or both. If the specified
performance objectives established by the Committee are attained during the
time period specified by the Committee (which will generally be at least a two-
year period) and if the Participant continues in employment through the
performance period, the restrictions on transfer and retention will be removed.
Depending on a Participant's responsibilities, the performance criteria will
be based on any of the following, either alone or in any combination, and
either on a consolidated or business unit level, as the Committee may
37
<PAGE>
determine: sales, net asset turnover, earnings per share, cashflow, cashflow
from operations, operating profits or income, operating margin, net income, net
income margin, return on net assets, return on total assets, return on common
equity, return on total capital and total shareholder return. The Committee
will specifically determine these criteria and may include or exclude any or
all of the following items: extraordinary, unusual or nonrecurring items;
effects of accounting changes; effects of financing activities; expenses for
restructuring or productivity initiatives; non-operating items; spending for
acquisitions; effects of divestitures; and effects of litigation or
settlements. Capital gains may be included or excluded. The maximum number of
performance shares that may be awarded to any Participant under the Plan for
any year is one half of the shares of Common Stock reserved under the plan.
Performance Shares in respect of which the Company's deduction is subject to
Section 162(m) of the Code, may only be paid if the performance objectives are
achieved, except where the Participant's employment is terminated for an
extraordinary reason, in which case the Participant may receive a proportionate
award.
Deferred Stock ("Deferred Stock") is stock that can be awarded to a
Participant in the future, at a specified time and under specified conditions.
The Compensation Committee will determine the Participants to whom, and the
time or times at which, any Deferred Stock shall be awarded, the number of
shares of Deferred Stock to be awarded to any Participant, the duration, the
period during which and the conditions under which receipt of the shares will
be deferred and any other terms and conditions of the Deferred Stock.
Annual Incentive Awards ("Annual Incentives") are awards granted each fiscal
year by the Committee and based on the satisfaction of specified bonus targets.
The targets are based on Company performance measurements, as determined by the
Committee, and include the following: sales, net asset turnover, earnings per
share, cashflow, cashflow from operations, operating profits or income, net
income, operating margin, net income margin, return on net assets, return on
total assets, return on common equity, return on total capital and total
shareholder return. The Committee will specifically determine these criteria
and may include or exclude any or all of the following items: extraordinary,
unusual or nonrecurring items; effects of accounting changes; effects of
financing activities; expenses for restructuring or productivity initiatives;
non-operating items; spending for acquisitions; effects of divestitures; and
effects of litigation or settlements. Capital gains may be included or
excluded. The Committee will determine each year whether the objectives have
been satisfied and awards will be paid only if the deduction is subject to
Section 162(m) of the Code, except for an extraordinary reason for a
termination of employment.
Payment may be made in cash, or at the election of the Participant, in the
form of Restricted Stock. If Restricted Stock is chosen, it will be subject to
limitation on transfer and risk of forfeiture for a designated period
(generally, four years) and may have a value of as much as 130% of the cash
value of the award had it been paid in cash. The maximum compensation that any
Participant may receive in connection with an Annual Incentive, including
Restricted Stock or Deferred Stock worth 130% of the cash value, is $1.5
million.
Amendments and Modifications. The Stock Plans, as adopted, are not limited as
to their duration. The Board of Directors of the Company may amend, alter, or
discontinue the Stock Plans, subject to certain limits.
Change in Control. In the event of a Change in Control of the Company (as
defined in the Stock Plans):
(1) any SAR and Stock Options outstanding as of the date of such Change
in Control that are not then exercisable and vested will become fully
exercisable and vested to the full extent of the original grant; and
(2) the restrictions and deferred limitations applicable to any shares of
Restricted Stock and Deferred Stock will lapse and such shares of
Restricted Stock and Deferred Stock will become free of all restrictions
and become fully vested and transferable to the full extent of the original
grant. Also, the performance goals and other restrictions with respect to
any outstanding award of Performance Shares or Annual Incentives may be
deemed to be satisfied in full and fully distributable.
A Change in Control includes any transaction that would result in any person
owning, directly or indirectly, 20% or more of the outstanding Common Stock of
the Company or the voting power of the Company, certain changes in the members
of the board of directors, certain corporate transactions (such as a merger)
and the sale of substantially all of the Company's assets.
38
<PAGE>
BENEFICIAL OWNERS
The following table sets forth, as of January 31, 1997, certain information
with respect to the beneficial ownership of Common Stock by (i) each person
known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each Company director, (iii) the Chief Executive
Officer and each of the other Named Executive Officers and (iv) all Company
directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENT OF VOTING SHARES
SHARES -------------------------------
BENEFICIALLY PRIOR TO THE AFTER THE
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------ ------------ ------------- ------------
<S> <C> <C> <C>
National City Bank N.E.(1).. 945,423 6.8% 5.3%
Janus Capital
Corporation(2)............. 704,325 5.1 4.5
Joel B. Alvord.............. 12,677 * *
Timothy B. Carney........... 10,413(3) * *
Charles L. Cooney........... 6,149 * *
Michael H. Croft............ 24,735(3) * *
Ronald C. Drabik............ 17,146 * *
Norbert A. Florek........... 8,075 * *
John M. Galvin.............. 16,612 * *
Mark G. Kachur.............. 92,641(4) * *
Gerald C. McDonough......... 10,649 * *
C. Edward Midgley........... 26,149 * *
Paul J. Powers.............. 243,699 1.8 1.5
David L. Swift.............. 7,072 * *
John A. Tomich.............. 7,022 * *
All directors and executive
officers as a group (13
people).................... 483,039 3.5 3.1
</TABLE>
- --------
* Less than 1%.
(1) As reported on a Schedule 13G dated February 19, 1997 filed with the
Commission by National City Bank N.E. According to such Schedule 13G,
National City Bank N.E. has sole voting power over 672,209 shares and
shared voting power over 171,306 shares and sole investment power over
92,668 shares, shared investment power over 709,555 shares and no
investment power over 143,200 shares. The address of the stockholder is
National City Center, 1900 East Ninth Street, Cleveland, Ohio 44114-3484.
(2) As reported on a Schedule 13G dated February 10, 1997 filed with the
Commission by Janus Capital Corporation. According to such Schedule 13G,
Janus Capital Corporation has shared voting power and shared dispositive
power with respect to all 704,325 of these shares. The address of the
stockholder is 100 Fillmore Street, Denver, Colorado 80206-4923.
(3) Includes the following number of Common Shares (fractional shares not
shown) credited to the accounts of the above-mentioned beneficial owners
by the trustee acting under the provisions of the Company's 401(k) Plan:
Mr. Carney--1,210 shares; and Mr. Croft--1,468 shares.
(4) Includes 26,439 shares of Common Stock subject to options exercisable
within 60 days.
39
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, par value $.001 per share, and 2,000,000 shares of Preferred
Stock, par value $.001 per share (the "Preferred Stock").
COMMON STOCK
As of February 26, 1997, there were 13,822,076 shares of Common Stock
outstanding, excluding shares of Common Stock reserved for issuance upon
exercise of options granted under the Stock Plans. The Common Stock is listed
on the Nasdaq National Market under the symbol "CUNO."
Subject to preferences that may be applicable to any outstanding Preferred
Stock, holders of Common Stock are entitled to receive ratably such dividends
as may be declared by the Board of Directors out of funds legally available
therefor. Holders of Common Stock are entitled to one vote per share in all
matters to be voted upon by stockholders. In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets remaining after payment of the Company's
liabilities and the liquidation preferences of any outstanding Preferred
Stock. Holders of Common Stock have no preemptive rights and no rights to
convert their Common Stock into any other securities and there are no
redemption provisions with respect to such shares. All of the outstanding
shares of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock that the
Company may issue in the future.
Holders of Common Stock have certain rights to purchase Series A Preferred
Stock (as defined below) or Common Stock under certain circumstances. See "--
Preferred Stock" and "--Stockholder Rights Plan."
PREFERRED STOCK
Preferred Stock may be issued in series from time to time with such
designations, relative rights, priorities, preferences, qualifications,
limitations and restrictions thereof as the Board determines. The rights,
priorities, preferences, qualifications, limitations and restrictions of
different series of Preferred Stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions and other matters. The Board may authorize
the issuance of Preferred Stock which ranks senior to the Common Stock with
respect to the payment of dividends and the distribution of assets on
liquidation. In addition, the Board is authorized to fix the limitations and
restrictions, if any, upon the payment of dividends on Common Stock to be
effective while any shares of Preferred Stock are outstanding. The Board,
without stockholder approval, can issue Preferred Stock with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change of control of the Company. The
Company has no present intention to issue shares of Preferred Stock.
In connection with the adoption of the Rights Plan, the Company's Board of
Directors has created one series of Preferred Stock, consisting of 300,000
shares of Series A Preferred Stock (as defined below). No shares of Series A
Preferred Stock have been issued as of the date of this Prospectus. Each share
of Series A Preferred Stock when and if issued will be entitled to a minimum
preferential quarterly dividend payment of $1.00 per share but, if greater,
will be entitled to an aggregate dividend per share of 100 times the dividend
declared per share of Common Stock. In the event of liquidation, the holders
of the Series A Preferred Stock will be entitled to a minimum preferential
liquidation payment of $100 per share. Thereafter, and after the holders of
the Common Stock receive a liquidation payment of $1.00 per share, the holders
of the Series A Preferred Stock and the holders of the Common Stock will share
the remaining assets in the ratio of 100 to 1 (as adjusted) for each share of
Series A Preferred Stock and share of Common Stock so held, respectively.
Finally, in the event of any merger, consolidation or other transaction in
which Common Stock is exchanged, each share of Series A Preferred Stock will
be entitled to receive 100 times the amount received per share of Common
Stock. These rights are protected by customary antidilution provisions. In the
event that the amount of accrued and unpaid dividends on the Series A
Preferred Stock is equivalent to six full quarterly dividends or more, the
holders of the
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<PAGE>
Series A Preferred Stock shall have the right, voting as a class, to elect two
directors in addition to the directors elected by the holders of the Common
Stock until all cumulative dividends on the Series A Preferred Stock have been
paid through the last quarterly dividend payment date or until noncumulative
dividends have been paid regularly for at least one year.
CERTAIN CORPORATE PROVISIONS
The Restated Certificate and the Restated Bylaws contain a number of
provisions relating to corporate governance and to the rights of stockholders.
Certain of these provisions may be deemed to have a potential "anti-takeover"
effect in that such provisions may delay, defer or prevent a change of control
of the Company. These provisions include (i) the classification of the Board
into three classes, each serving for staggered three year terms, (ii) the
authority of the Board to issue series of Preferred Stock with such voting
rights and other powers as the Board may determine, (iii) notice requirements
in the Restated Bylaws relating to nominations to the Board and to the raising
of business matters at stockholders meetings, (iv) a requirement that a vote
of at least 80% of shares entitled to vote generally for the election of
directors is required to amend provisions of the Restated Certificate relating
to the classification of the Board and removal of directors and (v) a
prohibition of stockholder action by written consent.
DELAWARE ANTI-TAKEOVER LAW
The Company is a Delaware corporation that is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"). Under Section 203, certain
"business combinations" between a Delaware corporation, whose stock generally
is publicly traded or held of record by more than 2,000 stockholders, and an
"interested stockholder" are prohibited for a three-year period following the
date that such stockholder became an interested stockholder, unless (i) the
corporation has elected in its certificate of incorporation not to be governed
by Section 203 (the Company has not made such election), (ii) the business
combination was approved by the board of directors of the corporation before
the other party to the business combination became an interested stockholder,
(iii) upon consummation of the transaction that made it an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the commencement of the transaction
(excluding voting stock owned by directors who are also officers or held in
employee benefit plans in which the employees do not have a confidential right
to tender or vote stock held by the plan) or (iv) the business combination is
approved by the board of directors of the corporation and ratified by two-
thirds of the voting stock that the interested stockholder did not own. The
three-year prohibition also does not apply to certain business combinations
proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation
and a person who had not been an interested stockholder during the previous
three years or who became an interested stockholder with the approval of a
majority of the corporation's directors. The term "business combination" is
defined generally to include mergers or consolidations between a Delaware
corporation and an interested stockholder, transactions with an interested
stockholder involving the assets or stock of the corporation or its majority-
owned subsidiaries and transactions that increase an interested stockholder's
percentage ownership of stock. The term "interested stockholder" is defined
generally as those stockholders who become beneficial owners of 15% or more of
a Delaware corporation's voting stock, together with the affiliates or
associates of that stockholder.
STOCKHOLDER RIGHTS PLAN
The Board of Directors of the Company adopted a Stockholder Rights Plan (the
"Rights Plan") pursuant to which a preferred share purchase right (a "Right")
is associated with, and trades with, each share of the Common Stock
outstanding.
Each Right, when it becomes exercisable, entitles its registered holder to
purchase from the Company one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $.001 per share (the "Series A
Preferred Stock"), of the Company at a price of $60 per one-hundredth of a
share of Series A Preferred Stock (the "Purchase Price"), subject to
adjustment.
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<PAGE>
The Rights are not exercisable until the earlier of (i) a person or group of
affiliated or associated persons having acquired beneficial ownership of 15%
or more of the outstanding Common Stock (except pursuant to a Permitted Offer,
as defined in the Rights Plan) (an "Acquiring Person") or (ii) 10 days (or
such later date as the Company's Board of Directors may determine) following
the commencement of, or announcement of an intention to make, a tender offer
or exchange offer the consummation of which would result in a person or group
becoming an Acquiring Person (the earlier of such dates being called the
"Rights Distribution Date").
In the event that any person or group becomes an Acquiring Person (the
"Shares Acquisition Date"), each holder of a Right will thereafter have the
right (the "Flip-In Right") to receive, upon exercise, the number of shares of
Common Stock or one-hundredths of a share of Series A Preferred Stock (or, in
certain circumstances, other securities of the Company) having a value
(immediately prior to such triggering event) equal to two times the exercise
price of the Right. Notwithstanding the foregoing, following the occurrence of
the event described above, all Rights that are, or (under certain
circumstances specified in the Rights Plan) were, beneficially owned by any
Acquiring Person or any affiliate or associate thereof will be null and void.
In the event that, at any time following the Shares Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction
in which the holders of all of the outstanding Common Stock immediately prior
to the consummation of the transaction are not the holders of all of the
surviving corporation's voting power or (ii) more than 50% of the Company's
assets or earning power is sold or transferred, in either case with or to an
Acquiring Person or any affiliate or associate or any other person in which
such Acquiring Person, affiliate or associate has an interest or any person
acting on behalf of or in concert with such Acquiring Person, affiliate or
associate or, if in such transaction all holders of Common Stock are not
treated alike, then each holder of a Right (except Rights which previously
have been voided as set forth above) shall thereafter have the right (the
"Flip-Over Right") to receive, upon exercise, common shares of the acquiring
company having a value equal to two times the exercise price of the Right. The
holder of a Right will continue to have the Flip-Over Right whether or not
such holder exercises or surrenders the Flip-In Right. At any time after a
person becomes an Acquiring Person and prior to the acquisition by such person
or group of 50% or more of the Common Stock, the Board of Directors of the
Company may exchange the Rights (other than the Rights owned by the Acquiring
Person or its associates and affiliates, which shall have become void) at an
exchange ratio of one share of Common Stock per Right (subject to adjustment).
The Rights will expire at the close of business on August 8, 2006, unless
redeemed by the Company as described herein. At any time prior to the earlier
to occur of (i) a person or group becoming an Acquiring Person or (ii) the
expiration of the Rights, and under certain other circumstances, the Company
may redeem the Rights in whole, but not in part, at a price of $.01 per Right
(the "Redemption Price"). Additionally, following the Shares Acquisition Date,
the Company may redeem the then outstanding Rights in whole, but not in part,
at the Redemption Price, provided that such redemption is in connection with a
merger or other business combination transaction or series of transactions
involving the Company in which all holders of Common Stock are treated alike,
but not involving an Acquiring Person or its affiliates or associates. Series
A Preferred Stock purchasable upon exercise of the Rights will not be
redeemable.
The Rights have certain anti-takeover effects. The Rights should not
interfere with any merger or business combination approved by the Company's
Board of Directors since the Rights may be redeemed by the Company at the
Redemption Price prior to the time that a person or group becomes an Acquiring
Person. However, by causing substantial dilution to a person or group that
attempts to acquire the Company on terms not approved by the Company's Board
of Directors, the Rights may interfere with certain acquisitions, including
acquisitions that may offer a premium over market price to some or all of the
Company's stockholders. The Rights are not intended to prevent an acquisition
of the Company on terms that are favorable and fair to all stockholders.
42
<PAGE>
CERTAIN RELATED PARTY TRANSACTIONS
ARRANGEMENTS BETWEEN THE COMPANY AND COMMERCIAL INTERTECH
The Company and Commercial Intertech entered into the following agreements
for the purpose of governing the post-Spin-off relationships.
Distribution and Interim Services Agreement. Subject to certain exceptions,
the distribution and interim services agreement (the "Distribution and Interim
Services Agreement") provides for cross-indemnities principally designed to
place financial responsibility for the liabilities of the Company's business
with the Company and financial responsibility for the liabilities of the
remaining businesses of Commercial Intertech with Commercial Intertech
following the Spin-off.
The Distribution and Interim Services Agreement provides that certain
services, including tax, accounting, payroll, employee benefit and legal
services, will continue to be provided to the Company for a period up to 12
months following the Distribution Date, at rates specified in such agreement,
with certain exceptions. In addition, the Distribution and Interim Services
Agreement provides that any corporate opportunity, transaction, agreement or
other arrangement that becomes known to a director or officer of the Company,
who is also an officer or director of Commercial Intertech or a subsidiary of
Commercial Intertech, shall not be the property or corporate opportunity of
the Company, even if such opportunity, transaction, agreement or other
arrangement relates to the Company's business. Mr. Powers currently serves as
Chief Executive Officer of both Commercial Intertech and the Company.
Tax Allocation Agreement. A tax sharing agreement (the "Tax Allocation
Agreement") provides that the Company is liable for U.S. federal, state, local
and foreign tax liabilities that are attributable to the Company through the
Distribution Date and that Commercial Intertech is responsible for all such
taxes of Commercial Intertech (excluding the Company). In addition, all taxes
(other than as described below) attributable to or occasioned by the
separation of the Company's business and Commercial Intertech's remaining
business and the Spin-off are the Company's responsibility.
Under the Tax Allocation Agreement, if the Spin-off is determined to be
taxable because a change of control of Commercial Intertech occurs, then the
resulting tax liability will be borne solely by Commercial Intertech. If the
Spin-off is determined to be taxable because of a change of control of the
Company, then the resulting tax liability shall be borne solely by the
Company. Under the Tax Allocation Agreement, each of Commercial Intertech and
the Company make certain representations, warranties and covenants to the
other party not to take any action that would be inconsistent with any
requirement, nor fail to take any action required, in order to preserve the
tax-free nature of the Spin-off. To the extent that either party violates such
representations, warranties or covenants, then the party in breach shall be
solely liable for the resulting tax liability. If a tax liability arises in
connection with the Spin-off for any reason not set forth above, then such
liability shall be borne equally by Commercial Intertech and the Company. For
purposes of the Tax Allocation Agreement "a change of control" shall mean a
greater than 50% change in stock ownership, measured by vote and value of
either company.
Employee Benefits Agreement. The employee benefits and compensation
allocation agreement (the "Benefits Agreement") provides that any Commercial
Intertech stock-based awards held by Company employees and Company non-
employee directors who are not also directors of Commercial Intertech and half
of such options held by Company non-employee directors who are also directors
of Commercial Intertech were, as of the Distribution Date, replaced with
similar stock-based awards for Common Stock, in each case adjusted so that the
value thereof after the Distribution Date was equal to the value of the
replaced award before the Distribution Date. The Benefits Agreement provides
that, effective as of the Distribution Date, the Company became responsible
for all benefit related other liabilities to employees and their beneficiaries
and dependents as well as former employees of former Company businesses and
their beneficiaries and dependents.
INDEBTEDNESS BETWEEN THE COMPANY AND COMMERCIAL INTERTECH
The Company assumed $30.0 million of Commercial Intertech's debt in
connection with the Spin-off and declared to Commercial Intertech an
additional $35.7 million dividend, of which $2.2 million was outstanding as
43
<PAGE>
of January 31, 1997. In addition, the Company and it subsidiaries owe
Commercial Intertech $6.7 million as of January 31, 1997 for amounts due under
the Distribution and Interim Services Agreement as well as other intercompany
charges. The Company expects to pay these balances by October 1997. Payments
for these obligations are expected to be funded through the Company's
internally generated cashflow or existing lines of credit.
In connection with the Spin-off, the Company entered into a credit agreement
with Mellon Bank, N.A. (the "Bank"), in its capacity as agent for various
banks, subsequent to which the Bank agreed to provide the Credit Facility. The
Company has drawn down a portion of the Credit Facility and has used some of
the borrowings to repay the $30.0 million debt assumed from Commercial
Intertech.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF
Commercial Intertech structured the the Spin-off to qualify as a tax-free
spin-off under Section 355 of the Code. However, no ruling was requested from
the IRS concerning the federal income tax consequences of the transaction. If
the Spin-off were determined to not qualify under Section 355 of the Code,
then Commercial Intertech will be treated as if it sold the stock of the
Company in a taxable transaction resulting in a substantial tax liability to
Commercial Intertech. However, in certain circumstances the Company may be
required to indemnify Commercial Intertech against 50% or all of such
liability. See "--Arrangements Between the Company and Commercial Intertech."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, there will be 15,822,076 shares of Common
Stock of the Company outstanding. All of these shares, including the 2,000,000
shares sold in the offering, are and will be immediately eligible for resale
in the public market without restriction under the Securities Act, unless they
are held by "affiliates" of the Company within the meaning of Rule 144 under
the Securities Act.
The Company has granted to the Underwriters (as defined below) an option,
expiring 30 days from the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with the sale of the Common Stock that the Underwriters
have agreed to purchase. To the extent the Underwriters exercise such option,
each of the Underwriters will be committed, subject to certain conditions, to
purchase a number of option shares proportionate to such Underwriter's initial
commitment.
In general, under Rule 144 as currently in effect, a stockholder, including
an "affiliate" of the Company, as that term is defined in Rule 144 (an
"Affiliate"), who has beneficially owned his or her restricted securities (as
that term is defined in Rule 144) for at least two years from the later of the
date such securities were acquired from the Company or (if applicable) the
date they were acquired from an Affiliate is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater
of 1% of the then outstanding shares of Common Stock (approximately 158,000
shares immediately after the offering) or the average weekly trading volume in
the Common Stock during the four calendar weeks preceding the date on which
notice of such sale was filed under Rule 144, provided that certain
requirements concerning availability of public information, manner of sale and
notice of sale are satisfied. In addition, under Rule 144(k), if a period of
at least three years has elapsed between the later of the date restricted
securities were acquired from the Company and the date they were acquired from
an Affiliate of the Company, a stockholder who is not an Affiliate of the
Company at the time of sale and has not been an Affiliate for at least three
months prior to the sale would be entitled to sell the shares immediately
without compliance with the foregoing requirements under Rule 144. The
Securities and Exchange Commission has reduced the two year holding period to
one year and the three year holding period to two years effective April 29,
1997.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is
ChaseMellon Shareholder Services, L.L.C.
44
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to each of the underwriters named below (the
"Underwriters"), and each of the Underwriters, for whom Robert W. Baird & Co.
Incorporated, Cleary Gull Reiland & McDevitt Inc. and Goldman, Sachs & Co.,
are acting as representatives (the "Representatives"), has severally agreed to
purchase from the Company the respective number of shares of Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
Robert W. Baird & Co. Incorporated....................................
Cleary Gull Reiland & McDevitt Inc....................................
Goldman, Sachs & Co...................................................
---------
Total............................................................... 2,000,000
=========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all 2,000,000 shares of
Common Stock offered hereby if any are purchased. In the event of a default by
any Underwriter, the Underwriting Agreement provides that, in certain
circumstances, purchase commitments of the non-defaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
The Company has been advised by the Underwriters that the several
Underwriters propose to offer such Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriters may allow and such dealers may re-allow a concession not in
excess of $ per share to other dealers. After the shares of Common Stock
are released for sale to the public, the offering price and other selling
terms may be changed by the Representatives.
The Company has granted to the Underwriters an option, expiring 30 days from
the date of this Prospectus, to purchase up to 300,000 additional shares of
Common Stock at the public offering price less the underwriting discount set
forth on the cover page of this Prospectus. The Underwriters may exercise such
option solely to cover over-allotments, if any, made in connection with the
sale of the Common Stock that the Underwriters have agreed to purchase. To the
extent the Underwriters exercise such option, each of the Underwriters will be
committed, subject to certain conditions, to purchase a number of option
shares proportionate to such Underwriter's initial commitment.
The Company and its officers and directors have agreed that, except with the
prior written consent of Robert W. Baird & Co. Incorporated, during the 90
days following the date of this Prospectus, they will not, directly or
indirectly, offer, sell or otherwise dispose of, contract to sell or otherwise
dispose of, or cause or in any way permit to be sold or otherwise disposed of,
any shares of Common Stock or any other Company capital stock, rights to
purchase Common Stock or other Company capital stock or securities or
instruments convertible into or exchangeable for Common Stock or other Company
capital stock, except for the Common Stock offered hereby. Notwithstanding the
foregoing, the Company may (i) grant options, restricted stock, performance
shares and stock appreciation rights pursuant to the Stock Plans in the
ordinary course consistent with past practice, provided that none of such
instruments shall be exercisable as the case may be, during the 90-day period
described above and (ii) issue shares of Common Stock upon the exercise of
options currently outstanding. Any permitted shortening of such periods and
any related sales of Common Stock would not necessarily be preceded by a
public announcement of the Company or the Representatives that such consent
has been given.
45
<PAGE>
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities under the Securities Act of 1933 or
contribute to payments the Underwriters may be required to make in respect
thereof.
In connection with the Offering and pursuant to Regulation M under the
Exchange Act, the Underwriters may engage in transactions that stabilize or
maintain the market price of the Common Stock at levels above those which
might otherwise prevail in the open market. Such stabilizing, if commenced,
may be discontinued at any time.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock being
offered hereby will be passed upon for the Company by Katten Muchin & Zavis, a
partnership including professional corporations, Chicago, Illinois. Certain
legal matters in connection with the offering will be passed upon for the
Underwriters by Gardner, Carton & Douglas, Chicago, Illinois.
EXPERTS
The Consolidated Financial Statements and schedule of the Company at October
31, 1996 and 1995, and for each of the three years in the period ended October
31, 1996, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information filed by the Company may
be inspected and copied at the public reference facilities maintained by the
Commission at the Commission's Public Reference Room, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and at the Commission's Regional
Offices at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 at prescribed rates. Copies of reports, proxy and
information statements and other information regarding registrants that file
electronically are available on the Commission's Web site at
http://www.sec.gov. The Company's Common Stock is listed on the Nasdaq
National Market, and such reports, proxy statements and other information can
also be inspected at the offices of The Nasdaq Stock Market, 1735 K Street,
N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act, with respect to
the shares offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Any statements contained
herein concerning the provisions of any document filed as an Exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete and, in each instance, reference is made to the copy of
such document so filed. Each such statement is qualified in its entirety by
such reference. The Registration Statement, including the exhibits and
schedules thereto, may be inspected without charge at the Commission's
principal office at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549 and copies of either of them or any part thereof may be obtained from
such office, upon payment of the fees prescribed by the Commission. The
Registration Statement, including the exhibits and schedules thereto, is also
available on the Commission's Web site at http://www.sec.gov.
46
<PAGE>
CUNO INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors........................ F-2
Consolidated Balance Sheets as of October 31, 1996 and 1995.............. F-3
Statements of Consolidated Income for the Years Ended October 31, 1996,
1995 and 1994........................................................... F-4
Statements of Consolidated Stockholders' Equity for the Years Ended
October 31, 1996, 1995 and 1994......................................... F-5
Statements of Consolidated Cash Flows for the Years Ended October 31,
1996, 1995 and 1994..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Statements of Consolidated Income for the Three Months Ended January 31,
1997 and 1996 (unaudited)............................................... F-21
Consolidated Balance Sheets as of January 31, 1997 (unaudited) and
October 31, 1996........................................................ F-22
Statements of Consolidated Cash Flows for the Three Months Ended January
31, 1997 and 1996 (unaudited)........................................... F-23
Notes to Unaudited Condensed Consolidated Financial Statements as of
January 31, 1997........................................................ F-24
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and Board of Directors
CUNO Incorporated
We have audited the accompanying consolidated balance sheets of CUNO
Incorporated and subsidiaries as of October 31, 1996 and 1995, and the related
statements of consolidated income, stockholders' equity and cash flows for
each of the three years in the period ended October 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CUNO
Incorporated and subsidiaries at October 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended October 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Hartford, Connecticut
December 16, 1996
F-2
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
------------------
1996 1995
-------- --------
(IN THOUSANDS,
EXCEPT PER
SHARE AND COMMON
SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 5,244 $ 6,740
Accounts and notes receivable (less allowances of $1,133
and $1,136, respectively)................................ 36,944 33,381
Inventories............................................... 19,149 21,763
Deferred income taxes..................................... 5,333 5,766
Prepaid expenses and other current assets................. 1,484 2,511
Receivables from related party............................ -- 18,767
-------- --------
Total current assets.................................... 68,154 88,928
NONCURRENT ASSETS
Intangible assets......................................... 19,695 21,663
Pension assets............................................ 1,174 3,264
Other noncurrent assets................................... 1,532 1,041
-------- --------
Total noncurrent assets................................. 22,401 25,968
PROPERTY, PLANT AND EQUIPMENT, NET.......................... 48,201 47,931
-------- --------
Total assets.......................................... $138,756 $162,827
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank loans................................................ $ 10,690 $ 10,440
Accounts payable.......................................... 12,719 10,780
Accrued payroll and related taxes......................... 9,084 8,446
Accrued other expenses.................................... 6,986 6,105
Accrued income taxes...................................... 1,360 2,947
Current portion of long-term debt......................... 962 1,036
Dividends payable to related party........................ 4,612 --
Payable to related party.................................. 10,184 --
-------- --------
Total current liabilities............................... 56,597 39,754
NONCURRENT LIABILITIES
Long-term debt............................................ 33,772 4,060
Deferred income taxes..................................... 3,670 4,067
Retirement benefits....................................... 1,569 2,757
-------- --------
Total noncurrent liabilities............................ 39,011 10,884
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; 2,000,000 shares
authorized, no shares issued and outstanding............. -- --
Common stock, $.001 par value;
Authorized: 50,000,000 shares
Issued: 1996-13,774,568 shares (excluding 6,854 in
treasury) 1995-13,565,922 shares......................... 14 14
Additional paid-in-capital................................ 6,736 3,391
Retained earnings......................................... 33,636 102,245
Unearned compensation..................................... (3,448) --
Minimum pension liability adjustment...................... (811) --
Translation adjustments................................... 7,021 6,539
-------- --------
Total stockholders' equity.............................. 43,148 112,189
-------- --------
Total liabilities and stockholders' equity............ $138,756 $162,827
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS, EXCEPT
PER SHARE AND COMMON SHARE DATA)
<S> <C> <C> <C>
Net sales............................... $ 179,068 $ 162,699 $ 143,111
Less costs and expenses:
Cost of products sold................. 104,848 99,772 92,507
Selling, general and administrative
expenses............................. 56,750 52,087 45,626
Distribution and other nonrecurring
costs................................ 5,564 -- --
----------- ----------- -----------
167,162 151,859 138,133
----------- ----------- -----------
Operating income........................ 11,906 10,840 4,978
Nonoperating income (expense):
Interest income....................... 156 145 88
Interest expense...................... (820) (691) (706)
Exchange losses....................... (171) (449) (933)
Gain (loss) on sale of assets......... 121 -- (1,053)
Other................................. (181) (282) (331)
----------- ----------- -----------
(895) (1,277) (2,935)
----------- ----------- -----------
Income before income taxes.............. 11,011 9,563 2,043
Provision for income taxes:
Current............................... 5,293 4,697 1,491
Deferred.............................. 125 (1,235) (1,255)
----------- ----------- -----------
5,418 3,462 236
----------- ----------- -----------
Net income.............................. $ 5,593 $ 6,101 $ 1,807
=========== =========== ===========
Earnings per common share............... $ 0.41 $ 0.45 $ 0.13
=========== =========== ===========
Weighted average common shares
outstanding............................ 13,565,922 13,565,922 13,565,922
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------
1996 1995 1994
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
COMMON STOCK
Balance at end of year............... $ 14 $ 14 $ 14
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year......... 3,391 3,391 3,391
Performance shares issued............ 3,448 -- --
Shares repurchased................... (103) -- --
------------ ------------ ------------
Balance at end of year............... 6,736 3,391 3,391
RETAINED EARNINGS
Balance at beginning of year......... 102,245 97,284 97,507
Net income........................... 5,593 6,101 1,807
Less:
Dividends to Commercial Intertech... 36,943 -- 1,958
Transfer of Commercial Intertech
debt............................... 30,000 -- --
Divisional equity retained by
Commercial Intertech............... 7,259 1,140 72
------------ ------------ ------------
Balance at end of year............... 33,636 102,245 97,284
UNEARNED COMPENSATION
Balance at beginning of year......... -- -- --
Performance shares issued............ (3,448) -- --
------------ ------------ ------------
Balance at end of year............... (3,448) -- --
MINIMUM PENSION LIABILITY
Balance at beginning of year......... -- -- --
Other................................ (811) -- --
------------ ------------ ------------
Balance at end of year............... (811) -- --
TRANSLATION ADJUSTMENTS
Balance at beginning of year......... 6,539 5,777 2,831
Net change for year.................. 482 762 2,946
------------ ------------ ------------
Balance at end of year............... 7,021 6,539 5,777
------------ ------------ ------------
Total stockholders' equity......... $ 43,148 $ 112,189 $ 106,466
============ ============ ============
Stockholders' equity per share of
common stock.......................... $ 3.13 $ 8.27 $ 7.85
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------
1996 1995 1994
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income....................................... $ 5,593 $ 6,101 $ 1,807
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and amortization..... 7,475 7,929 8,154
Loss on sale of equipment....................... -- -- 1,053
Pension plan credits............................ 692 1,019 676
Change in deferred income taxes................. (239) (1,222) (1,143)
Changes in current assets and liabilities:
(Increase) in accounts receivable.............. (5,050) (3,839) (756)
Decrease (increase) in inventories............. 3,224 (636) 1,301
Decrease (increase) in prepaid expenses and
other current assets.......................... 838 (292) 166
Decrease (increase) in receivable from
affiliate..................................... 24,964 (3,128) (4,814)
Increase in accounts payable and accrued
expenses...................................... 2,425 1,477 1,323
(Decrease) increase in accrued income taxes.... (3,236) 335 229
-------- ------- -------
Net cash provided by operating activities.... 36,686 7,744 7,996
INVESTING ACTIVITIES:
Proceeds from sale of equipment.................. 43 113 109
Investment in intangibles........................ -- (343) (207)
Capital expenditures............................. (6,325) (5,234) (2,927)
-------- ------- -------
Net cash (used) by investing activities...... (6,282) (5,464) (3,025)
FINANCING ACTIVITIES:
Proceeds from long-term debt..................... 61,000 4,012 --
Principal payments on long-term debt............. (30,987) (4,900) (882)
Net borrowings under bank loan agreements........ 1,311 880 (104)
Conversion of other assets....................... (701) 1 32
Dividends paid to Commercial Intertech........... (62,331) -- (1,958)
-------- ------- -------
Net cash (used) by financing activities...... (31,708) (7) (2,912)
Effect of exchange rate changes on cash and cash
equivalents....................................... (192) 59 396
-------- ------- -------
Net (decrease)increase in cash and cash
equivalents....................................... (1,496) 2,332 2,455
Cash and cash equivalents at beginning of year..... 6,740 4,408 1,953
-------- ------- -------
Cash and cash equivalents at end of year........... $ 5,244 $ 6,740 $ 4,408
======== ======= =======
Supplemental disclosures:
Cash paid during the year for:
Interest......................................... $ 694 $ 716 $ 703
Income taxes..................................... 9,732 4,338 1,149
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--ORGANIZATION AND ACCOUNTING POLICIES
Organization:
On July 11, 1996, Commercial Intertech Corp. ("Commercial Intertech")
initiated a plan to separate its Fluid Purification group subsidiaries and
divisions (the "Company" or "CUNO") from the rest of Commercial Intertech's
businesses in a tax-free transaction, subject to regulatory approval. The
following companies and divisions made up the Fluid Purification Group
companies--CUNO Incorporated, USA; CUNO Pacific Pty., Ltd., Australia;
Commercial Intertech do Brasil, Ltda., Brazil; CUNO Europe S.A., France; CUNO
KK, Japan; CUNO Filtration Asia Pte. Ltd., Singapore; and divisions located in
England, Germany and Italy.
On July 29, 1996, Commercial Intertech declared a distribution of 100
percent of its interest in the Company to be effected by a distribution on
September 10, 1996 of one share of common stock of the Company for each share
of Commercial Intertech held by existing stockholders of Commercial Intertech,
based on a record date of August 9, 1996. On that date, there were
approximately 13,566,000 common shares of Commercial Intertech outstanding.
As part of the distribution, the Company's Certificate of Incorporation was
amended to provide for the authorization of 2,000,000 shares of $.001 par
value Preferred Stock and 50,000,000 shares of $.001 par value Common Stock.
No preferred shares were issued with the distribution (see Note D).
In conjunction with the reorganization, the Company assumed $30,000,000 of
Commercial Intertech's debt which was paid in the form of a dividend. The
dividend was paid out of the proceeds from a credit facility entered into by
the Company shortly after the reorganization (see Note C). In addition, the
Company declared an additional dividend of $35,675,000 payable to Commercial
Intertech. Of this amount, $4,612,000 remains payable at October 31, 1996. In
addition, CUNO Pacific Pty. Ltd. declared and paid a $1,268,000 dividend in
February 1996.
The accounts of the Company represent the consolidation of all entities
formerly organized as the Fluid Purification Group of Commercial Intertech.
The transfer of Commercial Intertech's interests and assets in the business
and divisions which comprise the Company has been accounted for as a
reorganization of entities under common control in a manner similar to a
pooling of interests as of the time of the combination. Accordingly, the
historical basis is carried over. The Company's stockholders' equity has been
retroactively restated as if the reorganization had occurred at the beginning
of the earliest period presented. The accompanying consolidated financial
statements represent the financial condition of the Company and the results of
operations as if the Company was a stand-alone corporation during the years
shown. References to subsidiaries include those companies and divisions which
have been organized under the consolidated Company. All significant
transactions between the Company and its subsidiaries have been eliminated.
The Company and Commercial Intertech have entered into a Tax Allocation
Agreement providing, among other things, for the respective rights and
obligations of Commercial Intertech and the Company concerning tax liabilities
(including the allocation of and indemnification for tax liabilities) in
connection with the distribution. In addition, the Company and Commercial
Intertech have entered into a Distribution and Interim Services Agreement
which provides that certain services which have historically been provided to
the Company by Commercial Intertech will continue to be provided to the
Company following the Distribution Date, at rates specified in such agreement,
for a period of up to twelve months following the Distribution Date, with
certain exceptions. The Tax Allocation Agreement and Distribution and Interim
Services Agreement are not expected to result in expenses materially different
from those reflected in the historical financial statements.
Commercial Intertech provides certain management and administrative services
to the Company. Amounts of Commercial Intertech's general corporate,
accounting, legal, and other administrative costs related to such
F-7
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
services have been allocated to the Company based on actual dollars spent or
the relative percentage of time each department spends providing services to
the Company. Management believes that this allocation method provides the
Company with a reasonable amount of such expenses.
Consolidation:
The accounts of the Company and all of its subsidiaries are included in the
consolidated financial statements. All significant intercompany accounts and
transactions are eliminated in consolidation.
Inventories:
Inventories are stated at the lower of cost or market. Inventories in the
U.S. are primarily valued on the last-in, first-out (LIFO) cost method. The
method used for all other inventories is first-in, first-out (FIFO).
Approximately 48 percent (49 percent in 1995) of worldwide inventories are
accounted for using the LIFO method. Inventories as of October 31 consisted of
the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.............................................. $ 2,817 $ 3,063
Work in process............................................ 6,503 6,784
Finished goods............................................. 9,829 11,916
------- -------
$19,149 $21,763
======= =======
</TABLE>
If all inventories were priced using the FIFO method, which approximates
replacement cost, inventories would have been $2,296,000 higher in 1996 and
$2,220,000 higher in 1995.
Intangibles:
Intangible assets at October 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Goodwill, less accumulated amortization
(1996--$5,519,000; 1995--$4,944,000)..................... $16,164 $16,739
Other intangibles, less accumulated amortization
(1996--$21,833,000; 1995--$20,440,000)................... 3,531 4,924
------- -------
$19,695 $21,663
======= =======
</TABLE>
Goodwill, which is the excess of cost over the fair value of net assets
acquired, generally is amortized on a straight-line basis over 40 years.
Other intangibles, including patents, know-how and trademarks, are carried
at their appraised value on the acquisition date less accumulated
amortization, which is provided using the straight-line method over 10 to 25
years.
Properties and Depreciation:
Property, plant and equipment are recorded at cost. Buildings and equipment
are depreciated over their useful lives, principally by use of the straight-
line method, which range from 10 to 40 years for buildings and 2.5 to 20 years
for machinery and equipment.
F-8
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Impairment of Long-Lived Assets:
In the event that facts and circumstances indicate that the carrying value
of intangibles and long-lived assets or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset is
compared to the asset's carrying amount to determine if a write-down is
required.
Income Taxes:
The Company uses the liability method in measuring the provision for income
taxes and recognizing deferred tax assets and liabilities on the balance
sheet. Deferred income tax assets and liabilities principally arise from
differences between the tax basis of the asset or liability and its reported
amount in the consolidated financial statements. Deferred tax balances are
determined by using provisions of the enacted tax laws; the effects of future
changes in tax laws or rates are not anticipated.
Provisions are made for appropriate income taxes on undistributed earnings
of foreign subsidiaries which are expected to be remitted to the parent
company in the near term. The cumulative amount of unremitted earnings of
subsidiaries, which aggregated approximately $3,000,000 at October 31, 1996,
is deemed to be indefinitely reinvested and, accordingly, no provision for
U.S. federal and state income taxes has been provided thereon. Upon
distribution of those earnings in the form of dividends or otherwise, the
Company would be subject to both U.S. income taxes (subject to an adjustment
for foreign tax credits) and withholding taxes payable to the various foreign
countries. Determination of the amount of any unrecognized deferred U.S. tax
liability is not practicable because of the complexities associated with its
hypothetical calculation.
Translation of Foreign Currencies:
The financial statements of foreign entities are translated in accordance
with Statement of Financial Accounting Standards (SFAS) No. 52, except for
those entities located in highly inflationary countries. Under this method,
revenue and expense accounts are translated at the average exchange rate for
the year while all assets and liability accounts are translated into U.S.
dollars at the current exchange rate. Resulting translation adjustments are
recorded as a separate component of stockholders' equity and do not affect
income determination.
Cash Equivalents:
The Company considers all highly liquid investments with a maturity of three
months or less, when purchased, to be cash equivalents. Cash equivalents
consist of time deposits in financial institutions at October 31, 1996 and
1995.
Revenue Recognition:
Revenue is recognized when the earning process is complete and the risks and
rewards of ownership have transferred to the customer, which is considered to
have occurred upon shipment of the finished product.
Advertising:
Advertising costs are expensed as incurred and included in "selling, general
and administrative expenses." Advertising expenses were $3,124,000, $2,906,000
and $2,738,000 for 1996, 1995 and 1994, respectively.
Distribution and Other Nonrecurring Costs:
Distribution and other nonrecurring costs represent incremental costs to the
Company associated with the recent reorganization. Such costs are primarily
comprised of professional service fees and costs associated with combining
operations under a unified management.
F-9
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Earnings Per Share:
All share and per share information has been retroactively restated to
reflect the distribution in a manner similar to a stock split. In determining
the weighted average number of common shares outstanding, it was assumed that
the shares issued in conjunction with the reorganization were outstanding
during each year presented. Fully diluted earnings per share is not presented
as the effect of other common stock equivalents on the 1996 earnings per share
calculation was not material.
Uses of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles 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 revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Newly Issued Accounting Standards:
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation" was
issued. This standard establishes a fair value method of accounting for or
disclosing stock-based compensation plans. In 1997, the Company intends to
adopt the disclosure provisions of this standard which requires disclosing the
pro forma consolidated net income and earnings per share amounts assuming the
fair value method was effective on November 1, 1995. The adoption of the
disclosure provisions will not affect consolidated results of operations,
financial position, or cash flows.
In October 1996, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position ("SOP") 96-1, "Environmental Remediation Liabilities." The SOP is
effective for fiscal years beginning after December 15, 1996. The SOP does not
make changes to existing accounting rules, but it clarifies how existing
authoritative guidance on loss contingencies should be applied in determining
environmental liabilities. The Company does not believe the SOP will have any
material impact on its financial position or results of operations. The
Company will be required to report under the SOP in its 1998 financial
statements.
NOTE B--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land and land improvements................................ $ 6,495 $ 6,672
Buildings................................................. 26,301 27,706
Machinery and equipment................................... 58,749 56,550
Construction in progress.................................. 4,605 2,451
------- -------
96,150 93,379
Less depreciation and amortization........................ 47,949 45,448
------- -------
$48,201 $47,931
======= =======
</TABLE>
Depreciation expense was $5,614,000 in 1996, $5,330,000 in 1995 and
$5,395,000 in 1994.
F-10
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE C--DEBT
Long-term debt obligations are summarized below:
<TABLE>
<CAPTION>
1996 1995
------- ------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit............................................ $31,000 $ --
Mortgages................................................... 3,675 4,973
Other....................................................... 59 123
------- ------
34,734 5,096
Less current portion........................................ 962 1,036
------- ------
$33,772 $4,060
======= ======
</TABLE>
During the fourth quarter of fiscal 1996, the Company entered into a $55.0
million bridge loan agreement to pay Commercial Intertech the $30.0 million of
debt assumed as part of the Spin-off in the form of a dividend. The Company
then replaced the bridge financing with a $60.0 million senior unsecured
revolving credit facility.
The new senior unsecured revolving credit facility was used to repay all
outstanding debt associated with the bridge financing and for other general
purposes. The credit facility matures in five years. The Company pays a
variable per annum fee on the unused amount of the commitment, payable
quarterly in arrears. The rate was 0.125 percent at October 31, 1996. The
interest rate on outstanding borrowings at October 31, 1996 was 8.25 percent.
The facility has interest options determinable by the Company based upon prime
interest or LIBOR rates plus an applicable margin. These significantly reduced
rates were not available to the Company on October 31, 1996 because the loan
was not fully syndicated. Syndication has been completed and the rate at
November 30, 1996 was 5.97 percent. The Company has $7.0 million in outstanding
letters of credit at October 31, 1996 which reduces the availability of this
credit facility. The credit agreement includes covenants which require the
maintenance of certain financial ratios. The Company was in compliance with
these covenants at October 31, 1996. The Company is prohibited from declaring
dividends during fiscal 1997 and 1998. However, the Company may repurchase a
maximum of $5,000,000 in treasury stock during 1997 and 1998 for its employee
benefit plans.
Mortgages relate to two manufacturing facilities. Two loans relating to a
Japanese manufacturing facility bear interest at 1.75 and 1.88 percent, and
mature through the year 2000. One of the two loans is secured with property and
equipment in Kita-Ibaragi, Japan (net book value at October 31, 1996 -
$5,466,000). The second loan is unsecured. A facility located in Enfield,
Connecticut collateralizes a loan which bears interest at 5.0 percent, also
maturing in the year 2000. The Enfield facility's net book value at October 31,
1996 was $3,885,000.
Principal payments due in the five years after October 31, 1996 are:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997......................................... $ 962
1998......................................... 913
1999......................................... 924
2000......................................... 935
2001......................................... 31,000
</TABLE>
The Company had available unused short-term lines of credit in various
countries totaling approximately $9.2 million at October 31, 1996. Drawdowns
under the unused short-term lines of credit are subject to the lender's
approval.
F-11
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Outstanding bank loans at October 31, 1996 and 1995 had weighted average
interest rates of 1.4 percent and 2.5 percent, respectively. The bank loans
and unused short-term lines of credit are payable upon demand and are
unsecured. There are no significant commitment fees related to the bank loans
or unused lines of credit.
NOTE--D CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, par value $.001 per share, and 2,000,000 shares of Preferred
Stock, par value $.001 per share.
Common Stock
In conjunction with the reorganization, 13,565,922 shares of Common Stock
were issued excluding shares of Common Stock reserved for issuance upon
exercise of options granted under the Company's Stock Option Plans. Subject to
preferences that may be applicable to any outstanding Preferred Stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor.
Holders of Common Stock are entitled to one vote per share in all matters to
be voted upon by stockholders. In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share
ratably in all assets remaining after payment of the Company's liabilities and
the liquidation preferences of any outstanding Preferred Stock. Holders of
Common Stock have no preemptive rights and no rights to convert their Common
Stock into any other securities, and there are no redemption provisions with
respect to such shares. All of the outstanding shares of Common Stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of Preferred Stock which the Company may issue in the
future.
Preferred Stock
The authorized class of Preferred Stock may be issued in series from time to
time with such designations, relative rights, priorities, preferences,
qualifications, limitations and restrictions thereof as the Board of Directors
determines. The rights, priorities, preferences, qualifications, limitations
and restrictions of different series of Preferred Stock may differ with
respect to dividend rates, amounts payable on liquidation, voting rights,
conversion rights, redemption provisions, sinking fund provisions and other
matters. The Board of Directors may authorize the issuance of Preferred Stock
which ranks senior to the Common Stock with respect to the payment of
dividends and the distribution of assets upon liquidation. In addition, the
Board is authorized to fix the limitations and restrictions, if any, upon the
payment of dividends on Common Stock to be effective while any shares of
Preferred Stock are outstanding.
Stockholder Rights Plan
Prior to the Spin-off, the Company adopted a Stockholder Rights Plan,
pursuant to which a preferred share purchase right (a "Right") is associated
with, and trades with, each share of Common Stock outstanding.
Each Right, when it becomes exercisable, entitles its holder to purchase
from the Company one-hundredth of a share of Series A Junior Participating
Preferred Stock ("Series A Preferred Stock"), par value $.001 per share, of
the Company at a price of $60 per one-hundredth share, subject to adjustment.
The Rights are not exercisable until the earlier of (i) the acquisition of
15% or more of the Company's Common Stock by a person or group of affiliated
persons (an "Acquiring Person"); or (ii) 10 days following the commencement or
announcement of an intention to make a tender or exchange offer which would
result in a person or group becoming an Acquiring Person.
F-12
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Each holder of a Right will have the right to receive, upon exercise, the
number of shares of Common Stock or one-hundredths of a share of Series A
Preferred Stock having a value (immediately prior to such triggering event)
equal to two times the exercise price of such Right.
In the event that the Company is acquired in a merger or acquisition, as
defined, each holder of a Right shall have the right to receive, upon
exercise, common shares of the acquiring company having a value equal to two
times the exercise price of the Right. The Rights expire on August 8, 2006.
NOTE E--OPERATING LEASES
The Company has entered into certain lease agreements for various facilities
and equipment. Rent expense under operating leases was approximately
$1,672,000 in 1996, $1,729,000 in 1995, and $1,532,000 in 1994.
Future minimum lease payments under noncancellable operating leases with an
initial term of one year or more were as follows at October 31, 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997........................................................ $ 705
1998........................................................ 509
1999........................................................ 380
2000........................................................ 349
2001........................................................ 348
Thereafter.................................................. 234
------
Total minimum lease payments................................ $2,525
======
</TABLE>
NOTE F--BENEFIT PLANS
The Company maintains noncontributory defined benefit plans for
substantially all of its U.S. employees. Pension benefits for the hourly
employees covered by these plans are expressed as a flat benefit rate times
years of continuous service. The salaried employees have previously been
included in a defined benefit pension plan sponsored by Commercial Intertech.
Benefits for salaried employees are now provided under a successor plan with
essentially the same benefits which are based upon a percentage of the
employee's average compensation during the preceding ten years, reduced by 50
percent of the Social Security Retirement Benefit. The Company's funding
policy is to contribute amounts to the plans sufficient to meet the minimum
funding requirements set forth in the Employee Retirement Income Security Act
of 1974, plus such additional amounts as may be deemed appropriate from time
to time.
The Company also accounts for pension costs under the provisions of SFAS No.
87 for contributory defined benefit pension plans covering its employees in
Japan. Benefits under these plans are based on years of service and
compensation in the period immediately preceding retirement. Funding is
predicated on minimum contributions as required by local laws and regulations
plus additional amounts, if any, as may be deemed appropriate. Some employees
of other foreign operations also participate in postemployment benefit
arrangements not subject to the provisions of SFAS No. 87.
F-13
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets at October 31, 1996 and 1995 for the Company's
U.S. and foreign defined benefit pension plans. Other foreign pension plans do
not determine net assets or the actuarial present value of accumulated
benefits as calculated and disclosed herein:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................ $(17,546) $(18,426)
======== ========
Accumulated benefit obligation....................... $(20,071) $(20,492)
======== ========
Projected benefit obligation......................... $(24,567) $(26,009)
Market value of plan assets.......................... 19,632 16,921
-------- --------
Projected benefit obligation in excess of plan
assets.............................................. (4,935) (9,088)
Unrecognized net loss................................ 819 2,887
Unrecognized prior service cost...................... 1,132 1,451
Unrecognized net obligation.......................... 567 3,590
Additional minimum liability......................... (408) (2,498)
-------- --------
Net pension liability recognized in the consolidated
balance sheets...................................... $ (2,825) $ (3,658)
======== ========
</TABLE>
Plan assets at October 31, 1996 are invested in publicly traded and
restricted mutual funds, various corporate and government bonds, guaranteed
income contracts and listed stocks, including common stock of the Company
having a market value of $376,000 at that date. Salaried plan assets have been
estimated.
A summary of the various components of net periodic pension cost for defined
benefit plans and cost information for other plans for the three-year period
is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Defined benefit plans:
Service cost..................................... $1,651 $1,337 $1,095
Interest cost.................................... 1,049 1,065 831
Actual return on plan assets..................... (1,930) (1,785) (462)
Net amortization and deferral.................... 1,369 1,145 (150)
------ ------ ------
Net pension expense.............................. 2,139 1,762 1,314
Other plans:
Foreign plans.................................... 273 218 184
------ ------ ------
Total pension expense.......................... $2,412 $1,980 $1,498
====== ====== ======
Assumptions used in the accounting for the defined benefit plans as of
October 31 were:
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Domestic plans:
Weighted-average discount rate................... 7.8% 7.3% 8.5%
Rates of increase in compensation levels......... 5.0 4.5 4.5
Expected long-term rate of return on assets...... 10.0 10.0 10.0
CUNO KK (Japan) plan:
Weighted-average discount rate................... 4.0 4.0 5.0
Rates of increase in compensation levels......... 4.0 5.0 5.0
Expected long-term rate of return on assets...... 4.5 5.5 6.0
</TABLE>
F-14
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE G--INCOME TAXES
The components of income (loss) before income taxes and the provision
(benefit) for income taxes are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income taxes
Domestic....................................... $ 3,436 $ 3,652 $(1,037)
Foreign........................................ 7,575 5,911 3,080
------- ------- -------
11,011 9,563 2,043
Provision (benefit) for income taxes
Current
Domestic--Federal............................ 1,947 1,466 (3)
--State and local........................ 722 368 115
Foreign...................................... 2,960 3,546 1,379
Benefit of operating loss carryforwards........ (336) (683) --
------- ------- -------
5,293 4,697 1,491
Deferred
Domestic--Federal............................ 79 (633) (376)
--State and local........................ 4 (95) (140)
Foreign...................................... 42 (507) (739)
------- ------- -------
125 (1,235) (1,255)
------- ------- -------
5,418 3,462 236
------- ------- -------
Net income (loss)
Domestic..................................... 684 2,546 (633)
Foreign...................................... 4,909 3,555 2,440
------- ------- -------
$ 5,593 $ 6,101 $ 1,807
======= ======= =======
</TABLE>
A reconciliation of the effective tax rate to the U.S. statutory rate
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- -----
<S> <C> <C> <C>
Statutory U.S. federal income tax rate.................. 35.0% 35.0% 35.0%
State and local taxes on income net of domestic federal
income tax benefit..................................... 4.4 1.9 (0.8)
Impact of foreign subsidiaries on effective rate........ (2.8) 4.0 (36.6)
Benefit of operating loss carryforwards................. (3.1) (7.1) --
Nonrecurring distribution costs......................... 11.9 -- --
Goodwill with no U.S. tax benefit....................... 3.1 4.7 21.8
All other............................................... 0.7 (2.3) (7.8)
---- ---- -----
Effective income tax rate............................... 49.2% 36.2% 11.6%
==== ==== =====
</TABLE>
F-15
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the Company's deferred income tax liabilities and
assets as of October 31 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred income tax liabilities:
Tax over book depreciation.............................. $4,508 $4,925 $5,222
Other................................................... 61 87 103
------ ------ ------
Total deferred income tax liabilities................. 4,569 5,012 5,325
Deferred income tax assets:
Pension liability....................................... 942 684 511
Employee benefits....................................... 1,919 2,209 2,031
Net operating loss carryforwards........................ 1,061 1,832 3,279
Inventory valuation..................................... 1,001 877 538
Net operating loss carryback............................ 1,309 1,309 1,081
Other................................................... 1,061 1,632 1,628
------ ------ ------
Total deferred income tax assets...................... 7,293 8,543 9,068
Valuation allowance for deferred income tax assets........ 1,061 1,832 3,279
------ ------ ------
Net deferred income tax assets.......................... 6,232 6,711 5,789
------ ------ ------
Net deferred income tax assets.......................... $1,663 $1,699 $ 464
====== ====== ======
</TABLE>
The valuation allowance has decreased by $771,000 in 1996, $1,447,000 in 1995
and $931,000 in 1994. The decrease in 1996 is the result of the reorganization
of CUNO Latina Ltda. (Brazil), in addition to the utilization of net operating
loss carryforwards. Although realization of the net deferred income tax assets
is not assured, management believes it is more likely than not that all of the
remaining net deferred income tax assets will be realized. The amount of the
net deferred income tax assets considered realizable, however, could be reduced
if estimates of future taxable income are reduced.
The tax benefits from net operating loss carryforwards relate to the
operation in Brazil and are available indefinitely.
F-16
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE H--RELATED PARTY TRANSACTIONS
Transactions with Commercial Intertech included in the balance sheets as
"Receivables from related party", "Dividends payable to related party" and
"Payable to related party" represent a net balance as a result of various
transactions between the Company and Commercial Intertech. These accounts are
short-term and non-interest bearing. The balance is primarily the result of the
Company's declaration of dividends and other payments associated with the
reorganization. Prior to the reorganization, the balance was primarily the
result of the Company's participation in Commercial Intertech's domestic cash
management system as all excess cash was remitted to Commercial Intertech and
certain disbursements were made by Commercial Intertech. Also included are
transactions relating to the Company's federal income tax liability and other
corporate charges. Transactions with other Commercial Intertech subsidiaries
are included in the "Other" classification. A summary of transactions follows:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------
1996 1995 1994
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year..................... $ 18,767 $15,104 $10,923
Net cash remitted to Commercial Intertech...... 22,145 15,084 11,716
Administrative expenses........................ (11,835) (9,869) (8,607)
Payment of dividends........................... (31,063) -- --
Other.......................................... (8,198) (1,552) 1,072
-------- ------- -------
Balance at end of year........................... $(10,184) $18,767 $15,104
======== ======= =======
</TABLE>
NOTE I--PRODUCT DEVELOPMENT COSTS
The Company maintains ongoing development programs at various facilities to
formulate, design and test new products and product alternatives, and to
further develop and significantly improve existing products. Costs associated
with these activities, which the Company expenses as incurred, are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Research and development........................... $3,625 $2,483 $1,884
Engineering........................................ 6,236 5,825 5,888
------ ------ ------
$9,861 $8,308 $7,772
====== ====== ======
Percent of net sales............................... 5.5% 5.1% 5.4%
====== ====== ======
</TABLE>
NOTE J--SEGMENT REPORTING
The Company has a single industry segment which is engaged in the design,
manufacture and sale of products in the fluid purification industry. In the
following table, data in the column labeled "Europe" pertains to subsidiaries
operating within the European Economic Community. Data in the "Other" column
pertains to operations located in Asia, Australia and Brazil.
Operating income represents total revenue less total operating expenses.
Identifiable assets are those assets used in the operations of each business or
geographic area or which are allocated when used jointly.
F-17
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GEOGRAPHIC AREA
<TABLE>
<CAPTION>
UNITED
STATES EUROPE JAPAN OTHER ELIMINATION CONSOLIDATED
------- ------- ------- ------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1996
Sales to customers... $86,394 $30,541 $28,778 $33,355 $ -- $179,068
Inter-area sales..... 16,894 1,305 300 41 (18,540) --
------- ------- ------- ------- -------- --------
Total net sales...... 103,288 31,846 29,078 33,396 (18,540) 179,068
Operating income..... 1,935 2,923 1,269 5,779 -- 11,906
Identifiable assets.. 74,647 17,350 24,430 17,085 133,512
Corporate assets..... 5,244
--------
Total assets......... $138,756
========
1995
Sales to customers... $74,893 $27,700 $30,508 $29,598 $ -- $162,699
Inter-area sales..... 16,516 1,423 593 1,470 (20,002) --
------- ------- ------- ------- -------- --------
Total net sales...... 91,409 29,123 31,101 31,068 (20,002) 162,699
Operating income..... 1,607 2,351 2,533 4,349 -- 10,840
Identifiable assets.. 101,640 11,381 26,595 16,471 -- 156,087
Corporate assets..... 6,740
--------
Total assets......... $162,827
========
1994
Sales to customers... $71,964 $21,651 $25,234 $24,262 $ -- $143,111
Inter-area sales..... 12,981 1,069 236 1,197 (15,483) --
------- ------- ------- ------- -------- --------
Total net sales...... 84,945 22,720 25,470 25,459 (15,483) 143,111
Operating income..... (1,413) 373 2,392 3,626 -- 4,978
Identifiable assets.. 96,174 13,749 25,125 13,615 -- 148,663
Corporate assets..... 4,408
--------
Total assets......... $153,071
========
</TABLE>
Net assets of foreign subsidiaries at October 31, 1996 and 1995 were
$24,043,000 and $36,298,000, respectively, of which net current assets were
$9,677,000 and $19,558,000 respectively.
NOTE K--STOCK OPTIONS AND AWARDS
In September 1996, the Company adopted and approved a stock option and award
plan which allows for the grant of a number of stock incentive instruments,
including nonqualified and incentive stock options, restricted stock,
performance shares and stock appreciation rights which may be granted as part
of a stock option or as a separate right to the holders of any options
previously granted. The plan permits the granting of such stock awards of up
to 1,200,000 shares of Common Stock. Accordingly, such shares have been
authorized and reserved. The options are exercisable at various dates and have
varying expiration dates. Approximately 946,760 shares of common stock are
reserved for issuance to key employees and nonemployee directors under the
provisions of these option and award plans as of October 31, 1996. Of its
353,961 stock options which were granted during 1996, 81,961 related to
Commercial Intertech options held by Company executives prior to the September
10, 1996 distribution date. Such options were issued in a manner to preserve
the economic position of the option holders which existed prior to the
distribution. No accounting expense was charged to earnings in connection with
this issuance.
Awards of performance shares totaled 215,500 in 1996. When rights, options
or awards are granted, associated compensation expense is accrued from date of
grant to the date such options or awards are exercised.
F-18
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the stock option activity follows for 1996:
<TABLE>
<CAPTION>
SHARES EXERCISE
UNDER PRICE OPTIONS
OPTION (PER SHARE) EXERCISABLE
------- ----------- -----------
<S> <C> <C> <C>
Outstanding at October 31, 1995............. -- -- --
Options granted........................... 272,000 $ 15.13 --
Commercial Intertech options exchanged.... 81,961 7.47-10.99 --
Options exercised......................... -- -- --
------- ----------- ---
Outstanding at October 31, 1996............. 353,961 $7.47-15.13 --
</TABLE>
Shares available for future grants amounted to approximately 592,800 shares
as of October 31, 1996.
NOTE L--FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures of financial instruments:
Cash and cash equivalents:
The carrying amounts reported in the balance sheets for cash and cash
equivalents approximate fair value.
Long and short-term debt:
The carrying amounts of the Company's borrowings under its short-term credit
agreements approximate their fair value. The fair values of the long-term debt
are estimated using discounted cash flow analysis, based on the Company's
incremental borrowing rates for similar types of borrowing arrangements. The
fair value of the Company's long-term debt approximates its carrying value
because of the variable interest rate of the majority of the debt.
The carrying amounts and fair values of the Company's financial instruments
follows:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------------------
1996 1995
---------------- ----------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents................. $ 5,244 $ 5,244 $ 6,740 $ 6,740
Bank loans................................ 10,690 10,690 10,440 10,440
Long-term debt............................ 34,734 34,719 5,096 5,068
</TABLE>
The carrying amounts of accounts and notes receivable, receivables from
related party, accounts payable and accrued expenses and amounts payable to
related party approximates fair value because of the short-term nature of those
transactions.
FOREIGN CURRENCY EXCHANGE CONTRACTS:
At times, the Company utilizes foreign currency exchange contracts to
minimize the impact of currency fluctuations on transactions. At October 31,
1996 and 1995, the Company held contracts for $1,000,000 and $500,000
respectively, with fair values of $1,002,000 and $500,000, respectively. The
fair value of foreign currency exchange contracts is estimated based on quoted
exchange rates at year end. The forward contracts are an effective hedge
against fluctuations in the value of the foreign currency. Therefore, the
contracts have no income statement impact.
F-19
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE M--DISPOSAL
The Company recorded a loss of $1,053,000 during fiscal 1994 on the disposal
of assets it had acquired from Bioken Separation, Inc., a manufacturer of
proprietary cross-flow membrane devices and systems. The original cost of the
acquisition was $2,224,000.
NOTE N--QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C>
Net sales.................................. $41,004 $45,090 $48,542 $44,432
Gross profit............................... 15,748 18,460 20,796 19,216
Distribution and other nonrecurring
costs(1).................................. -- -- 2,876 2,688
Net income (loss).......................... 1,851 3,251 630 (139)
Earnings per common share.................. 0.14 0.24 0.05 (0.01)
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C>
Net sales.................................. $37,713 $39,630 $43,467 $41,889
Gross profit............................... 13,926 14,995 17,025 16,981
Net income................................. 1,416 1,241 1,419 2,025
Earnings per common share.................. 0.10 0.09 0.10 0.15
</TABLE>
- --------
(1) Included in 1996 operating income and net income were distribution and
other nonrecurring costs to the Company associated with the recent
reorganization. These expenses totaled $4,858 (net of income taxes of
$706).
The Company incurred $2,876,000 or $0.21 per share during the third quarter
of 1996 and $1,982,000 or $0.15 per share during the fourth quarter (net of
taxes) for distribution and other nonrecurring costs.
Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not
necessarily equal the total for the year.
F-20
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
JANUARY 31,
----------------------
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net sales............................................... $44,839 $41,004
Less costs and expenses:
Cost of products sold................................. 25,638 25,256
Selling, general and administrative expenses.......... 15,274 13,112
---------- ----------
40,912 38,368
---------- ----------
Operating income........................................ 3,927 2,636
Nonoperating income (expense):
Interest income....................................... 36 31
Interest expense...................................... (591) (101)
Exchange losses....................................... (26) (10)
Gain on sale of assets................................ 6 98
Other................................................. (48) (13)
---------- ----------
(623) 5
---------- ----------
Income before income taxes.............................. 3,304 2,641
Provision for income taxes.............................. 1,239 790
---------- ----------
Net income.............................................. $ 2,065 $ 1,851
========== ==========
Net income per common share............................. $ 0.15 $ 0.14
========== ==========
Weighted average common shares outstanding.............. 13,809,608 13,565,922
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-21
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1997 1996
----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................ $ 3,586 $ 5,244
Accounts and notes receivable (less allowances for
doubtful accounts of $1,406 and $1,133,
respectively)....................................... 36,437 36,944
Inventories.......................................... 19,712 19,149
Deferred income taxes................................ 5,301 5,333
Prepaid expenses and other current assets............ 1,393 1,484
-------- --------
Total current assets............................... 66,429 68,154
Noncurrent assets
Intangible assets, net............................... 19,213 19,695
Pension assets....................................... 1,146 1,174
Other noncurrent assets.............................. 1,493 1,532
Property, plant and equipment, net................... 46,817 48,201
-------- --------
Total assets....................................... $135,098 $138,756
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank loans........................................... $ 12,306 $ 10,690
Accounts payable..................................... 11,797 12,719
Accrued payrolls and related taxes................... 6,905 9,084
Accrued expenses..................................... 7,223 6,986
Accrued income taxes................................. 2,269 1,360
Current portion of long-term debt.................... 912 962
Dividends payable to related party................... 2,170 4,612
Payable to related party............................. 6,703 10,184
-------- --------
Total current liabilities.......................... 50,285 56,597
Noncurrent liabilities
Long-term debt....................................... 35,577 33,772
Deferred income taxes................................ 3,544 3,670
Retirement benefits.................................. 1,541 1,569
-------- --------
Total noncurrent liabilities....................... 40,662 39,011
Stockholders' equity
Preferred stock, $.001 par value; 2,000,000 shares
authorized, no shares issued and outstanding........ -- --
Common Stock, $.001 par value; 50,000,000 shares
authorized, 13,822,076 and 13,774,568 shares
outstanding......................................... 14 14
Additional paid-in-capital........................... 7,262 6,736
Retained earnings.................................... 35,701 33,636
Unearned compensation................................ (3,578) (3,448)
Minimum pension liability adjustment................. (811) (811)
Translation adjustments.............................. 5,563 7,021
-------- --------
Total stockholders' equity......................... 44,151 43,148
-------- --------
Total liabilities and stockholders' equity......... $135,098 $138,756
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-22
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
JANUARY 31,
--------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income.............................................. $ 2,065 $ 1,851
Adjustments to reconcile net income to net cash (used
for) provided by operating activities:
Depreciation and amortization......................... 1,779 2,032
Gain on sale of equipment............................. (4) --
Provision for unearned compensation................... 404 --
Pension plan credits.................................. -- 309
Change in deferred income taxes....................... (228) 708
Changes in assets and liabilities:
Accounts receivable................................... (465) (49)
Inventories........................................... (1,196) 278
Prepaid expenses and other current assets............. (604) (30)
Payables to related party............................. (3,149) 537
Accounts payable and accrued expenses................. (2,078) (2,787)
Accrued income taxes.................................. 891 (1,220)
--------- ---------
Net cash (used for) provided by operating activities.... (2,585) 1,629
INVESTING ACTIVITIES
Proceeds from sale of equipment....................... 39 9
Capital expenditures.................................. (1,001) (1,050)
--------- ---------
Net cash (used for) investing activities................ (962) (1,041)
FINANCING ACTIVITIES
Proceeds from long-term debt.......................... 4,000 --
Principal payments on long-term debt.................. (2,049) (46)
Net borrowings under bank loan agreements............. 2,371 344
Conversion of other assets............................ -- (558)
Dividends paid to related party....................... (2,352) --
--------- ---------
Net cash provided by (used for) financing activities.... 1,970 (260)
Effect of exchange rate changes on cash and cash
equivalents............................................ (81) (240)
--------- ---------
Net change in cash and cash equivalents................. (1,658) 88
Cash and cash equivalents--beginning of period.......... 5,244 6,740
--------- ---------
Cash and cash equivalents--end of period................ $ 3,586 $ 6,828
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-23
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997
NOTE A--CUNO ORGANIZATION AND DISTRIBUTION
On July 29, 1996, the Board of Directors of Commercial Intertech Corp.
("Commercial Intertech" or "Related Party") approved a plan to spin-off its
fluid purification business by declaring a dividend distribution of 100% of
the common stock of CUNO Incorporated ("CUNO" or the "Company") on a pro-rata
basis to the holders of Commercial Intertech common shares (the "Distribution"
or "Spin-off"). On September 10, 1996, the Distribution date, each holder of
record of Commercial Intertech common shares as of the close of business on
August 9, 1996, the record date for the Distribution, received one share of
CUNO Common Stock for every one share of Commercial Intertech common share. No
fractional shares of CUNO were issued.
In connection with the Spin-off, the Company declared dividends of
approximately $35,675,000 payable from the CUNO subsidiaries to the parent
(Commercial Intertech), and immediately prior to the Distribution, CUNO
assumed $30,000,000 of Commercial Intertech's debt in the form of a dividend.
CUNO and Commercial Intertech have entered into a Tax Allocation Agreement
in connection with the Distribution. In addition, the companies have entered
into a Distribution and Interim Services Agreement which provides that certain
services which have historically been provided to CUNO by Commercial Intertech
will continue to be provided following the Distribution Date, at rates
specified in such agreement, for a period of up to twelve months.
NOTE B--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three-month
period ended January 31, 1997 are not necessarily indicative of the results
that may be expected for the year ending October 31, 1997. The condensed
consolidated balance sheet at October 31, 1996 was derived from the audited
consolidated financial statements as of that date. For further information,
refer to the consolidated financial statements and footnotes herein.
NOTE C--EARNINGS PER SHARE DATA
All share and per share information has been retroactively restated to
reflect the Distribution in a manner similar to a stock split. In determining
the weighted average number of common shares outstanding, it was assumed that
the shares issued in conjunction with the reorganization were outstanding
during each period presented. Fully diluted earnings per share is not
presented as the effect of common stock equivalents was not material.
NOTE D--INCOME TAXES
The Company's effective income tax rate for the period was 37.5% compared to
30.0% during the first quarter of 1996. The change reflects a loss of certain
foreign tax benefits previously realized when the Company was a part of
Commercial Intertech's combined tax group.
F-24
<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
NOTE E--INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials..................................... $ 2,642 $ 2,817
Work-in-process................................... 8,001 6,503
Finished goods.................................... 9,069 9,829
------- -------
$19,712 $19,149
======= =======
</TABLE>
Inventories are stated at the lower of cost or market. Inventories in the
U.S. are primarily valued on the last-in, first-out (LIFO) cost method. The
method used for all other inventories is first-in, first-out (FIFO). An actual
valuation of inventory under the LIFO method can be made only at the end of
each year based on the inventory levels and costs at that time. Accordingly,
interim LIFO calculations must necessarily be based on management's estimates
of expected year-end inventory levels and costs. Because these are subject to
many factors beyond management's control, interim results are subject to the
final year-end LIFO inventory valuation.
F-25
<PAGE>
CUNO Systems
Marketed Worldwide
ARTWORK
[MAP OF CUNO DISTRIBUTORS & FACILITIES]
[FLAG] . Primary Distributors
[FLAG] . CUNO Facilities
[FLAG] . CUNO Major U.S. Facilities
Meriden, Connecticut, World Headquarters
Enfield, Connecticut
Stafford Springs, Connecticut
[FLAG] . CUNO Major International Facilities
Calais, France
[FLAG] Mazeres, France
Blacktown, Australia
[FLAG] Mairinque, Brazil
Kita-Ibaragi, Japan
[FLAG] Republic of Singapore
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPEC-
TUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY
ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SE-
CURITIES OFFERED HEREBY, TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UN-
LAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 10
Price Range of Common Stock.............................................. 10
Dividend Policy.......................................................... 10
Capitalization........................................................... 11
Selected Financial and Other Data........................................ 12
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 13
Business................................................................. 19
Management............................................................... 29
Summary Compensation Table............................................... 33
Beneficial Owners........................................................ 39
Description of Capital Stock............................................. 40
Certain Related Party Transactions....................................... 43
Shares Eligible for Future Sale.......................................... 44
Underwriting............................................................. 45
Legal Matters............................................................ 46
Experts.................................................................. 46
Available Information.................................................... 46
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,000,000 SHARES
LOGO
CUNO INCORPORATED
COMMON STOCK
---------------
PROSPECTUS
---------------
ROBERT W. BAIRD & CO.
INCORPORATED
CLEARY GULL REILAND & MCDEVITT INC.
GOLDMAN, SACHS & CO.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by the
Registrant in connection with the issuance and distribution of the Common
Stock pursuant to the Prospectus contained in this Registration Statement. The
Registrant will pay all of these expenses.
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT
-----------
<S> <C>
Securities and Exchange Commission registration fee............ $ 10,716
NASD filing fee................................................ 4,037
Nasdaq listing fee............................................. 17,500
Accountants' fees and expenses................................. 25,000
Blue Sky fees and expenses..................................... 5,000
Legal fees and expenses........................................ 110,000
Transfer Agent and Registrar fees and expenses................. 5,000
Printing and engraving expenses................................ 110,000
Miscellaneous expenses......................................... 12,747
--------
Total........................................................ $300,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article XII of the Registrant's Amended and Restated Certificate of
Incorporation (the "Restated Certificate") provides that the Registrant may
indemnify its directors, officers and employees to the full extent permitted
by the General Corporation Law of the State of Delaware (the "DGCL"), such
indemnification to be evidenced by an indemnification agreement, except that
the Registrant shall not be obligated to indemnify any such person (i) with
respect to proceedings, claims or actions initiated or brought voluntarily by
any such person and not by way of defense or (ii) for any amounts paid in
settlement of an action indemnified against by the Registrant without the
prior written consent of the Registrant. The Registrant has entered into
indemnity agreements with each of its directors. These agreements require the
Registrant, among other things, to indemnify such directors against certain
liabilities that may arise by reason of their status or service as directors,
to advance expenses to them as they are incurred, provided that they undertake
to repay the amount advanced if it is ultimately determined by a court that
they are not entitled to indemnification, and to obtain directors' liability
insurance if available on reasonable terms.
In addition, Article XII of the Restated Certificate provides that a
director of the Registrant shall not be personally liable to the Registrant or
its stockholders for monetary damages for breach of his or her fiduciary duty
as a director, except for liability (i) for any breach of the director's duty
of loyalty to the Registrant or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for willful or negligent conduct in paying dividends
or repurchasing stock out of other than lawfully available funds or (iv) for
any transaction from which the director derives an improper personal benefit.
Reference is made to Section 145 of the DGCL, which provides for
indemnification of directors and officers in certain circumstances.
The Company has obtained a directors' and officers' liability insurance
policy which entitles the Company to be reimbursed for certain indemnity
payments it is required or permitted to make to its directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
II-1
<PAGE>
ITEM 16. EXHIBITS
(a) Exhibits.
<TABLE>
<C> <S>
1. Form of Underwriting Agreement.
*3.1 Amended and Restated Certificate of Incorporation of the Registrant.
*3.2 Amended and Restated Bylaws of the Registrant.
4.1 Specimen stock certificate representing Common Stock.
*4.2 Registrant's Rights Agreement dated as of August 19, 1996.
5. Opinion of Katten Muchin & Zavis as to the legality of securities to
be registered.
*10.1 CUNO Incorporated Non-Employee Directors' Stock Option Plan.
*10.2 CUNO Incorporated 1996 Stock Incentive Plan.
*10.3 CUNO Incorporated Distributorship Agreement.
*10.4 Distribution and Interim Services Agreement by and between CUNO Incor-
porated and Commercial Intertech Corp.
*10.5 Tax Allocation Agreement by and between CUNO Incorporated and Commer-
cial Intertech Corp.
*10.6 Employee Benefits and Compensation Allocation Agreement by and between
CUNO Incorporated and Commercial Intertech Corp.
*10.7 Employment Agreement dated December 3, 1993 between Commercial
Intertech Corp. and Mark G. Kachur.
**10.8 Termination and Change of Control Agreement dated October 1, 1996 be-
tween CUNO Incorporated and Paul J. Powers.
**10.9 Termination and Change of Control Agreement dated October 1, 1996 be-
tween CUNO Incorporated and Mark G. Kachur.
**10.10 Termination and Change of Control Agreement dated October 1, 1996 be-
tween CUNO Incorporated and Michael H. Croft.
**10.11 Termination and Change of Control Agreement dated October 1, 1996 be-
tween CUNO Incorporated and Ronald C. Drabik.
**10.12 Termination and Change of Control Agreement dated October 1, 1996 be-
tween CUNO Incorporated and Timothy B. Carney.
**10.13 Termination and Change of Control Agreement dated October 1, 1996 be-
tween CUNO Incorporated and John A. Tomich.
10.14 Credit Agreement dated October 1, 1996 between CUNO Incorporated and
Mellon Bank, N.A.
**21. Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Katten Muchin & Zavis (contained in Exhibit 5).
24. Power of Attorney (included on the signature page of this registration
statement).
</TABLE>
- --------
* Incorporated by reference to the Registrant's Registration Statement on
Form 10, as amended, filed with the Securities and Exchange Commission on
July 29, 1996.
** Incorporated by reference to the Registrant's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on January 23, 1997.
II-2
<PAGE>
(b) Financial Statement Schedule
REPORT OF INDEPENDENT AUDITORS
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required or are
inapplicable, and therefore have been omitted, or the required information is
described in the Consolidated Financial Statements.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended (the "Act") the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the
Registrant pursuant to the applicable provisions of the DGCL, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MERIDEN, STATE OF
CONNECTICUT, ON THE 26TH DAY OF FEBRUARY, 1997.
CUNO Incorporated
/s/ Paul J. Powers
By: _________________________________
Paul J. Powers
Chief Executive Officer
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Ronald C. Drabik, John A. Tomich and Herbert S.
Wander, and each of them singly, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities (including his capacity as a
director and officer of CUNO Incorporated), to sign any and all amendments
(including post-effective amendments) to this Registration Statement on Form
S-1 (including registration statements filed pursuant to Rule 462(b) under the
Securities Act of 1933, and all amendments thereto), and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission under the Securities Act of 1933,
granting unto each said attorney-in-fact and agent, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that each
said attorney-in-fact and agent, or their or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof. This Power of Attorney
may be signed in several counterparts.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON FEBRUARY 26TH, 1997.
SIGNATURE TITLE
/s/ Paul J. Powers Chief Executive Officer and Chairman
- ------------------------------------- of the Board (principal executive
PAUL J. POWERS officer)
/s/ Ronald C. Drabik Senior Vice President and Chief
- ------------------------------------- Financial Officer (principal
RONALD C. DRABIK financial and accounting officer)
/s/ Mark G. Kachur President, Chief Operating Officer
- ------------------------------------- and Director
MARK G. KACHUR
/s/ Joel B. Alvord Director
- -------------------------------------
JOEL B. ALVORD
/s/ Charles L. Cooney Director
- -------------------------------------
CHARLES L. COONEY
/s/ Norbert A. Florek Director
- -------------------------------------
NORBERT A. FLOREK
/s/ John M. Galvin Director
- -------------------------------------
JOHN M. GALVIN
/s/ Gerald C. McDonough Director
- -------------------------------------
GERALD C. MCDONOUGH
/s/ C. Edward Midgley Director
- -------------------------------------
C. EDWARD MIDGLEY
/s/ David L. Swift Director
- -------------------------------------
DAVID L. SWIFT
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S> <C>
1. Form of Underwriting Agreement.
4.1 Specimen stock certificate representing Common Stock.
5. Opinion of Katten Muchin & Zavis as to the legality of
securities to be registered.
10.14 Credit Agreement Dated October 1, 1996 between CUNO
Incorporated and Mellon Bank, N.A.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Katten Muchin & Zavis (contained in Exhibit 5).
24. Power of Attorney (included on the signature page of this
registration statement).
</TABLE>
(b) Financial Statement Schedule
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
CUNO Incorporated
We have audited the consolidated financial statements of CUNO Incorporated
and subsidiaries as of October 31, 1996 and 1995, and for each of the three
years in the period ended October 31, 1996, and have issued our report thereon
dated December 16, 1996 (included elsewhere in this Registration Statement).
Our audits also included the financial statement schedule listed in Item 16(b)
of this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Hartford, Connecticut
December 16, 1996
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
CUNO INCORPORATED AND SUBSIDIARIES
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
---------
CHARGED CHARGED
BALANCE AT TO COSTS TO OTHER BALANCE AT
BEGINNING AND ACCOUNTS- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DEDUCTIONS PERIOD
----------- ---------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended October 31,
1996 Deducted from asset
accounts:
Allowance for doubtful
accounts receivable $1,135,916 $ 21,673 $ 0 $ 24,136(A) $1,133,453
========== ======== === ======== ==========
Valuation allowance for
deferred income tax
assets 435,000(B)
$1,832,000 $ 0 $ 0 $336,000(C) $1,061,000
========== ======== === ======== ==========
Year ended October 31,
1995 Deducted from asset
accounts:
Allowance for doubtful
accounts receivable $ 873,259 $643,310 $ 0 $380,653(A) $1,135,916
========== ======== === ======== ==========
Valuation allowance for
deferred income tax
assets 764,000(B)
$3,279,000 $ 0 $ 0 $683,000(C) $1,832,000
========== ======== === ======== ==========
Year ended October 31,
1994 Deducted from asset
accounts:
Allowance for doubtful
accounts receivable $ 702,025 $193,249 $ 0 $ 22,015(A) $ 873,259
========== ======== === ======== ==========
Valuation allowance for
deferred income tax
assets $4,210,000 $ 0 $ $931,000(B) $3,279,000
========== ======== === ======== ==========
</TABLE>
- --------
(A) Uncollectible accounts written off, net of recoveries.
(B) Increase (decrease) in net operating loss carryforwards for the year.
(C) Net operating loss carryforwards utilized or expired.
S-2
<PAGE>
Exhibit 1
GC&D DRAFT OF 2/27/97 CUNO INCORPORATED
2,000,000 Shares of Common Stock*
UNDERWRITING AGREEMENT
----------------------
[March] ___, 1997
ROBERT W. BAIRD & CO. INCORPORATED
CLEARY GULL REILAND & MCDEVITT INC.
GOLDMAN, SACHS & CO.
As Representatives of the Several Underwriters
Identified in Schedule I Annexed Hereto
c/o Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Ladies and Gentlemen:
1. INTRODUCTORY. CUNO Incorporated, a Delaware corporation (the
"Company"), proposes to sell 2,000,000 shares (the "Firm Shares") of common
stock, $.001 par value per share (the "Common Stock"), to the several
underwriters identified in Schedule I annexed hereto (the "Underwriters"), who
are acting severally and not jointly. In addition, the Company has agreed to
grant to the Underwriters an option to purchase up to 300,000 additional shares
of Common Stock (the "Optional Shares") as provided in section 5 hereof. The
Firm Shares and, to the extent such option is exercised, the Optional Shares are
hereinafter collectively referred to as the "Shares."
You, as representatives of the Underwriters (the "Representatives"), have
advised the Company that the Underwriters propose to make a public offering of
their respective portions of the Shares as soon hereafter as in your judgment is
advisable and that the public offering price of the Shares initially will be
[$_____] per share.
The Company hereby confirms its agreements with the Underwriters as
follows:
______________________
* Plus an option to acquire up to 300,000 additional shares of Common Stock
from the Company to cover over-allotments.
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with, the several Underwriters, and shall be deemed
to represent and warrant to the several Underwriters on each Closing Date (as
hereinafter defined), that:
(a) Each of the Company and the subsidiaries of the Company that are
listed on Exhibit 21 of the Registration Statement (as hereinafter defined)
(individually, a "Subsidiary" and collectively, the "Subsidiaries") has been
duly incorporated and is validly existing as a corporation and in good standing
under the laws of its jurisdiction of incorporation, with full corporate power
and authority to own, lease and operate its properties and to conduct its
business as presently conducted and described in the Prospectus (as hereinafter
defined) and the Registration Statement; each of the Company and the
Subsidiaries is duly registered and qualified to do business as a foreign
corporation under the laws of, and is in good standing as such in, each
jurisdiction in which such registration or qualification is required, except
where the failure to so register or qualify would not have a material adverse
effect on the condition (financial or other), business, property, net worth,
results of operations or prospects of the Company and the Subsidiaries, taken as
a whole ("Material Adverse Effect"); and no proceeding has been instituted in
any such jurisdiction revoking, limiting or curtailing, or seeking to revoke,
limit or curtail, such power and authority or qualification. Complete and
correct copies of the certificate of incorporation or articles of incorporation
and by-laws, as amended or restated ("Certificate of Incorporation" and "By-
laws," respectively), of the Company and each of the Subsidiaries as in effect
on the date hereof have been delivered to the Representatives, and no changes
thereto will be made on or subsequent to the date hereof and prior to each
Closing Date.
(b) The shares of Common Stock issued and outstanding immediately prior to
the issuance and sale of the Shares as set forth in the Prospectus have been
duly authorized and validly issued, are fully paid and nonassessable and conform
to the description thereof contained in the Prospectus and the Registration
Statement. There are no preemptive, preferential or, except as described in the
Prospectus, other rights to subscribe for or purchase any shares of Common Stock
(including the Shares), and no shares of Common Stock have been issued in
violation of such rights. The Shares to be issued and sold to the Underwriters
have been duly authorized and, when issued, delivered and paid for pursuant to
this Agreement, will be validly issued, fully paid and nonassessable and will
conform to the description thereof contained in the Prospectus and the
Registration Statement. The delivery of certificates for the Shares to be
issued and sold hereunder and payment therefor pursuant to the terms of this
Agreement will pass valid title to such Shares to the Underwriters, free and
clear of any lien, claim, encumbrance or defect in title. Except as described
in the Prospectus, there are no outstanding options, warrants or other rights of
any description, contractual or otherwise, entitling any person to be issued any
class of security by the Company or any Subsidiary, and there are no holders of
Common Stock or other securities of the Company or any Subsidiary, or of
securities that are convertible or exchangeable into Common Stock or
2
<PAGE>
other securities of the Company or any Subsidiary, that have rights to the
registration of such Common Stock or securities under the Securities Act of
1933, as amended, and the regulations thereunder (together, the "Act") or the
securities laws or regulations of any of the states (the "Blue Sky Laws").
(c) Except for the Subsidiaries, and as otherwise set forth in the
Prospectus, the Company has no subsidiaries and does not own any equity interest
in or control, directly or indirectly, any other corporation, limited liability
company, partnership, joint venture, association, trust or other business
organization. The Company owns directly all of the issued and outstanding
capital stock of each Subsidiary, free and clear of any and all liens, claims,
encumbrances or security interests, and all such capital stock has been duly
authorized and validly issued and is fully paid and nonassessable. There are no
outstanding options, warrants or other rights of any description, contractual or
otherwise, entitling any person to subscribe for or purchase any shares of
capital stock of any Subsidiary.
(d) The Company has full corporate power and authority to enter into and
perform this Agreement, and the execution and delivery by the Company of this
Agreement and the performance by the Company of its obligations hereunder and
the consummation of the transactions described herein, have been duly authorized
with respect to the Company by all necessary corporate action and will not: (i)
violate any provisions of the Certificate of Incorporation or By-laws of the
Company or any Subsidiary; (ii) violate any provisions of, or result in the
breach, modification or termination of, or constitute a default under, any
provision of any agreement, lease, franchise, license, indenture, permit,
mortgage, deed of trust, evidence of indebtedness or other instrument to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary, or any property owned or leased by the Company or any Subsidiary,
may be bound or affected; (iii) violate any statute, ordinance, rule or
regulation applicable to the Company or any Subsidiary, or order or decree of
any court, regulatory or governmental body, arbitrator, administrative agency or
instrumentality of the United States or other country or jurisdiction having
jurisdiction over the Company or any Subsidiary; or (iv) result in the creation
or imposition of any lien, charge or encumbrance upon any property or assets of
the Company or any Subsidiary. No consent, approval, authorization or other
order of any court, regulatory or governmental body, arbitrator, administrative
agency or instrumentality of the United States or other country or jurisdiction
is required for the execution and delivery of this Agreement by the Company, the
performance of its obligations hereunder or the consummation of the transactions
contemplated hereby, except for compliance with the Act, the Securities Exchange
Act of 1934, as amended, and the regulations thereunder (together, the "Exchange
Act"), the Blue Sky Laws applicable to the public offering of the Shares by the
several Underwriters and the clearance of such offering and the underwriting
arrangements evidenced hereby with the National Association of Securities
Dealers, Inc. (the "NASD"). This Agreement has been duly executed and delivered
by and on behalf
3
<PAGE>
of the Company and is a valid and binding agreement of the Company enforceable
against the Company in accordance with its terms.
(e) A registration statement on Form S-1 (Reg. No. 333-_______) with
respect to the Shares, including a preliminary form of prospectus, has been
carefully prepared by the Company in conformity with the requirements of the Act
and has been filed with the Securities and Exchange Commission (the
"Commission"). Such registration statement, as finally amended and revised at
the time such registration statement was or is declared effective by the
Commission (including the information contained in the form of final prospectus,
if any, filed with the Commission pursuant to Rule 424(b) and Rule 430A under
the Act and deemed to be part of the registration statement if the registration
statement has been declared effective pursuant to Rule 430A(b)) and as
thereafter amended by post-effective amendment, if any, is herein referred to as
the "Registration Statement." The related final prospectus in the form first
filed with the Commission pursuant to Rule 424(b) or, if no such filing is
required, as included in the Registration Statement, or any supplement thereto,
is herein referred to as the "Prospectus." The prospectus subject to completion
in the form included in the Registration Statement at the time of the initial
filing of the Registration Statement with the Commission, and each such
prospectus as amended from time to time until the date of the Prospectus, is
referred to herein as the "Preliminary Prospectus." The Company has prepared
and filed such amendments to the Registration Statement since its initial filing
with the Commission, if any, as may have been required to the date hereof, and
will file such additional amendments thereto as may hereafter be required.
There have been delivered to the Representatives three signed copies of the
Registration Statement and each amendment thereto, if any, together with three
copies of each exhibit filed therewith, and such number of conformed copies for
each of the Underwriters of the Registration Statement and each amendment
thereto, if any (but without exhibits), and of each Preliminary Prospectus and
of the Prospectus as the Representatives has requested.
(f) Neither the Commission nor any state securities commission has issued
any order preventing or suspending the use of any Preliminary Prospectus, nor,
to the knowledge of the Company, have any proceedings for that purpose been
initiated or threatened, and each Preliminary Prospectus filed with the
Commission as part of the Registration Statement as originally filed or as part
of any amendment or supplement thereto complied when so filed with the
requirements of the Act and, as of its date, did not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading. As of
the effective date of the Registration Statement, and at all times subsequent
thereto up to each Closing Date, the Registration Statement and the Prospectus
contained or will contain all statements that are required to be stated therein
in accordance with the Act and conformed or will conform in all respects to the
requirements of the Act, and neither the Registration Statement nor the
Prospectus included or will include any untrue statement of a material fact or
omitted or will omit to state a material fact required to be stated
4
<PAGE>
therein or necessary to make the statements therein not misleading. Neither the
Company, nor any person that controls, is controlled by (including the
Subsidiaries) or is under common control with the Company, has distributed or
will distribute prior to each Closing Date any offering material in connection
with the offering and sale of the Shares other than a Preliminary Prospectus,
the Prospectus, the Registration Statement or other materials permitted by the
Act and provided to the Representatives.
(g) Ernst & Young LLP, which has expressed its opinion with respect to the
consolidated financial statements and schedules filed with the Commission and
included as a part of each Preliminary Prospectus, the Prospectus or the
Registration Statement are independent accountants as required by the Act.
(h) The consolidated financial statements and the related notes thereto
included in each Preliminary Prospectus, the Prospectus and the Registration
Statement present fairly the financial position, results of operations and cash
flows of the Company as of their respective dates or for the respective periods
covered thereby, all in conformity with generally accepted accounting principles
consistently applied throughout the periods involved. The financial statement
schedules, if any, included in the Registration Statement present fairly the
information required to be stated therein on a basis consistent with the
consolidated financial statements of the Company contained therein. The Company
had an outstanding capitalization as set forth in the Registration Statement and
under "Capitalization" in the Prospectus as of the date indicated therein, and
there has been no material change thereto since such date except as disclosed in
the Prospectus. The financial and statistical information and data relating to
the Company in each Preliminary Prospectus, the Prospectus and the Registration
Statement are accurately presented and prepared on a basis consistent with the
audited consolidated financial statements and books and records of the Company.
The consolidated financial statements and schedules and the related notes
thereto included in each Preliminary Prospectus, the Prospectus or the
Registration Statement are the only such financial statements and schedules
required under the Act to be set forth therein.
(i) Neither the Company nor any Subsidiary is, nor with the giving of
notice or passage of time or both, would be, in violation or in breach of: (i)
its respective Certificate of Incorporation or By-laws; (ii) any statute,
ordinance, order, rule or regulation applicable to the Company or such
Subsidiary; (iii) any order or decree of any court, regulatory body, arbitrator,
administrative agency or other instrumentality of the United States or other
country or jurisdiction having jurisdiction over the Company or such Subsidiary;
or (iv) any provision of any agreement, lease, franchise, license, indenture,
permit, mortgage, deed of trust, evidence of indebtedness or other instrument to
which the Company or such Subsidiary is a party or by which any property owned
or leased by the Company or such Subsidiary is bound or affected. Neither the
Company nor any Subsidiary has received notice of any violation of any
applicable statute, ordinance, order, rule or regulation applicable to the
Company or any Subsidiary. The
5
<PAGE>
Company and each Subsidiary have obtained and hold, and are in compliance with,
all permits, certificates, licenses, approvals, registrations, franchises,
consents and authorizations of governmental or regulatory authorities required
under all laws, rules and regulations in connection with their businesses
(hereinafter "permit" or "permits"), and all of such permits are in full force
and effect; and the Company and each Subsidiary have fulfilled and performed all
of their respective obligations with respect to each such permit and no event
has occurred which would result in, or after notice or lapse of time would
result in, revocation or termination of any such permit or result in any other
impairment of the rights of the holder of such permit. Neither the Company nor
any Subsidiary is or has been (by virtue of any action, omission to act,
contract to which it is a party or other occurrence) in violation of any
applicable foreign, federal, state, municipal or local statutes, laws,
ordinances, rules, regulations or orders (including those relating to
environmental protection, occupational safety and health and equal employment
practices) heretofore or currently in effect.
(j) There are no legal or governmental proceedings or investigations
pending or, to the knowledge of the Company, threatened to which the Company or
any Subsidiary is or may be a party or to which any property owned or leased by
the Company or any Subsidiary is or may be subject, including, without
limitation, any such proceedings that are related to environmental or employment
discrimination matters, which are required to be described in the Registration
Statement or the Prospectus which are not so described, or which question the
validity of this Agreement or any action taken or to be taken pursuant hereto.
Except as described in the Registration Statement or the Prospectus, neither the
Company nor any Subsidiary: (i) is in violation of any statute, ordinance, rule
or regulation, or any decision, order or decree of any court, regulatory body,
arbitrator, administrative agency or other instrumentality of the United States
or other country or jurisdiction having jurisdiction over the Company or such
Subsidiary relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the environmental or
human exposure to hazardous or toxic substances (collectively, "environmental
laws"); (ii) owns or operates any real property contaminated with any substance
that is subject to any environmental laws; (iii) is liable for any off-site
disposal or contamination pursuant to any environmental laws; or (iv) is subject
to any claim relating to any environmental laws, which violation, contamination,
liability or claim could have a Material Adverse Effect.
(k) There is no transaction, relationship, obligation, agreement or other
document required to be described in the Registration Statement or the
Prospectus or to be filed or deemed to be filed as an exhibit to the
Registration Statement by the Act, which has not been described or filed as
required. All such contracts or agreements to which the Company or any
Subsidiary is a party have been duly authorized, executed and delivered by the
Company or such Subsidiary, constitute valid and binding agreements of the
Company or such Subsidiary, and are enforceable by and against the Company or
such Subsidiary, in accordance with the respective terms thereof.
6
<PAGE>
(l) The Company or a Subsidiary has good and valid title to all property
and assets reflected as owned by the Company or such Subsidiary in the Company's
consolidated financial statements included in the Registration Statement (or
elsewhere in the Registration Statement or the Prospectus), free and clear of
all liens, claims, mortgages, security interests or other encumbrance of any
kind or nature whatsoever except those, if any, reflected in such financial
statements (or elsewhere in the Registration Statement or the Prospectus). All
property (real and personal) held or used by the Company or a Subsidiary under
leases, licenses, franchises or other agreements is held by the Company or such
Subsidiary under valid, subsisting, binding and enforceable leases, franchises,
licenses or other agreements.
(m) Neither the Company nor any person that controls, is controlled by
(including the Subsidiaries) or is under common control with the Company has
taken or will take, directly or indirectly, any action designed to cause or
result in, or which constituted, or which could cause or result in,
stabilization or manipulation, under the Exchange Act or otherwise, of the price
of any security of the Company to facilitate the sale or resale of the Common
Stock.
(n) Except as described in the Registration Statement or the Prospectus,
since the respective dates as of which information is given in the Registration
Statement or the Prospectus and prior to each Closing Date: (i) neither the
Company nor any Subsidiary has or will have incurred any liability or
obligation, direct or contingent, or entered into any transaction, that is
material to the Company, except as in the ordinary course of business; (ii) the
Company has not and will not have paid or declared any dividend or other
distribution with respect to its capital stock and neither the Company nor any
Subsidiary is or will be delinquent in the payment of principal or interest on
any outstanding debt obligation; and (iii) there has not been and will not have
been any change in the capital stock, any material change in the indebtedness of
the Company or any Subsidiary, or any change or development involving or which
could be expected to involve, a Material Adverse Effect, whether or not arising
from transactions in the ordinary course of business.
(o) Neither the Company nor any person that controls, is controlled by
(including the Subsidiaries) or is under common control with the Company has,
directly or indirectly: (i) made any unlawful contribution to any candidate for
political office, or failed to disclose fully any contribution in violation of
law; or (ii) made any payment to any federal, state or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof or applicable foreign jurisdictions.
(p) The Company or a Subsidiary owns or possesses adequate rights to use
all patents, patent applications, trademarks, service marks, trade names,
trademark
7
<PAGE>
registrations, service mark registrations, copyrights and licenses
presently used in or necessary for the conduct of its business or ownership of
its properties, and neither the Company nor any Subsidiary has violated or
infringed upon the rights of others, or received any notice of conflict with the
asserted rights of others, in respect thereof.
(q) The Company or a Subsidiary has in place and effective such
policies of insurance, with limits of liability in such amounts, as are normal
and prudent in the ordinary course of the business of the Company and its
Subsidiaries.
(r) No labor dispute with the employees of the Company or any
Subsidiary exists or, to the knowledge of the Company, is imminent, and neither
the Company nor any Subsidiary is a party to any collective bargaining agreement
and, to the knowledge of the Company, no union organizational attempts have
occurred or are pending. There has been no change in the relationship of the
Company or any Subsidiary with any of its principal suppliers, manufacturers,
contractors or customers resulting in or that could result in a Material Adverse
Effect.
(s) Neither the Company nor any Subsidiary is an "investment
company", an "affiliated person" of, or "promoter" or "principal underwriter"
for, an "investment company", as such terms are defined in the Investment
Company Act of 1940, as amended.
(t) All federal, state and local tax returns required to be filed by
or on behalf of the Company or any Subsidiary have been filed (or are the
subject of valid extension) with the appropriate federal, state and local
authorities, and all such tax returns, as filed, are accurate in all material
respects; all federal, state and local taxes (including estimated tax payments)
required to be shown on all such tax returns or claimed to be due from or with
respect to the business of the Company or such Subsidiary have been paid or
reflected as a liability on the financial statements of the Company or such
Subsidiary for appropriate periods; all deficiencies asserted as a result of any
federal, state or local tax audits have been paid or finally settled, and no
issue has been raised in any such audit which, by application of the same or
similar principles, reasonably could be expected to result in a proposed
deficiency for any other period not so audited; no state of facts exist or has
existed which would constitute grounds for the assessment of any tax liability
with respect to the periods which have not been audited by appropriate federal,
state or local authorities; there are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any federal, state or
local tax return of any period; and neither the Company nor any Subsidiary has
ever been a member of an affiliated group of corporations filing consolidated
federal income tax returns, other than a group of which the Company is and has
been the common parent.
(u) [EXCEPT FOR THE COMPANY'S [NAME EACH GROUP HEALTH, LIFE,
DISABILITY OR OTHER WELFARE PLAN] AND ITS [NAME ANY CONTRIBUTORY OR
NONCONTRIBUTORY DEFINED
8
<PAGE>
CONTRIBUTION RETIREMENT PLAN AND DEFINED BENEFIT RETIREMENT PLANS]
(COLLECTIVELY, THE "PLANS"),] neither the Company nor any Subsidiary is a
participating employer or plan sponsor with respect to any employee pension
benefit plan as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or any employee welfare benefit plan
as defined in Section 3(1) of ERISA, including, without limitation, any
multiemployer welfare or pension plan. With respect to the Plans, the Company
is in substantial compliance with all applicable regulations, including ERISA
and the Code. With respect to each defined benefit retirement plan, such plan
does not have benefit liabilities (as defined in Section 4001(a)(16) of ERISA)
exceeding the assets of the plan. The Company or the administrator of each of
the Plans, as the case may be, has timely filed the reports required to be filed
by ERISA and the Code in connection with the maintenance of the Plans, and no
facts, including, without limitation, any "reportable event" as defined by ERISA
and the regulations thereunder, exist in connection with the Plans which, under
applicable law, would constitute grounds for the termination of any of the Plans
by the Pension Benefit Guaranty Corporation or for the appointment by the
appropriate United States District Court of a trustee to administer any of the
Plans.
(v) The Company and each Subsidiary maintain a system of internal
accounting controls sufficient to provide reasonable assurances that: (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of consolidated financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with management's general or
specific authorizations; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(w) None of the Company, any Subsidiary, any officer or director of
the Company or any Subsidiary, or any person who owns, of record or
beneficially, any class of securities issued by the Company is: (i) an officer,
director or partner of any brokerage firm, broker or dealer that is a member of
the NASD ("NASD Member"); or (ii) directly or indirectly, a "person associated
with" an NASD member or an "affiliate" of an NASD member, as such terms are used
in the NASD Rules of Fair Practice. In addition, neither the Company nor any
Subsidiary has issued or transferred any Common Stock, warrants, options or
other securities, or any other items of value, to any of the Underwriters or any
"related person" of any Underwriter, as such term is used in the NASD Rules of
Fair Practice, except as provided in this Agreement.
(x) The Common Stock has been registered pursuant to Section 12(g) of
the Exchange Act. The Shares have been listed on the National Market System of
The Nasdaq Stock Market ("Nasdaq"), subject to notice of issuance.
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(y) Neither the Company, any Subsidiary nor any affiliate of the
Company or such Subsidiary does business with the government of Cuba or
with any person or affiliate located in Cuba within the meaning of Section
517.075 of the Florida Statutes, and the Company agrees to comply with such
Section if, prior to the completion of the distribution of the Shares, the
Company, any Subsidiary or any affiliate of the Company or such Subsidiary
commences doing such business.
(z) All offers and sales of the securities of the Company and each
Subsidiary prior to the date hereof were made in compliance with the Act
and all other applicable state and federal laws or regulations.
(aa) The Company has obtained for the benefit of the Underwriters
the agreement (the "Lock-up Agreement"), enforceable by Robert W. Baird &
Co. Incorporated ("Baird"), of each of the officers and directors of the
Company, that for a period of 90 days after the date of the Prospectus,
such persons will not, without the prior written consent of Baird, directly
or indirectly, offer, sell or otherwise dispose of, contract to sell or
otherwise dispose of, or cause or in any way permit to be sold or otherwise
disposed of, any shares of Common Stock or any other Company capital stock,
rights to purchase Common Stock or any other Company capital stock or
securities or instruments convertible into or exchangeable for Common Stock
or other Company capital stock.
A certificate signed by any officer of the Company and delivered to the
Representatives or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby. A certificate delivered by the Company to its counsel for
purposes of enabling such counsel to render the opinion referred to in section
8(d) will also be furnished to the Representatives and counsel for the
Underwriters and shall be deemed to be additional representations and warranties
to the Underwriters by the Company as to the matters covered thereby.
3. Representation of Underwriters. The Representatives will act as the
representatives for the several Underwriters in connection with the public
offering of the Shares, and any action under or in respect of this Agreement
taken by the Representatives will be binding upon all of the Underwriters.
4. Information Furnished By The Underwriters. The information set forth
in the last paragraph on the outside front cover page of the Prospectus
concerning the terms of the offering by the Underwriters, the paragraph on the
inside front cover page of the Prospectus relating to stabilization practices
and passive market making, and the concession and reallowance amounts appearing
under the caption "Underwriting" in the Prospectus constitute all of the
information furnished to the Company by and on behalf of the Underwriters for
use in connection with the preparation of the Registration Statement and the
Prospectus, as such information is referred to in this Agreement.
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5. Purchase, Sale and Delivery of Shares.
-------------------------------------
(a) On the basis of the representations, warranties and agreements
herein contained, and subject to the terms and conditions herein set forth,
the Company agrees to sell to the Underwriters identified in Schedule I
annexed hereto 2,000,000 Firm Shares, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company the number of Firm
Shares as hereinafter set forth at the price per share of $__________. The
obligation of each Underwriter to the Company shall be to purchase from the
Company that number of full Firm Shares which (as nearly as practicable in
full shares as determined by the Representatives) bears the same proportion
to the number of Firm Shares to be sold by the Company as the number of
shares set forth opposite the name of such Underwriter in Schedule I
annexed hereto bears to the total number of Firm Shares to be purchased by
all of the Underwriters under this Agreement.
(b) On the First Closing Date (as hereinafter defined), the Company
will deliver to the Representatives, at the offices of Robert W. Baird &
Co. Incorporated, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, or
through the facilities of The Depository Trust Company, for the accounts of
the several Underwriters, certificates representing the Firm Shares to be
sold by it against payment in Milwaukee, Wisconsin of the purchase price
therefor by certified or official bank check or checks in New York Clearing
House (next day) funds payable to the order of the Company with respect to
the Firm Shares being sold by the Company. As referred to in this
Agreement, the "First Closing Date" shall be on the third full business day
after the date of the Prospectus, at 9:00 a.m., Milwaukee, Wisconsin time,
or at such other date or time not later than ten full business days after
the date of the Prospectus as the Representatives and the Company may
agree. The certificates for the Firm Shares to be so delivered will be in
denominations and registered in such names as the Representatives request
by notice to the Company, prior to the First Closing Date, and such
certificates will be made available for checking and packaging at 9:00
a.m., Milwaukee, Wisconsin time on the first full business day preceding
the First Closing Date at a location to be designated by the
Representatives.
(c) In addition, on the basis of the representations, warranties and
agreements herein contained, and subject to the terms and conditions herein
set forth, the Company hereby agrees to sell to the Underwriters, and the
Underwriters, severally and not jointly, shall have the right at any time
within thirty days after the date of the Prospectus to purchase up to
300,000 Optional Shares from the Company at the purchase price per share to
be paid for the Firm Shares, for use solely in covering any over-allotments
made by the Underwriters in the sale and distribution of the Firm Shares.
The option granted hereunder may be exercised upon notice by the
Representatives to the Company, within thirty days after the date of the
Prospectus setting forth the aggregate number of Optional Shares to be
purchased by the Underwriters and sold by the Company, the names and
denominations in which the certificates for such shares are to be
registered and the date
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and place at which such certificates will be delivered. Such date of
delivery (the "Second Closing Date") shall be determined by the
Representatives, provided that the Second Closing Date, which may be the
same as the First Closing Date, shall not be earlier than the First Closing
Date and, if after the First Closing Date, shall not be earlier than three
nor later than ten full business days after delivery of such notice to
exercise. Certificates for the Optional Shares will be made available for
checking and packaging at 9:00 a.m., Milwaukee, Wisconsin time, on the
first full business day preceding the Second Closing Date at a location to
be designated by the Representatives. The manner of payment for and
delivery of (including the denominations of and the names in which
certificates are to be registered) the Optional Shares shall be the same as
for the Firm Shares.
(d) The Representatives have advised the Company that each
Underwriter has authorized the Representatives to accept delivery of the
Shares and to make payment therefor. It is understood that the
Representatives, individually and not as representatives of the
Underwriters, may (but shall not be obligated to) make payment for any
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but
any such payment shall not relieve such Underwriter from any obligation
under this Agreement. As referred to in this Agreement, "Closing Date"
shall mean either the First Closing Date or the Second Closing Date.
6. Covenants of the Company. The Company covenants and agrees with the
several Underwriters that:
(a) If the effective time of the Registration Statement is not prior
to the execution and delivery of this Agreement, the Company will use its
best efforts to cause the Registration Statement to become effective at the
earliest possible time and, upon notification from the Commission that the
Registration Statement has become effective, will so advise the
Representatives and counsel to the Underwriters promptly and any Prospectus
included in the Registration Statement shall be in a form approved by the
Representatives. If the effective time of the Registration Statement is
prior to the execution and delivery of this Agreement and any information
shall have been omitted therefrom in reliance upon Rule 430A, the Company,
at the earliest possible time, will furnish the Representatives with a copy
of the Prospectus to be filed by the Company with the Commission to comply
with Rule 424(b) and Rule 430A under the Act and, if the Representatives do
not object to the contents thereof, will comply with such Rules. Upon
compliance with such Rules, the Company will so advise the Representatives
promptly. The Company will advise the Representatives and counsel to the
Underwriters promptly of the issuance by the Commission or any state
securities commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose, or of any notification of the suspension of qualification of the
Shares for sale in any jurisdiction or the initiation or threatening of any
proceedings for that purpose, and will also advise the Representatives and
counsel to
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the Underwriters promptly of any request of the Commission for amendment or
supplement of the Registration Statement, of any Preliminary Prospectus or
of the Prospectus, or for additional information, and the Company will not
file any amendment or supplement to the Registration Statement (either
before or after it becomes effective), to any Preliminary Prospectus or to
the Prospectus (including a prospectus filed pursuant to Rule 424(b)) if
the Representatives have not been furnished with a copy prior to such
filing (with a reasonable opportunity to review such amendment or
supplement) or if the Representatives object to such filing.
(b) If, at any time when a prospectus relating to the Shares is
required by law to be delivered in connection with sales by an Underwriter
or dealer, any event occurs as a result of which the Prospectus would
include an untrue statement of a material fact, or would omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to supplement the
Prospectus to comply with the Act, the Company promptly will advise the
Representatives and counsel to the Underwriters thereof and will promptly
prepare and file with the Commission, at its expense, an amendment to the
Registration Statement which will correct such statement or omission or an
amendment which will effect such compliance; and, if any Underwriter is
required to deliver a prospectus after the effective date of the
Registration Statement, the Company, upon request of the Representatives,
will prepare promptly such prospectus or prospectuses as may be necessary
to permit compliance with the requirements of Section 10(a)(3) of the Act.
The Company consents to the use, in accordance with the provisions of the
Act and with the Blue Sky Laws of the jurisdictions in which the Shares are
offered by the several Underwriters and by dealers, of each Preliminary
Prospectus.
(c) Neither the Company nor any Subsidiary will, prior to the Second
Closing Date, if any, incur any liability or obligation, direct or
contingent, or enter into any material transaction, other than in the
ordinary course of business, or enter into any transaction with an
"affiliate," as defined in Rule 405 under the Act, which is required to be
described in the Prospectus pursuant to Item 404 of Regulation S-K under
the Act, except as described in the Prospectus.
(d) Neither the Company nor any Subsidiary will, prior to the Second
Closing Date, if any, acquire any of the Common Stock nor will the Company
declare or pay any dividend or make any other distribution upon its Common
Stock payable to stockholders of record on a date prior to such earlier
date, except as described in the Prospectus.
(e) The Company will make generally available to its security holders
and the Representatives an earnings statement as soon as practicable, but
in no event later than sixty days after the end of its fiscal quarter in
which the first anniversary of the effective date of the Registration
Statement occurs, covering a period of twelve consecutive calendar months
beginning after the effective date of the Registration Statement, which
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<PAGE>
will satisfy the provisions of the last paragraph of Section 11(a) of the
Act and Rule 158 promulgated thereunder.
(f) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the Company
will furnish to the Representatives, at the expense of the Company, copies
of the Registration Statement, the Prospectus, any Preliminary Prospectus
and all amendments and supplements to any such documents, in each case as
soon as available and in such quantities as the Representatives may
reasonably request.
(g) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder for the purposes set forth in the
Prospectus, and will timely file Form SR, and any amendments thereto, as
required by Rule 463 under the Act.
(h) The Company will cooperate with the Representatives and counsel
to the Underwriters in qualifying or registering the Shares for sale under
the Blue Sky Laws of such jurisdictions as the Representatives designates,
and will continue such qualifications or registrations in effect so long as
reasonably requested by the Representatives to effect the distribution of
the Shares. The Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any such
jurisdiction where it is not presently qualified. In each jurisdiction
where any of the Shares shall have been qualified as provided above, the
Company will file such reports and statements as may be required to
continue such qualification for a period of not less than one year from the
date of the Prospectus. The Company shall promptly prepare and file with
the Commission, from time to time, such reports as may be required to be
filed by the Act and the Exchange Act, and the Company shall comply in all
respects with the undertakings given by the Company in connection with the
qualification or registration of the Shares for offering and sale under the
Blue Sky Laws.
(i) During the period of three years from the date of the Prospectus,
the Company will furnish to each of the Representatives and to each of the
other Underwriters who may so request, as soon as available, each report,
statement or other document of the Company or its Board of Directors mailed
to its stockholders or filed with the Commission, and such other
information concerning the Company as the Representatives may reasonably
request.
(j) The Company shall deliver the requisite notice of issuance to
Nasdaq and shall take all necessary or appropriate action within its power
to maintain the authorization for trading of the Common Stock as a Nasdaq
National Market security, or take such action to authorize the Common Stock
for listing on the New York Stock Exchange or the American Stock Exchange,
for a period of at least thirty-six months after the date of the
Prospectus.
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(k) Except for the issuance and sale by the Company of Common Stock
upon exercise of presently existing outstanding stock options, the sale of
the Shares to be sold by the Company pursuant to this Agreement, and the
grant of stock options pursuant to the Company's 1996 Stock Incentive Plan
and Non-Employee Directors' Stock Plan, copies of which are filed as
exhibits to or incorporated by reference in the Registration Statement, and
provided that none of such options shall be exercisable during the 90-day
period herein described, the Company shall not, for a period of 90 days
after the date of the Prospectus, without the prior written consent of
Baird, directly or indirectly, offer, sell or otherwise dispose of,
contract to sell or otherwise dispose of, or cause or in any way permit to
be sold or otherwise disposed of, any: (i) shares of Common Stock; (ii)
rights to purchase shares of Common Stock; or (iii) securities that are
convertible or exchangeable into shares of Common Stock.
(l) The Company will maintain a transfer agent and, if required by
law or the rules of The Nasdaq Stock Market or any national securities
exchange on which the Common Stock is listed, a registrar (which, if
permitted by applicable laws and rules, may be the same entity as the
transfer agent) for its Common Stock. The Company shall, as soon as
practicable after the date hereof, use its best efforts to obtain listing
in Standard and Poor's Stock Guide, or such other recognized securities
manuals for which it may qualify for listing, and the Company shall use its
best efforts to maintain such listings for at least five years after the
First Closing Date.
(m) If at any time when a prospectus relating to the Shares is
required to be delivered under the Act, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which, in
the opinion of Baird, the market price of the Common Stock has been or is
likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to the Prospectus), the
Company will, after written notice from Baird advising the Company of any
of the matters set forth above, promptly consult with Baird concerning the
advisability and substance of, and, if the Company and Baird determine that
it is appropriate, disseminate, a press release or other public statement
responding to or commenting on, such rumor, publication or event.
(n) The Company will comply or cause to be complied with the
conditions to the obligations of the Underwriters in section 8 hereof.
7. Payment of Expenses. Whether or not the transactions contemplated
hereunder are consummated or this Agreement becomes effective, or if this
Agreement is terminated for any reason, the Company will pay the costs, fees and
expenses incurred in connection with the public offering of the Shares. Such
costs, fees and expenses to be paid by the Company include, without limitation:
(a) All costs, fees and expenses (excluding the expenses incurred by
the Underwriters and the legal fees and disbursements of counsel for the
Underwriters, but
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including such fees and disbursements described in subsection (b) of this
section 7) incurred in connection with the performance of the Company's
obligations hereunder, including without limiting the generality of the
foregoing: the registration fees related to the filing of the Registration
Statement with the Commission; the fees and expenses related to the
quotation of the Shares on Nasdaq or other national securities exchange;
the fees and expenses of the Company's counsel, accountants, transfer agent
and registrar; the costs and expenses incurred in connection with the
preparation, printing, shipping and delivery of the Registration Statement,
each Preliminary Prospectus and the Prospectus (including all exhibits and
financial statements) and all agreements and supplements provided for
herein, this Agreement [and the Preliminary and Supplemental Blue Sky
Memoranda], including, without limitation, shipping expenses via overnight
delivery and/or courier service to comply with applicable prospectus
delivery requirements; and the costs and expenses associated with the
production of materials related to, and travel expenses incurred by the
management of the Company in connection with, the various meetings to be
held between the Company's management and prospective investors.
(b) All registration fees and expenses, including legal fees and
disbursements of counsel for the Underwriters incurred in connection with
qualifying or registering all or any part of the Shares for offer and sale
under the Blue Sky Laws and the clearing of the public offering and the
underwriting arrangements evidenced hereby with the NASD.
(c) All fees and expenses related to printing of the certificates for
the Shares, and all transfer taxes, if any, with respect to the sale and
delivery of the Shares.
8. Conditions to the Obligations of the Underwriters. The obligations of
the several Underwriters under this Agreement shall be subject to the accuracy
of the representations and warranties on the part of the Company herein set
forth as of the date hereof and as of each Closing Date, to the accuracy of the
statements of the Company's officers made pursuant to the provisions hereof, to
the performance by the Company of its obligations hereunder, and to the
following additional conditions, unless waived in writing by the
Representatives:
(a) The Registration Statement shall have been declared effective by
the Commission not later than 5:30 p.m., Washington, D. C. time, prior to
the date of this Agreement, or such later time as shall have been consented
to by the Representatives, which consent shall be deemed to have been given
if the Registration Statement shall have been declared effective on or
before the date and time requested in the acceleration request submitted on
behalf of the Representatives pursuant to Rule 461 under the Act; all
filings required by Rules 424(b) and 430A under the Act shall have been
timely made; no stop order suspending the effectiveness of the Registration
Statement shall have been issued by the Commission or any state securities
commission nor, to the knowledge of the Company, shall any proceedings for
that purpose have been initiated or threatened; and any request of the
Commission or any state securities commission for inclusion of
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additional information in the Registration Statement, or otherwise, shall
have been complied with to the satisfaction of the Representatives.
(b) Since the dates as of which information is given in the
Registration Statement:
(i) there shall not have occurred any change or development
involving, or which could be expected to involve, a Material Adverse
Effect, whether or not arising from transactions in the ordinary
course of business;
(ii) the Company shall not have sustained any loss or
interference from any labor dispute, strike, fire, flood, windstorm,
accident or other calamity (whether or not insured) or from any court
or governmental action, order or decree; and
(iii) there shall not have occurred any change in the long-term
debt or capital stock of the Company.
the effect of which on the Company, in any such case described in clause
(i) or (ii) above, is in the opinion of the Representatives so material and
adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Shares on the terms and in the
manner contemplated in the Registration Statement and the Prospectus.
(c) The Representatives shall not have advised the Company that the
Registration Statement or the Prospectus contains an untrue statement of
fact that, in the opinion of the Representatives or counsel for the
Underwriters, is material, or omits to state a fact that, in the opinion of
the Representatives or such counsel, is material and is required to be
stated therein or necessary to make the statements therein not misleading.
(d) The Representatives shall have received an opinion of Katten
Muchin & Zavis, counsel for the Company addressed to the Representatives,
as the representatives of the Underwriters, and dated the First Closing
Date or the Second Closing Date, as the case may be, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority
to own, lease and operate its properties and conduct its business as
presently conducted and as described in the Prospectus and the
Registration Statement; the Company is duly registered and qualified
to do business as a foreign corporation under the laws of, and is in
good standing as such in, each jurisdiction in which such registration
or
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qualification is required, except where the failure to so register or
qualify would not have a Material Adverse Effect;
(ii) The authorized capital stock of the Company consists of
50,000,000 shares of Common Stock, par value $.001 per share, and
2,000,000 shares of Preferred Stock, par value $.001 per share, and
all such stock conforms as to legal matters to the descriptions
thereof in the Prospectus and the Registration Statement;
(iii) The issued and outstanding shares of capital stock of the
Company immediately prior to the issuance and sale of the Shares have
been duly authorized and validly issued, are fully paid and
nonassessable, and there are no preemptive, preferential or, except as
described in the Prospectus, other rights to subscribe for or purchase
any shares of capital stock of the Company, and to such counsel's
knowledge, no shares of capital stock of the Company have been issued
in violation of such rights;
(iv) Except for the Subsidiaries, the Company has no
subsidiaries, and the Company does not own any equity interest in or
control, directly or indirectly, any other corporation, limited
liability company, partnership, joint venture, association, trust or
other business organization except as described in the Prospectus and
the Registration Statement; each Subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with full corporate power
and authority to own, lease and operate its properties and to conduct
its business as presently conducted and as described in the Prospectus
and the Registration Statement; each Subsidiary is duly registered or
qualified to do business as a foreign corporation under the laws of,
and is in good standing as such in, each jurisdiction in which such
registration or qualification is required, except where the failure to
so register or qualify would not have a Material Adverse Effect; the
issued and outstanding shares of the capital stock of each Subsidiary
have been duly authorized and validly issued, are fully paid and
nonassessable and there are no preemptive, preferential or, to such
counsel's knowledge, other rights to subscribe for or purchase any
shares of capital stock of any Subsidiary, and to such counsel's
knowledge, no shares of capital stock of any Subsidiary have been
issued in violation of such rights; the Company owns directly and, to
such counsel's knowledge, beneficially all of the issued and
outstanding capital stock of each Subsidiary, free and clear of any
and all liens, claims, encumbrances and security interests;
(v) The certificates for the Shares to be delivered hereunder
are in due and proper form and conform to the requirements of
applicable law; and when duly countersigned by the Company's transfer
agent, and delivered to the
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Representatives or upon the order of the Representatives against
payment of the agreed consideration therefor in accordance with the
provisions of this Agreement, the Shares to be sold by the Company
represented thereby will be duly authorized and validly issued, fully
paid and nonassessable, and free of any preemptive, preferential or
other rights to subscribe for or purchase shares of Common Stock;
(vi) The Registration Statement has become effective under the
Act, and to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been initiated or are threatened
under the Act or any Blue Sky Laws; the Registration Statement and the
Prospectus and any amendment or supplement thereto (except for the
financial statements and other statistical or financial data included
therein as to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Act; no
facts have come to the attention of such counsel which lead it to
believe that either the Registration Statement or the Prospectus or
any amendment or supplement thereto contains any untrue statement of a
material fact or omitted or will omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, as of the First Closing
Date or the Second Closing Date, as the case may be, contained any
untrue statement of a material fact or omitted or will omit to state a
material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading (except
for the financial statements and other financial data included therein
as to which such counsel need express no opinion); to such counsel's
knowledge, there are no legal or governmental proceedings pending or
threatened, including, without limitation, any such proceedings that
are related to environmental or employment discrimination matters,
required to be described in the Registration Statement or the
Prospectus which are not so described or which question the validity
of this Agreement or any action taken or to be taken pursuant thereto,
nor is there any transaction, relationship, agreement, contract or
other document of a character required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit
to the Registration Statement by the Act, which is not described or
filed as required;
(vii) The Company has full corporate power and authority to
enter into and perform this Agreement; the performance of the
Company's obligations hereunder and the consummation of the
transactions described herein have been duly authorized by the Company
by all necessary corporate action and this Agreement has been duly
executed and delivered by and on behalf of the Company; no consent,
approval, authorization or other order or decree of any court,
regulatory or governmental body, arbitrator, administrative agency or
other instrumentality of the United States or other country or
jurisdiction having
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jurisdiction over the Company is required for the execution and
delivery of this Agreement or the consummation of the transactions
contemplated by this Agreement (except for compliance with the Act,
the Exchange Act, applicable Blue Sky Laws and the clearance of the
underwriting arrangements by the NASD);
(viii) The execution, delivery and performance of this Agreement
by the Company will not: (A) violate any provisions of the Certificate
or Articles of Incorporation or By-laws of the Company or any
Subsidiary; (B) violate any provisions of, or result in the breach,
modification or termination of, or constitute a default under, any
agreement, lease, franchise, license, indenture, permit, mortgage,
deed of trust, other evidence of indebtedness or other instrument to
which the Company or any Subsidiary is a party or by which the Company
or such Subsidiary, or any of their respective owned or leased
property is bound, and which is filed as an exhibit to the
Registration Statement; or (C) violate any statute, ordinance, order,
rule, decree or regulation of any court, regulatory or governmental
body, arbitrator, administrative agency or other instrumentality of
the United States or other country or jurisdiction having jurisdiction
over the Company or any Subsidiary (assuming compliance with all
applicable federal and state securities laws);
(ix) To such counsel's knowledge, except as described in the
Prospectus, there are no holders of Common Stock or other securities
of the Company, or securities that are convertible or exchangeable
into Common Stock or other securities of the Company, that have rights
to the registration of such securities under the Act or any Blue Sky
Laws;
(x) The Common Stock is a National Market Security on The Nasdaq
Stock Market and is registered under the Exchange Act;
(xi) Neither the Company nor any Subsidiary is, nor with the
giving of notice or passage of time or both would be, in violation of
its respective Certificate of Incorporation or By-laws or, to such
counsel's knowledge, in default in any material respect in the
performance of any agreement, lease, franchise, license, permit,
mortgage, deed of trust, evidence of indebtedness or other instrument,
or any other document that is filed as an exhibit to the Registration
Statement, to which the Company or any Subsidiary is subject or bound;
(xii) Neither the Company nor any Subsidiary is an "investment
company", an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company", as such terms are defined
in the Investment Company Act of 1940, as amended, and, upon its
receipt of any proceeds from the sale of
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the Shares, the Company will not become or be deemed to be an
"investment company" thereunder;
(xiii) The description in the Registration Statement and the
Prospectus of statutes, laws, regulations, legal and governmental
proceedings, and contracts and other legal documents described therein
fairly and correctly present, in all material respects, the
information required to be included therein by the Act; and
(xiv) All offers and sales by the Company of its capital stock
before the date hereof were at all relevant times duly registered
under or exempt from the registration requirements of the Act, and
were duly registered under or the subject of an available exemption
from the registration requirements of any applicable Blue Sky Laws.
In rendering such opinion, counsel for the Company may rely, to the extent
counsel deems such reliance proper, as to matters of fact upon certificates of
officers of the Company and of governmental officials, and copies of all such
certificates shall be furnished to the Representatives and for the Underwriters
on or before each Closing Date.
(e) The Representatives shall have received an opinion of Gardner,
Carton & Douglas, counsel for the Underwriters, dated the First Closing
Date or the Second Closing Date, as the case may be, with respect to the
issuance and sale of the Shares by the Company, the Statement and other
related matters as the Representatives may require, and the Company shall
have furnished to such counsel such documents and shall have exhibited to
them such papers and records as they request for the purpose of enabling
them to pass upon such matters.
(f) The Representatives shall have received on each Closing Date, a
certificate of Mark G. Kachur, President and Chief Executive Officer,
Ronald C. Drabik, Senior Vice President, Treasurer and Chief
Financial Officer, of the Company, to the effect that:
(i) The representations and warranties of the Company set forth
in section 2 hereof are true and correct as of the date of
this Agreement and as of the date of such certificate, and
the Company has complied with all the agreements and
satisfied all the conditions to be performed or satisfied by
it at or prior to the date of such certificate;
(ii) The Commission has not issued an order preventing or
suspending the use of the Prospectus or any Preliminary
Prospectus or any amendment or supplement thereto; no stop
order suspending the effectiveness of the Registration
Statement has been issued; and to the knowledge of the
respective signatories, no proceedings for that purpose have
been initiated or are pending or contemplated under the Act
under the Blue Sky Laws of any jurisdiction;
21
<PAGE>
(iii) Each of the respective signatories has carefully examined
the Registration Statement and the Prospectus, and any amendment or
supplement thereto, and such documents contain all statements required
to be stated therein, and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading,
and since the date on which the Registration Statement was initially
filed, no event has occurred that was required to be set forth in an
amended or supplemented prospectus or in an amendment to the
Registration Statement that has not been so set forth; and
(iv) Since the date on which the Registration Statement was
initially filed with the Commission, there shall not have occurred any
change or development involving, or which could be expected to
involve, a Material Adverse Effect, whether or not arising from
transactions in the ordinary course of business, except as disclosed
in the Prospectus and the Registration Statement as heretofore amended
or (but only if the Representatives expressly consent thereto in
writing) as disclosed in an amendment or supplement thereto filed with
the Commission and delivered to the Representatives after the
execution of this Agreement; since such date and except as so
disclosed or in the ordinary course of business, the Company has not
incurred any liability or obligation, direct or indirect, or entered
into any transaction which is material to the Company; since such date
and except as so disclosed, there has not been any change in the
outstanding capital stock of the Company, or any change that is
material to the Company in the short-term debt or long-term debt of
the Company; since such date and except as so disclosed, the Company
has not acquired any of the Common Stock or other capital stock of the
Company nor has the Company declared or paid any dividend, or made any
other distribution, upon its outstanding Common Stock payable to
stockholders of record on a date prior to such Closing Date; since
such date and except as so disclosed, the Company has not incurred any
material contingent obligations, and no material litigation is pending
or threatened against the Company; and, since such date and except as
so disclosed, the Company has not sustained any material loss or
interference from any strike, fire, flood, windstorm, accident or
other calamity (whether or not insured) or from any court or
governmental action, order or decree.
The delivery of the certificate provided for in this subsection (f) shall
be and constitute a representation and warranty of the Company as to the facts
required in the immediately foregoing clauses (i), (ii), (iii) and (iv) to be
set forth in said certificate.
(g) At the time this Agreement is executed and also on each Closing
Date, there shall be delivered to the Representatives a letter addressed to the
Representatives, as representatives of the Underwriters, from Ernst & Young LLP,
the Company's
22
<PAGE>
independent accountants, the first letter to be dated the date of this
Agreement, the second letter to be dated the First Closing Date and the
third letter (if applicable) to be dated the Second Closing Date, which
shall be in form and substance satisfactory to the Representatives and
shall contain information as of a date within five days of the date of such
letter. There shall not have been any change or decrease set forth in any
of the letters referred to in this subsection (g) which makes it
impracticable or inadvisable in the judgment of the Representatives to
proceed with the public offering or purchase of the Shares as contemplated
hereby.
(h) The Shares shall have been qualified or registered for sale under
the Blue Sky Laws of such jurisdictions as shall have been specified by the
Representatives, the underwriting terms and arrangements for the offering
shall have been cleared by the NASD, and the Shares shall have been
designated for inclusion as a Nasdaq National Market Security on the Nasdaq
Stock Market.
(i) Such further certificates and documents as the Representatives may
reasonably request (including certificates of officers of the Company).
(j) Each of the officers and directors of the Company has entered into
a Lock-Up Agreement.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to the
Representatives and to Gardner, Carton & Douglas, counsel for the Underwriters.
The Company shall furnish the Representatives with such manually signed or
conformed copies of such opinions, certificates, letters and documents as the
Representatives may reasonably request.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at either Closing Date is not so satisfied, this Agreement at the
election of the Representatives will terminate upon notification to the Company
without liability on the part of any Underwriter, including the Representatives,
the Company except for the provisions of section 6(n) hereof, the expenses to be
paid by the Company pursuant to section 7 hereof and except to the extent
provided in section 10 hereof.
9. Maintain Effectiveness Of Registration Statement. The Company will use
its best efforts to prevent the issuance of any stop order suspending the
effectiveness of the Registration Statement, and, if such stop order is issued,
to obtain as soon as possible the lifting thereof.
10. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
the Act or
23
<PAGE>
the Exchange Act, from and against any losses, claims, damages, expenses,
liabilities or actions in respect thereof ("Claims"), joint or several, to which
such Underwriter or each such controlling person may become subject under the
Act, the Exchange Act, Blue Sky Laws or other federal or state statutory laws or
regulations, at common law or otherwise (including payments made in settlement
of any litigation), insofar as such Claims arise out of or are based upon any
breach of any representation, warranty or covenant made by the Company in this
Agreement, or any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or in any application filed
under any Blue Sky Law or other document executed by the Company for that
purpose or based upon written information furnished by the Company and filed in
any state or other jurisdiction to qualify any or all of the Shares under the
securities laws thereof (any such document, application or information being
hereinafter called a "Blue Sky Application") or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading. The
Company agrees to reimburse each Underwriter and each such controlling person
for any legal fees or other expenses incurred by such Underwriter or any such
controlling person in connection with investigating or defending any such Claim;
provided, however, that the Company will not be liable in any such case to the
extent that any such Claim arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or supplement
thereto or in any Blue Sky Application in reliance upon and in conformity with
the written information furnished to the Company pursuant to section 4 of this
Agreement as required by this Agreement. The indemnification obligations of the
Company as provided above are in addition to and in no way limit any liabilities
the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, will indemnify and hold
harmless the Company, each of its directors and each of its officers who signs
the Registration Statement, and each person, if any, who controls the Company
within the meaning of the Act or the Exchange Act against any Claim to which the
Company, or any such director, officer or controlling person may become subject
under the Act, the Exchange Act, Blue Sky Laws or other federal or state
statutory laws or regulations, at common law or otherwise (including payments
made in settlement of any litigation, if such settlement is effected with the
written consent of such Underwriter and Baird), insofar as such Claim arises out
of or is based upon any untrue or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or in any Blue Sky
Application, or arises out of or is based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or
24
<PAGE>
supplement thereto, or in any Blue Sky Application, in reliance solely upon
and in conformity with the written information furnished by the Representatives
to the Company pursuant to section 4 of this Agreement. The indemnification
obligations of each Underwriter as provided above are in addition to any
liabilities any such Underwriter may otherwise have. Notwithstanding the
provisions of this section, no Underwriter shall be required to indemnify or
reimburse the Company, or any officer, director or controlling person in an
aggregate amount in excess of the total price at which the Shares purchased by
any such Underwriter hereunder were offered to the public, less the amount of
any damages such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission.
(c) Promptly after receipt by an indemnified party under this section of
notice of the commencement of any action in respect of a Claim, such indemnified
party will, if a Claim in respect thereof is to be made against an indemnifying
party under this section, notify the indemnifying party in writing of the
commencement thereof, but the omission so to notify the indemnifying party will
not relieve an indemnifying party from any liability it may have to any
indemnified party under this Section 10 or otherwise. In case any such action
is brought against any indemnified party, and such indemnified party notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in and, to the extent that he, she or it may wish,
jointly with all other indemnifying parties, similarly notified, to assume the
defense thereof, with counsel (who shall not, except with consent of the
indemnified party, be counsel to the indemnifying party) reasonably satisfactory
to such indemnified party; provided, however, if the defendants in any such
action include both the indemnified party and any indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to the indemnified party and/or other indemnified parties
which are different from or additional to those available to any indemnifying
party, the indemnified party or parties shall have the right to select separate
counsel to assume such legal defenses and to otherwise participate in the
defense of such action on behalf of such indemnified party or parties. No
indemnifying party shall without the written consent of the indemnified party
effect a settlement or compromise of or consent to the entry of any judgment
with respect to any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to an admission of fault,
culpability or failure to act, by or on behalf of any indemnified party.
(d) Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election to assume the defense of such action
and upon approval by the indemnified party of counsel selected by the
indemnifying party, the indemnifying party will not be liable to such
indemnified party under this section for any
25
<PAGE>
legal fees or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof, other than reasonable costs
of investigation, unless:
(i) the indemnified party shall have employed separate counsel
in connection with the assumption of legal defenses in accordance with
the proviso to the last sentence of subsection (c) of this section;
(ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the indemnified
party's notice to the indemnifying party of commencement of the
action; or
(iii) the indemnifying party has authorized the employment of
counsel at the expense of the indemnifying party.
(e) If the indemnification provided for in this section is
unavailable or insufficient to an indemnified party under subsection (a) or
(b) hereof in respect of any Claim referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall,
subject to the limitations hereinafter set forth, contribute to the amount
paid or payable by such indemnified party as a result of such Claim:
(i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Underwriters from the
offering of the Shares; or
(ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i)
above, but also the relative fault of the Company and the Underwriters
in connection with the statements or omissions which resulted in such
Claim, as well as any other relevant equitable considerations.
The relative benefits received by each of the Company and the Underwriters
shall be deemed to be in such proportion so that the Underwriters are
responsible for that portion represented by the percentage that the amount of
the underwriting discounts and commissions per share appearing on the cover page
of the Prospectus bears to the public offering price per share appearing
thereon, and the Company (including its officers and directors and controlling
persons) is responsible for the remaining portion. The relative fault of the
Company and the Underwriters shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
Claims referred to above shall be deemed to include, subject to the limitations
set forth in subsections (c) and (d) of this section,
26
<PAGE>
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.
(f) The Company and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this section were determined by
pro rata or per capita allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method or allocation which
does not take into account the equitable considerations referred to in
subsection (d) of this section. Notwithstanding the other provisions of
this section, no Underwriter shall be required to contribute any amount
that is greater than the amount bywhich the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this section are several in proportion to their respective
underwriting commitments and not joint.
11. DEFAULT OF UNDERWRITERS. It shall be a condition to the obligations
of each Underwriter to purchase the Shares in the manner as described herein,
that, except as hereinafter provided in this section, each of the Underwriters
shall purchase and pay for all the Shares agreed to be purchased by such
Underwriter hereunder upon tender to the Representatives of all such Shares in
accordance with the terms hereof. If any Underwriter or Underwriters default in
their obligations to purchase Shares hereunder on either the First Closing Date
or the Second Closing Date and the aggregate number of Shares which such
defaulting Underwriter or Underwriters agreed but failed to purchase does not
exceed ten percent (10%) of the total number of Shares which the Underwriters
are obligated to purchase on such Closing Date, the Representatives may make
arrangements for the purchase of such Shares by other persons, including any of
the Underwriters, but if no such arrangements are made by such Closing Date the
nondefaulting Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the Shares which such defaulting
Underwriters agreed but failed to purchase on such Closing Date. If any
Underwriter or Underwriters so default and the aggregate number of Shares with
respect to which such default or defaults occur is greater than ten percent
(10%) of the total number of Shares which the Underwriters are obligated to
purchase on such Closing Date, and arrangements satisfactory to the
Representatives for the purchase of such Shares by other persons are not made
within thirty-six hours after such default, this Agreement will terminate
without liability on the part of any nondefaulting Underwriter or the Company,
except for the expenses to be paid by the Company pursuant to section 7 hereof
and except to the extent provided in section 10 hereof.
In the event that Shares to which a default relates are to be purchased by
the nondefaulting Underwriters or by another party or parties, the
Representatives shall have the right to postpone the First Closing Date or the
Second Closing Date, as the case may be, for not
27
<PAGE>
more than seven business days in order that the necessary changes in the
Registration Statement, Prospectus and any other documents, as well as any other
arrangements, may be effected. As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this Section. Nothing
herein will relieve a defaulting Underwriter from liability for its default.
12. EFFECTIVE DATE. This Agreement shall become effective upon the
execution and delivery of this Agreement by the parties hereto. Such execution
and delivery shall include an executed copy of this Agreement sent by
telecopier, facsimile transmission or other means of transmitting written
documents.
13. TERMINATION. Without limiting the right to terminate this Agreement
pursuant to any other provision hereof, this Agreement may be terminated by the
Representatives prior to or on the First Closing Date and the over-allotment
option from the Company referred to in section 5 hereof, if exercised, may be
cancelled by the Representatives at any time prior to or on the Second Closing
Date, if in the judgment of the Representatives, payment for and delivery of the
Shares is rendered impracticable or inadvisable because:
(a) additional governmental restrictions, not in force and effect on
the date hereof, shall have been imposed upon trading in securities
generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or the American Stock Exchange,
or trading in securities generally shall have been suspended or materially
limited on either such exchange or on The Nasdaq Stock Market or a general
banking moratorium shall have been established by either federal or state
authorities in New York, Connecticut or Wisconsin;
(b) any event shall have occurred or shall exist which makes untrue
or incorrect in any material respect any statement or information contained
in the Registration Statement or which is not reflected in the Registration
Statement but should be reflected therein to make the statements or
information contained therein not misleading in any material respect;
(c) an outbreak or escalation of hostilities or other national or
international calamity or any substantial change in political, financial or
economic conditions shall have occurred or shall have accelerated to such
extent, in the judgment of the Representatives, as to have a material
adverse effect on the financial markets of the United States, or to make it
impracticable or inadvisable to proceed with completion of the sale of and
payment for the Shares as provided in this Agreement; or
(d) a downgrade shall have occurred in the rating accorded the
Company's debt securities or preferred stock by any "nationally recognized
statistical rating organization" as that term is defined by the Securities
and Exchange Commission for purposes of Rule 436(g)(2) under the Act or
such organization shall have publicly
28
<PAGE>
announced that it has under surveillance or review, with possible negative
implications, its rating of the Company's debt securities or preferred
stock.
Any termination pursuant to this Section shall be without liability on the
part of any Underwriter to the Company, or on the part of the Company to any
Underwriter, except for expenses to be paid by the Company pursuant to section 7
hereof or reimbursed by the Company pursuant to section 6(n) hereof and except
as to indemnification to the extent provided in section 10 hereof.
14. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The respective
indemnities, agreements, representations, warranties, covenants and other
statements of the Company, of its officers or directors, and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter or the Company or any of its or their partners, officers, directors
or any controlling person, as the case may be, and will survive delivery of and
payment for the Shares sold hereunder.
15. NOTICES. All communications hereunder will be in writing and, if sent
to the Representatives, will be mailed, delivered, telecopied (with receipt
confirmed) or telegraphed and confirmed to Robert W. Baird & Co. Incorporated at
227 West Monroe Street, Suite 2100, Chicago, Illinois 60606, Attention: Paul T.
Rogalski, Managing Director, with a copy to Dewey B. Crawford, Esq., Gardner,
Carton & Douglas, 321 N. Clark Street, Chicago, Illinois 60610; and if sent to
the Company, will be mailed, delivered, telecopied (with receipt confirmed) or
telegraphed and confirmed to the Company at 400 Research Parkway, Meriden,
Connecticut 06450, Attention: Ronald C. Drabik, with a copy to Katten Muchin &
Zavis, 525 West Madison Street, Suite 1600, Chicago, Illinois 60661.
16. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors, personal
representatives and assigns, and to the benefit of the officers and directors
and controlling persons referred to in section 10 hereof and no other person
will have any right or obligation hereunder. The term "successors" shall not
include any purchaser of the Shares as such from any of the Underwriters merely
by reason of such purchase.
17. PARTIAL UNENFORCEABILITY. If any section, paragraph, clause or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other section, paragraph clause or provision hereof.
18. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Wisconsin without
reference to conflict of law principles thereunder. This Agreement may be
signed in various counterparts which together shall constitute one and the same
instrument, and shall be effective when at least one counterpart hereof shall
have been executed by or on behalf of each party hereto.
29
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed duplicates hereof, whereupon it will
become a binding agreement among the Company and the several Underwriters,
including the Representatives, all in accordance with its terms.
Very truly yours,
CUNO INCORPORATED
By:___________________________
Mark G. Kachur, President
30
<PAGE>
The foregoing Underwriting
Agreement is hereby confirmed
and accepted as of the date
first above written.
ROBERT W. BAIRD & CO. INCORPORATED
CLEARY GULL REILAND & MCDEVITT INC.
GOLDMAN, SACHS & CO.
By: ROBERT W. BAIRD & CO. INCORPORATED
Acting as Representatives of the several
Underwriters (including themselves) identified
in Schedule I annexed hereto.
By: ____________________________________
Authorized Representative
31
<PAGE>
Cuno Incorporated
Schedule I
----------
Number of Firm
Shares to
be Purchased
Name of Underwriter --------------
-------------------
Robert W. Baird & Co. Incorporated.............
Cleary Gull Reiland & McDevitt Inc.............
Goldman, Sachs & Co............................
_________
Total 2,000,000
32
<PAGE>
Exhibit 4.1
Number C Shares
Common Stock Common Stock
[CUNO LOGO]
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
PAR VALUE $.001 CUSIP 126583 10 3
This Certifies that SEE REVERSE FOR
CERTAIN DEFINITIONS
SPECIMEN
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
Cuno Incorporated transferable in person or by duly authorized Attorney upon
surrender of this Certificate properly endorsed. This Certificate and the shares
represented hereby are issued and shall be subject to the provisions of the
Certificate of Incorporation and By-Laws of the Corporation, as amended (copies
of which are on file with the Secretary of the Corporation), to all of which the
holder by acceptance hereof assents. This Certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar. Witness the
Seal of the Corporation and signatures of its duly authorized officers.
Dated:
[SEAL OF CUNO]
/s/ Paul J. Powers
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
AUTHORIZED SIGNATURE
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, LLC
TRANSFER AGENT AND REGISTRAR
BY
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be considered as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________________Custodian______________________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of Under Uniform Gifts to Minors
survivorship and not as tenants Act__________________________________________________
in common (State)
UNIF TRF MIN ACT --______________________Custodian(until age____________)
(Cust)
___________________________under Uniform Transfers
(Minor)
to Minors Act________________________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________________________________ hereby
sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------------
- ------------------------------------------
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_________________________________
X ______________________________________
X ______________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By_____________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY
ELIGIBLE GUARANTOR INSTITUTION SUCH AS
A SECURITIES BROKER/DEALER, COMMERCIAL
BANK, TRUST COMPANY, SAVINGS ASSOCIATION
OR A CREDIT UNION PARTICIPATING IN A
MEDALLION PROGRAM.
<PAGE>
Exhibit 5
February 27, 1997
CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for CUNO Incorporated, a Delaware corporation (the
"Company"), in connection with the preparation and filing of a Registration
Statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission under the Securities Act of 1933, as amended. The
Registration Statement relates to 2,300,000 shares (including the 300,000
shares subject to the Underwriters' over-allotment option) of the Company's
Common Stock, $.001 par value per share (the "Common Stock").
In connection with this opinion, we have relied as to matters of fact,
without investigation, upon certificates of public officials and others and upon
affidavits, certificates and written statements of directors, officers and
employees of, and the accountants for, the Company. We have also examined
originals or copies, certified or otherwise identified to our satisfaction, of
such instruments, documents and records as we have deemed relevant and necessary
to examine for the purpose of this opinion, including (a) the Registration
Statement, as amended, (b) the proposed Underwriting Agreement by and among the
Company, Robert W. Baird & Co. Incorporated, Cleary Gull Reiland & McDevitt Inc.
and Goldman, Sachs & Co. (the "Underwriting Agreement"), (c) the Amended and
Restated Certificate of Incorporation of the Company, as presently in effect,
(d) the Amended and Restated By-laws of the Company, as presently in effect, and
(e) certain resolutions adopted by the Board of Directors of the Company
relating to the issuance and sale of the Common Stock and related matters.
In connection with this opinion, we have assumed the accuracy and
completeness of all documents and records that we have reviewed, the genuineness
of all signatures, the due authority of the parties signing such documents, the
authenticity of the documents submitted to us as originals and the conformity to
authentic original documents of all documents submitted to us as certified,
conformed or reproduced copies.
Based upon and subject to the foregoing, it is our opinion that the
2,300,000 shares of Common Stock covered by the Registration Statement
(including the 300,000 shares subject to
<PAGE>
CUNO Incorporated
February 27, 1997
Page 2
the Underwriters' over-allotment option), when issued and sold by the Company,
and paid for in accordance with the provisions of the Underwriting Agreement,
will be legally issued, fully paid and non-assessable shares of Common Stock.
Our opinion expressed above is limited to the General Corporation Law of
the State of Delaware, and we do not express any opinion concerning any other
laws. This opinion is given as of the date hereof and we assume no obligation to
advise you of changes that may hereafter be brought to our attention.
We hereby consent to the reference to our name in the Registration
Statement under the caption "Legal Matters" and further consent to the filing of
this opinion as Exhibit 5 to the Registration Statement.
Very truly yours,
KATTEN MUCHIN & ZAVIS
<PAGE>
Exhibit 10.14
$60,000,000 SENIOR UNSECURED REVOLVING CREDIT FACILITY
CREDIT AGREEMENT
by and among
CUNO INCORPORATED, as Borrower
and
THE BANKS PARTY HERETO
and
MELLON BANK, N.A., as Agent
Dated as of October 31, 1996
<PAGE>
<TABLE>
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TABLE OF CONTENTS
Article Page
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1. CERTAIN DEFINITIONS...................................................... 1
1.1 Certain Definitions................................................ 1
1.2 Construction....................................................... 17
1.2.1 Number; Inclusion........................................... 17
1.2.2 Determination............................................... 17
1.2.3 Agent's Discretion and Consent.............................. 17
1.2.4 Documents Taken as a Whole.................................. 17
1.2.5 Headings.................................................... 17
1.2.6 Implied References to this Agreement........................ 17
1.2.7 Persons..................................................... 18
1.2.8 Modifications to Documents.................................. 18
1.2.9 From, To and Through........................................ 18
1.2.10 Shall; Will................................................ 18
1.3 Accounting Principles.............................................. 18
2. REVOLVING CREDIT FACILITY................................................ 18
2.1 Commitments........................................................ 18
2.1.1 Revolving Credit Commitments................................ 18
2.1.2 Swing Loans Commitment...................................... 19
2.2 Nature of Banks' Obligations with Respect to Revolving
Credit Loans....................................................... 19
2.3 Commitment Fees.................................................... 19
2.4 Voluntary Reduction of Revolving Credit Commitments................ 20
2.4.1 General Requirements........................................ 20
2.4.2 Collateral for Letter of Credit Outstandings................ 20
2.5 Loan Requests...................................................... 21
2.5.1 Revolving Credit Loan Requests.............................. 21
2.5.2 Swing Loan Request.......................................... 21
2.6 Making Loans....................................................... 22
2.6.1 Making Revolving Credit Loans............................... 22
2.6.2 Making Swing Loans.......................................... 22
2.7 Borrowings to Repay Swing Loans.................................... 22
2.8 Notes.............................................................. 23
2.8.1 Revolving Credit Notes...................................... 23
2.8.2 Swing Loan Note............................................. 23
2.9 Use of Revolving Credit Proceeds................................... 23
2.10 Letters of Credit Subfacility..................................... 23
2.10.1 Issuance of Letters of Credit.............................. 23
2.10.2 Participations............................................. 24
2.10.3 Letter of Credit Fees...................................... 24
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2.10.4 Disbursements, Reimbursement................................ 25
2.10.5 Documentation............................................... 25
2.10.6 Determinations to Honor Drawing Requests.................... 25
2.10.7 Nature of Participation and Reimbursement Obligations....... 26
2.10.8 Indemnity................................................... 27
2.10.9 Liability for Acts and Omissions............................ 27
3. INTEREST RATES............................................................ 28
3.1 Interest............................................................ 28
3.1.1 Interest Rate Options........................................ 29
3.2 Interest Periods.................................................... 29
3.2.1 Ending Date and Business Day................................. 29
3.2.2 Amount of Borrowing Tranche.................................. 30
3.2.3 Termination Before Expiration Date........................... 30
3.2.4 Renewals..................................................... 30
3.3 Interest After Default.............................................. 30
3.3.1 Letters of Credit Fees, Interest Rate........................ 30
3.3.2 Other Obligations............................................ 30
3.3.3 Acknowledgment............................................... 30
3.4 Euro-Rate Unascertainable........................................... 31
3.4.1 Unascertainable.............................................. 31
3.4.2 Illegality; Increased Costs; Deposits Not Available.......... 31
3.4.3 Agent's and Bank's Rights.................................... 31
3.5 Selection of Interest Rate Options.................................. 32
4. PAYMENTS.................................................................. 32
4.1 Payments............................................................ 32
4.2 Pro Rata Treatment of Banks......................................... 33
4.3 Interest Payment Dates.............................................. 33
4.4 Voluntary Prepayments............................................... 34
4.4.1 Right to Prepay.............................................. 34
4.5 Mandatory Reduction of Commitments; Mandatory Payments and
Prepayments....................................................... 35
4.5.1 Qualified Note Placement..................................... 35
4.6 Additional Compensation in Certain Circumstances.................... 35
4.6.1 Increased Costs or Reduced Return Resulting From Taxes,
Reserves, Capital Adequacy Requirements, Expenses, Etc....... 35
4.6.2 Indemnity.................................................... 36
4.7 Settlement Date Procedures.......................................... 37
4.8 Interbank Market Presumption........................................ 38
4.9 Taxes............................................................... 38
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4.9.1 No Deductions............................................... 38
4.9.2 Stamp Taxes................................................. 38
4.9.3 Indemnification for Taxes Paid by a Bank.................... 39
4.9.4 Certificate................................................. 39
4.9.5 Survival.................................................... 39
5. REPRESENTATIONS AND WARRANTIES........................................... 39
5.1 Representations and Warranties..................................... 39
5.1.1 Organization and Qualification.............................. 39
5.1.2 Subsidiary and Joint Venture Matters........................ 40
5.1.3 Power and Authority......................................... 40
5.1.4 Validity and Binding Effect................................. 40
5.1.5 No Conflict................................................. 41
5.1.6 Litigation.................................................. 41
5.1.7 Title to Properties......................................... 41
5.1.8 Financial Statements........................................ 41
5.1.9 Margin Stock................................................ 43
5.1.10 Full Disclosure............................................ 43
5.1.11 Taxes...................................................... 43
5.1.12 Consents and Approvals..................................... 43
5.1.13 No Event of Default; Compliance with Instruments........... 44
5.1.14 Patents, Trademarks, Copyrights, Licenses, Etc............. 44
5.1.15 Insurance.................................................. 44
5.1.16 Compliance with Laws....................................... 44
5.1.17 Material Contracts......................................... 45
5.1.18 Investment Companies....................................... 45
5.1.19 Plans and Benefit Arrangements............................. 45
5.1.20 Employment Matters......................................... 47
5.1.21 Environmental Matters...................................... 47
5.1.22 Senior Debt Status......................................... 49
5.1.23 Solvency................................................... 49
5.1.24 Schedule of Indebtedness................................... 50
5.1.25 Material Adverse Change.................................... 50
5.2 Updates to Schedules............................................... 50
6. CONDITIONS OF LENDING.................................................... 50
6.1 First Revolving Credit Loans....................................... 50
6.1.1 Officer's Certificate....................................... 50
6.1.2 Secretary's Certificate..................................... 51
6.1.3 Delivery of Loan Documents.................................. 51
6.1.4 Opinions of Counsel......................................... 51
6.1.5 Legal Details............................................... 52
6.1.6 Payment of Fees and Reimbursement of Expenses............... 52
6.1.7 Consents.................................................... 52
6.1.8 Officer's Certificate Regarding MACs........................ 52
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6.1.9 No Violation of Laws........................................ 52
6.1.10 No Actions or Proceedings.................................. 52
6.1.11 Insurance Policies; Certificates of Insurance.............. 53
6.1.12 Termination of Existing Debt............................... 53
6.1.13 Solvency Certificate....................................... 53
6.2 Each Additional Loan or Letter of Credit Issuance.................. 53
6.3 Syndication........................................................ 54
6.3.1 Syndication Representation and Warranties................... 54
6.3.2 Syndication Documents....................................... 54
6.3.3 Syndication Cooperation..................................... 54
7. COVENANTS................................................................ 55
7.1 Affirmative Covenants.............................................. 55
7.1.1 Preservation of Existence, Etc.............................. 55
7.1.2 Payment of Liabilities, Including Taxes, Etc................ 55
7.1.3 Maintenance of Insurance.................................... 55
7.1.4 Maintenance of Properties and Leases........................ 56
7.1.5 Maintenance of Patents, Trademarks, Etc..................... 56
7.1.6 Visitation Rights........................................... 56
7.1.7 Keeping of Records and Books of Account..................... 56
7.1.8 Plans and Benefit Arrangements.............................. 57
7.1.9 Compliance with Laws........................................ 57
7.1.10 Use of Proceeds............................................ 57
7.1.11 Subordination of Intercompany Loans........................ 57
7.1.12 Post-Closing Matters....................................... 57
7.1.13 Payment of Intercompany Obligations Related to Intertech... 58
7.1.14 Interest Rate Protection................................... 58
7.2 Negative Covenants................................................. 58
7.2.1 Indebtedness................................................ 58
7.2.2 Liens; Further Negative Pledges............................. 59
7.2.3 Guaranties.................................................. 60
7.2.4 Loans and Investments....................................... 60
7.2.5 Dividends and Related Distributions......................... 61
7.2.6 Liquidations, Mergers, Consolidations, Acquisitions......... 62
7.2.7 Dispositions of Assets or Subsidiaries...................... 63
7.2.8 Affiliate Transactions...................................... 65
7.2.9 Subsidiaries, Partnerships and Joint Ventures............... 65
7.2.10 Continuation of or Change in Business...................... 66
7.2.11 Plans and Benefit Arrangements............................. 66
7.2.12 Fiscal Year................................................ 67
7.2.13 Issuance of Stock.......................................... 67
7.2.14 Changes in Organizational Documents........................ 67
7.2.15 Minimum Fixed Charge Coverage Ratio........................ 68
7.2.16 Maximum Leverage Ratio..................................... 68
7.2.17 Minimum Consolidated Net Worth............................. 68
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7.2.18 Amendments to Certain Documents............................ 68
7.2.19 No Prepayment of Existing Indebtedness..................... 68
7.3 Reporting Requirements............................................. 69
7.3.1 Quarterly Financial Statements.............................. 69
7.3.2 Annual Financial Statements................................. 69
7.3.3 Certificate of the Borrower................................. 70
7.3.4 Notice of Default........................................... 70
7.3.5 Notice of Litigation........................................ 70
7.3.6 Budgets, Forecasts, Other Reports and Information........... 70
7.3.7 Notices Regarding Plans and Benefit Arrangements............ 71
8. DEFAULT.................................................................. 73
8.1 Events of Default.................................................. 73
8.1.1 Payments Under Loan Documents............................... 73
8.1.2 Breach of Warranty.......................................... 73
8.1.3 Breach of Negative Covenants and Sections 7.1.12 or 7.1.14.. 73
8.1.4 Breach of Other Covenants................................... 74
8.1.5 Defaults in Other Agreements or Indebtedness................ 74
8.1.6 Final Judgments or Orders................................... 74
8.1.7 Loan Document Unenforceable................................. 75
8.1.8 Notice of Lien or Assessment................................ 75
8.1.9 Insolvency.................................................. 75
8.1.10 Events Relating to Plans and Benefit Arrangements.......... 75
8.1.11 Cessation of Business...................................... 76
8.1.12 Change of Control.......................................... 76
8.1.13 Involuntary Proceedings.................................... 76
8.1.14 Voluntary Proceedings...................................... 77
8.1.15 Material Adverse Change.................................... 77
8.2 Consequences of Event of Default................................... 77
8.2.1 Events of Default Other Than Bankruptcy, Insolvency or
Reorganization Proceedings................................ 77
8.2.2 Bankruptcy, Insolvency or Reorganization Proceedings........ 77
8.2.3 Set-off..................................................... 78
8.2.4 Suits, Actions, Proceedings................................. 78
8.2.5 Application of Proceeds..................................... 78
8.2.6 Other Rights and Remedies................................... 79
9. THE AGENT................................................................ 79
9.1 Appointment........................................................ 79
9.2 Delegation of Duties............................................... 80
9.3 Nature of Duties; Independent Credit Investigation................. 80
9.4 Actions in Discretion of Agent; Instructions from the Banks........ 80
9.5 Reimbursement and Indemnification of Agent by the Borrower......... 81
</TABLE>
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9.6 Exculpatory Provisions............................................. 81
9.7 Reimbursement and Indemnification by Banks of the Agent............ 82
9.8 Reliance by Agent.................................................. 82
9.9 Notice of Default.................................................. 83
9.10 Notices........................................................... 83
9.11 Banks in Their Individual Capacities.............................. 83
9.12 Holders of Notes.................................................. 83
9.13 Equalization of Banks............................................. 84
9.14 Successor Agent................................................... 84
9.15 Other Fees........................................................ 85
9.16 Availability of Funds............................................. 85
9.17 Calculations...................................................... 85
9.18 Beneficiaries..................................................... 85
10. MISCELLANEOUS........................................................... 86
10.1 Modifications, Amendments or Waivers.............................. 86
10.1.1 Increase of Revolving Credit Commitments; Extension of
Expiration Date.......................................... 86
10.1.2 Extension of Payment; Reduction of Principal, Interest or
Fees; Modification of Terms of Payment................... 86
10.1.3 Release of Guarantor....................................... 86
10.1.4 Miscellaneous.............................................. 86
10.2 No Implied Waivers; Cumulative Remedies; Writing Required......... 87
10.3 Reimbursement and Indemnification of Banks by the Borrower;
Taxes........................................................... 87
10.4 Holidays.......................................................... 88
10.5 Funding by Branch, Subsidiary or Affiliate........................ 88
10.5.1 Notional Funding........................................... 88
10.5.2 Actual Funding............................................. 89
10.5.3 Changes to Other Branches, Subsidiaries or Affiliates...... 89
10.6 Notices........................................................... 89
10.7 Severability...................................................... 90
10.8 Governing Law..................................................... 90
10.9 Prior Understanding............................................... 90
10.10 Duration; Survival............................................... 90
10.11 Successors and Assigns........................................... 91
10.12 Confidentiality.................................................. 92
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10.13 Counterparts..................................................... 92
10.14 Agent's or Bank's Consent........................................ 92
10.15 Exceptions....................................................... 93
10.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL........................... 93
10.17 Tax Withholding Clause........................................... 93
10.18 Joinder of Subsidiaries.......................................... 94
</TABLE>
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<PAGE>
LIST OF SCHEDULES AND EXHIBITS
<TABLE>
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<S> <C>
SCHEDULE
SCHEDULE 1.1(B) - COMMITMENTS OF BANKS
SCHEDULE 1.1(P)(1) - EXISTING DEPOSITORY INSTITUTIONS
SCHEDULE 1.1(P)(2) - PERMITTED LIENS
SCHEDULE 5.1.1 - SUBSIDIARIES
SCHEDULE 5.1.2 - SUBSIDIARY MATTERS
SCHEDULE 5.1.6 - LITIGATION
SCHEDULE 5.1.12 - CONSENTS AND APPROVALS
SCHEDULE 5.1.19 - EMPLOYEE BENEFIT PLAN DISCLOSURES
SCHEDULE 5.1.21 - ENVIRONMENTAL DISCLOSURES
SCHEDULE 5.1.24 - INDEBTEDNESS
SCHEDULE 6.1.4 - COUNSEL TO LOAN PARTIES
SCHEDULE 7.1.12 - POST-CLOSING MATTERS
SCHEDULE 7.2.4 - LOANS AND INVESTMENTS
SCHEDULE 7.2.8 - AFFILIATE TRANSACTIONS
EXHIBITS
EXHIBIT 1.1(A)(1) - FORM OF CLOSING DATE CERTIFICATE
EXHIBIT 1.1(A)(2) - FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(I) - FORM OF INTERCOMPANY NOTE
EXHIBIT 1.1(M)(1) - FORM OF MASTER GUARANTY AGREEMENT
EXHIBIT 1.1(M)(2) - FORM OF MASTER INTERCOMPANY SUBORDINATION AGREEMENT
EXHIBIT 1.1(R) - FORM OF REVOLVING CREDIT NOTE
EXHIBIT 1.1(S)(1) - FORM OF SWING LOAN NOTE
EXHIBIT 1.1(S)(2) - FORM OF SYNDICATION ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 2.5.1 - FORM OF REVOLVING CREDIT LOAN REQUEST
EXHIBIT 2.5.2 - FORM OF SWING LOAN REQUEST
EXHIBIT 2.9.1 - FORM OF APPLICATION AND AGREEMENT FOR LETTERS OF CREDIT
EXHIBIT 6.1.4 - OPINION OF COUNSEL
EXHIBIT 7.2.6 - FORM OF TRANSACTION NOTICE CERTIFICATE
EXHIBIT 7.3.3 - FORM OF COMPLIANCE CERTIFICATE
</TABLE>
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<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of October 31, 1996 and is made by
and among CUNO INCORPORATED, a Delaware corporation (the "Borrower"), the BANKS
(as hereinafter defined), and MELLON BANK, N.A., in its capacity as Agent.
WITNESSETH:
WHEREAS, the Borrower has requested a revolving credit facility in an
aggregate principal amount of $60,000,000, including a $20,000,000 sublimit for
letters of credit and a $5,000,000 sublimit for swingline loans; and
WHEREAS, the Banks are willing to provide such credit facilities upon
the terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
1. CERTAIN DEFINITIONS
1.1 Certain Definitions.
In addition to words and terms defined elsewhere in this Agreement,
the following words and terms shall have the following meanings, respectively,
unless the context hereof clearly requires otherwise:
Acquisition shall mean the acquisition of a 50% or greater direct
and/or indirect ownership interest by merger, purchase or otherwise of all or
substantially all of the stock or other equity interests or assets of any other
Person or of any division or Subsidiary of a Person which constitutes a
"reportable industry segment" or "class of similar products" of an industry
segment (as such term is defined in Item 101(c) of Regulation S-K promulgated
under the Securities Act of 1933 and the Securities Exchange Act of 1934).
Affiliate as to any Person shall mean any other Person (i) which
directly or indirectly controls, is controlled by, or is under common control
with such Person, (ii) which beneficially owns or holds 5% or more of any class
of the voting or other equity interests of such Person, or (iii) 5% or more of
any class of voting or other equity interests of which is beneficially owned or
held, directly or indirectly, by such Person. Control, as used in this
definition, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise, including
the power to elect a majority of the directors or trustees of a corporation or
trust, as the case may be.
<PAGE>
Agent shall mean Mellon Bank, N.A., in its capacity as agent and
its successors and assigns.
Agent's Fee shall have the meaning assigned to that term in
Section 9.15.
Agreement shall mean this Credit Agreement, as the same may be
supplemented or amended from time to time, including all schedules and exhibits.
Applicable Margin, with respect to the Revolving Credit Loans,
the Commitment Fees payable under Section 2.3 and Letters of Credit Fees payable
under Section 2.10.3 shall mean the rate specified for such Obligation below,
subject to adjustment as hereinafter provided:
<TABLE>
<CAPTION>
Applicable Margin
When the Status For Eurodollar Applicable Margin
Below Exists Applicable Margin Loans and Standby For Documentary Applicable Margin
For Base Rate Letters of Credit Letters of Credit For Commitment
Loan Is: Fees Is: Fees Is: Fee Is:
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Level I Status 0% .25% .375% .10%
Level II Status 0% .375% .375% .125%
Level III Status 0% .50% .375% .15%
Level IV Status 0% .625% .375% .20%
Level V Status 0% .75% .375% .25%
</TABLE>
For purposes of determining the Applicable Margin:
(a) The Applicable Margin shall be determined on the Closing Date
based on the Leverage Ratio computed on such date pursuant to a certificate in
the form of Exhibit 1.1(A)(1) to be delivered on the Closing Date.
(b) The Applicable Margin shall be recomputed as of the end of
each fiscal quarter ending after the Closing Date and on the closing date of
each transaction under Sections 7.2.6 or 7.2.7 which is conditioned upon the
delivery of a Transaction Notice Certificate, based on the Leverage Ratio
computed as required by this Agreement under the relevant circumstances. Any
increase or decrease in the Applicable Margin computed as of a quarter end shall
be effective on the date on which the Compliance Certificate under Section 7.3.3
or the Transaction Notice Certificate under Section 7.2.6 or 7.2.7 evidencing
such computation is due to be delivered.
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Assignment and Assumption Agreement shall mean an Assignment and
Assumption Agreement by and among an "Assignor" and an "Assignee" (each as
defined therein) and the Agent on behalf of the other Banks, substantially in
the form of Exhibit 1.1(A)(2).
Authorized Officer shall mean those individuals, designated by
written notice to the Agent from the Borrower, authorized to execute notices,
reports and other documents on behalf of the Loan Parties required hereunder.
The Borrower may amend such list of individuals from time to time by giving
written notice of such amendment to the Agent.
Banks shall mean the financial institutions named on Schedule
1.1(B) and their respective successors and assigns as permitted hereunder, each
of which is referred to herein as a "Bank".
Base Rate shall mean the greater of (i) the interest rate per
annum announced from time to time by the Agent at its Principal Office as its
then prime rate, which rate may not be the lowest rate then being charged
commercial borrowers by the Agent, or (ii) the Federal Funds Effective Rate plus
1/2% per annum.
Base Rate Option shall mean the Revolving Credit Base Rate Option
or the Swing Loan Base Rate Option.
Base Net Worth shall mean, as of any date of determination, the
sum of (A) 80% of the Consolidated Net Worth as of October 31, 1996, plus (B)
50% of the cash proceeds received after October 31, 1996 by the Borrower from
any issuance by the Borrower of capital stock of the Borrower after deducting
expenses incurred in connection with such issuance plus (C) 50% of consolidated
net income of the Borrower and its Subsidiaries for each fiscal year after 1996
in which net income was earned (as opposed to a net loss). Interim
determinations made during the second, third and fourth quarters of each fiscal
year shall include 50% of year to date consolidated net income of the Borrower
and its Subsidiaries during such fiscal year through the last day of the
immediately preceding fiscal quarter. The foregoing shall be determined in
accordance with GAAP, but without currency translation adjustments required by
FAS 52.
Benefit Arrangement shall mean at any time an "employee benefit
plan," within the meaning of Section 3(3) of ERISA, which is neither a Plan nor
a Multiemployer Plan and which is maintained, sponsored or otherwise contributed
to by any member of the ERISA Group.
Borrower shall mean CUNO Incorporated, a corporation organized
and existing under the laws of the State of Delaware.
Borrowing Date shall mean, with respect to any Loan, the date for
the making thereof or the renewal or conversion thereof at or to the same or a
different Interest Rate Option, which shall be a Business Day.
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Borrowing Tranche shall mean specified portions of Loans
outstanding as follows: (i) Loans to which a Revolving Credit Euro-Rate Option
applies by reason of the selection of, conversion to or renewal of such Interest
Rate Option on the same day and having the same Interest Period shall constitute
one Borrowing Tranche, (ii) Loans with respect to which the Revolving Credit
Base Rate Option applies by reason of the selection of or conversion to such
Interest Rate Option shall constitute one Borrowing Tranche, (iii) Loans with
respect to which the Swing Loan Base Rate Option applies by reason of the
selection of or conversion to such Interest Rate Option shall constitute one
Borrowing Tranche and (iv) Loans with respect to which the Swing Loan Quoted
Rate Option applies by reason of the selection of or conversion to such Interest
Rate Option shall constitute one Borrowing Tranche.
Business Day shall mean any day other than a Saturday or Sunday
or a legal holiday on which commercial banks are authorized or required to be
closed for business in Pittsburgh, Pennsylvania or New York, New York, and, if
the applicable Business Day relates to any Loan to which the Revolving Credit
Euro-Rate Option applies, such day must also be a day on which dealings in
Dollar deposits are carried on in the London interbank market.
Capitalized Lease shall mean any lease of Property by a Person as
lessee which is a capital lease in accordance with GAAP.
Closing Date shall mean the Business Day on which the first Loan
shall be made, which shall be October 31, 1996, or, if all of the conditions
specified in Section 6.1 have not been satisfied or waived by such date, not
later than November 29, 1996, as designated by the Borrower at least three
Business Days' advance notice to the Agent at its Principal Office, or such
other date as the parties agree. The closing shall take place at 10:00 a.m.,
Pittsburgh time, on the Closing Date at the offices of Buchanan Ingersoll
Professional Corporation, Pittsburgh, Pennsylvania, or at such other time and
place as the parties agree.
Commitment Fee shall have the meaning assigned to that term in
Section 2.3.
Consideration shall mean (A) with respect to any Acquisition, the
aggregate of (i) the cash paid by the Borrower or any of its Subsidiaries,
directly or indirectly, to the seller in connection therewith, (ii) the
Indebtedness incurred or assumed by the Borrower or any of its Subsidiaries
(including Indebtedness owed by any target which is a Subsidiary immediately
after the Acquisition), whether in favor of the seller or otherwise and whether
fixed or contingent, (iii) any Guaranty (other than of Indebtedness described in
clause (ii) above) given or incurred by the Borrower or any of its Subsidiaries
in connection therewith and (iv) the present value of any other consideration
(including stock or other securities issued by the Borrower or any of its
Subsidiaries) given or obligation incurred by the Borrower or any of its
Subsidiaries in connection therewith; and (B) with respect to any disposition of
assets, the aggregate of (i) the cash paid to the Borrower or any of its
Subsidiaries, (i) any Indebtedness of the Borrower or any of its Subsidiaries
assumed by the purchaser and (iii) the present value of any other consideration
received by the Borrower or any of its Subsidiaries in connection therewith.
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Consolidated Capital Expenditures means, for any period, the
aggregate of all expenditures (whether paid in cash or accrued as liabilities
and including that portion of Capitalized Leases which is capitalized on a
consolidated balance sheet of the Borrower and its Subsidiaries) by the Borrower
and its Subsidiaries during that period that, in conformity with GAAP, are
required to be included in or reflected in the property, plant or equipment or
similar fixed asset accounts reflected on a consolidated balance sheet of the
Borrower and its Subsidiaries. Any amount which is included in any period as an
accrual shall not be duplicated in any calculation at the time payment thereof
is actually made to the extent included in such prior accrual.
Consolidated EBITDA for any period of determination shall mean an
amount equal to the sum of (i) the net income (excluding income (or loss) of any
Person in which any of the Borrower or its Subsidiaries has an equity interest
of 50% or less, except to the extent of the amount of dividends or other
distributions actually paid in cash by such Person to any of the Borrower or its
Subsidiaries during such period) for such period plus (ii) interest expense in
respect of Indebtedness to the extent deducted in determining net income for
such period ("Interest Expense"), plus (iii) the provision for domestic and
foreign taxes for such period based on income or profits to the extent such
income or profits were included in computing net income for such period, plus
(iv) depreciation deducted in determining net income for such period, plus (v)
amortization deducted in determining net income for such period, plus (vi) only
with respect to the Borrower's 1996 and 1997 fiscal years, expense to the extent
deducted in determining net income for such period in respect of fees and costs
which were incurred in connection with the Tender Offer and the Spin-Off
(provided, that no such expense described in this clause (vi) shall be added to
determine Consolidated EBITDA for any period of determination if the aggregate
expense for that period of determination together with all expense included in
determining net income in all periods prior to the period of determination for
all such fees and costs would exceed $6,000,000), in each case of the Borrower
and its Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP; provided, however, there shall be excluded from the
foregoing computation (A) all non-cash extraordinary income, gains and losses
for such period and (B) all gains or losses from the sale of assets not sold in
the ordinary course of business for such period, to the extent (A) or (B) were
included in net income under the foregoing clause (i) for such period.
Consolidated Funded Indebtedness as of any date of determination
shall mean the aggregate of any and all indebtedness, obligations or liabilities
of the Borrower and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP for or in respect of: (i) borrowed money, (ii) amounts
raised under or liabilities in respect of any note purchase or acceptance credit
facility, (iii) reimbursement obligations under (A) any letter of credit drawn
upon and not reimbursed within the time period required, or (B) under any
currency swap agreement, interest rate swap, cap, collar or floor agreement or
other interest rate management device (net of any payments made to the Borrower
under any of the foregoing interest rate management devices), (iv) any other
transaction (including forward sale or purchase agreements, capitalized leases
(but not operating leases) and conditional sales agreements) having the
commercial effect of a borrowing of money entered into by such Person to
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finance its operations or capital requirements (but not including trade
payables, trade credits and accrued expenses incurred in the ordinary course of
business which are not represented by a promissory note or other evidence of
indebtedness and which are not more than sixty (60) days past due), or (v) any
Guaranty (without duplication) of any liability described in the foregoing
clauses (i) through (iv).
Consolidated Income Tax Expense for any period of determination
shall be equal to the consolidated income tax expense (domestic and foreign) of
the Borrower and its Subsidiaries in respect of their consolidated net income
for such period.
Consolidated Interest Expense for any period of determination
shall be equal to the Interest Expense of the Borrower and its Subsidiaries as
determined in clause (ii) of the definition of the term "Consolidated EBITDA"
for such period on a consolidated basis determined in accordance with GAAP, less
any amortization of fees and costs which were incurred and paid in a period
prior to the period of determination in connection with the Tender Offer and the
Spin-Off to the extent included in Interest Expense for such period.
Consolidated Net Worth shall mean as of any date of determination
total stockholders' equity of the Borrower and its Subsidiaries as of such date
determined and consolidated in accordance with GAAP, but without currency
translation adjustments required by FAS 52.
Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful
money of the United States of America.
Domestic Subsidiary shall mean any Subsidiary of Borrower other
than a Foreign Subsidiary and Domestic Subsidiaries shall mean more than one
Domestic Subsidiary.
Environmental Complaint shall mean any written complaint setting
forth a cause of action for personal or property damage or natural resource
damage or equitable relief, order, notice of violation, citation, request for
information issued pursuant to any Environmental Laws by an Official Body,
subpoena or other written notice of any type relating to, arising out of, or
issued pursuant, to any of the Environmental Laws or any Environmental
Conditions, as the case may be.
Environmental Conditions shall mean any conditions of the
environment, including the workplace, the ocean, natural resources (including
flora or fauna), soil, surface water, groundwater, any actual or potential
drinking water supply sources, substrata or the ambient air, relating to or
arising out of, or caused by, the use, handling, storage, treatment, recycling,
generation, transportation, release, spilling, leaking, pumping, emptying,
discharging, injecting, escaping, leaching, disposal, dumping, threatened
release or other management or mismanagement of Regulated Substances resulting
from the use of, or operations on, any Property.
Environmental Laws shall mean all federal, state, local and
foreign Laws and regulations, including permits, licenses, authorizations,
bonds, orders, judgments, and
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consent decrees issued, or entered into, pursuant thereto, relating to pollution
or protection of human health or the environment or employee safety in the
workplace.
ERISA shall mean the Employee Retirement Income Security Act of
1974, as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations thereunder,
as from time to time in effect.
ERISA Group shall mean, at any time, the Borrower and all members
of a controlled group of corporations and all trades or businesses (whether or
not incorporated) under common control and all other entities which, together
with the Borrower, are treated as a single employer under Section 414 of the
Internal Revenue Code.
Euro-Rate shall mean with respect to the Loans comprising any
Borrowing Tranche to which the Revolving Credit Euro-Rate Option applies for any
Interest Period, the interest rate per annum determined by the Agent by dividing
(the resulting quotient rounded upward to the nearest 1/16 OF 1% per annum) (I)
the rate of interest determined by the Agent in accordance with its usual
procedures (which determination shall be conclusive absent manifest error) to be
the average of the London interbank offered rates set forth on the "LIBO" page
of the Reuters Monitor Money Rate Service (or appropriate successor) or, if
Reuters or its successor ceases to provide such quotes, a comparable replacement
determined by the Agent, at approximately 11:00 a.m. London time two (2)
Business Days prior to the first day of such Interest Period for an amount
comparable to such Borrowing Tranche and having a maturity comparable to such
Interest Period by (II) a number equal to 1.00 minus the Euro-Rate Reserve
Percentage. The Euro-Rate may also be expressed by the following formula:
Average of London interbank offered rates on LIBO
page of Reuters Monitor Money
Euro-Rate = Rate Service or appropriate successor
--------------------------------------------------
1.00 - Euro-Rate Reserve Percentage
The Euro-Rate shall be adjusted with respect to any Revolving Credit Euro-Rate
Option outstanding on the effective date of any change in the Euro-Rate Reserve
Percentage as of such effective date. The Agent shall give prompt notice to the
Borrower of the Euro-Rate as determined or adjusted in accordance herewith,
which determination shall be conclusive absent manifest error.
Euro-Rate Reserve Percentage shall mean the maximum percentage
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined
by the Agent which is in effect during any relevant period: (i) as prescribed by
the Board of Governors of the Federal Reserve System (or any successor) for
determining the reserve requirements (including supplemental, marginal and
emergency reserve requirements) with respect to eurocurrency funding (currently
referred to as "Eurocurrency Liabilities") of a member bank in such System;
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and (ii) to be maintained by a Bank as required for reserve liquidity, special
deposit, or a similar purpose by any governmental or monetary authority of any
country or political subdivision thereof (including any central bank), against
(A) any category of liabilities that includes deposits by reference to which a
Euro-Rate is to be determined, or (B) any category of extension of credit or
other assets that includes Loans or Borrowing Tranches to which a Euro-Rate
applies.
Event of Default shall mean any of the events described in
Section 8.1.
Executive Officer shall mean as to any designated Person a
natural Person who constitutes an executive officer of such designated Person
for purposes of item 401(b) of Regulation S-K promulgated under the Securities
Act of 1933 and the Securities Exchange Act of 1934.
Expiration Date shall mean, with respect to the Revolving Credit
Commitments, the fifth anniversary of the date of this Agreement.
Federal Funds Effective Rate for any day shall mean the rate per
annum (based on a year of 360 days and actual days elapsed and rounded upward to
the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or
any successor) on such day as being the weighted average of the rates on
overnight federal funds transactions arranged by federal funds brokers on the
previous trading day, as computed and announced by such Federal Reserve Bank (or
any successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day of which such rate was announced.
Fixed Charge Coverage Ratio shall mean on any date of
determination, the ratio of (i) Consolidated EBITDA minus Consolidated Capital
Expenditures to (ii) the sum of Consolidated Interest Expense plus Consolidated
Income Tax Expense, with such ratio determined as of the end of each fiscal
quarter commencing on October 31, 1996, for the four fiscal quarters ended on
the date of determination.
Foreign Subsidiary means any Subsidiary of Borrower that (i) is
formed under the laws of a jurisdiction other than the United States, any state
of the United States, the District of Columbia or any territory or possession of
the United States and (ii) maintains the major portion of its assets outside of
the United States and Foreign Subsidiaries means more than one Foreign
Subsidiary.
Form 10 shall mean the Borrower's Form 10 filed with the
Securities and Exchange Commission on July 29, 1996, as amended.
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GAAP shall mean generally accepted accounting principles as are
in effect in the United States from time to time, subject to the provisions of
Section 1.3, and applied on a consistent basis both as to classification of
items and amounts.
Governmental Acts shall have the meaning assigned to that term in
Section 2.10.8.
Guarantor shall mean each Domestic Subsidiary of the Borrower.
Guarantor Joinder shall mean a joinder to the Master Guaranty
Agreement as provided in the Master Guaranty Agreement.
Guaranty of any Person shall mean any obligation of such Person
guaranteeing or in effect guaranteeing any liability or obligation of any other
Person in any manner, whether directly or indirectly (whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent or joint or several), including any agreement to indemnify or hold
harmless any other Person, any performance bond or other suretyship arrangement
and any other form of assurance against loss, except endorsement of negotiable
or other instruments for deposit or collection in the ordinary course of
business.
Indebtedness shall mean, as to any Person at any time, any and
all indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such Person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations (contingent or
otherwise) under any (A) standby letter of creditor or (B) currency swap
agreement, interest rate swap, cap, collar or floor agreement or other interest
rate management device (net of any payments made to the Borrower under any of
the foregoing interest rate management devices), (iv) any other transaction
(including forward sale or purchase agreements, capitalized leases (but not
operating leases) and conditional sales agreements) having the commercial effect
of a borrowing of money entered into by such Person to finance its operations or
capital requirements (but not including trade payables, trade credits and
accrued expenses incurred in the ordinary course of business which are not
represented by a promissory note or other evidence of indebtedness and which are
not more than sixty (60) days past due), or (v) any Guaranty of the Indebtedness
described in the foregoing clauses (i) through (iv). For purposes of any
calculation of an aggregate amount of Indebtedness, any Guaranty of Indebtedness
shall be excluded to the extent the underlying Indebtedness to which such
Guaranty relates is included in such calculation, and vice versa.
Insolvency Proceeding shall mean, with respect to any Person, (a)
any case, action or proceeding with respect to such Person (i) before any court
or any other Official Body under any bankruptcy, insolvency, reorganization or
other similar Law now or hereafter in effect, or (ii) for the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator
(or similar official) of the Borrower or any of its Subsidiaries or otherwise
relating to liquidation, dissolution, winding-up or relief of such Person, or
(b) any
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general assignment for the benefit of creditors, composition, marshaling of
assets for creditors, or other, similar arrangement in respect of such Person's
creditors generally or any substantial portion of its creditors, undertaken
under any Law.
Intercompany Loans shall mean loans made by one Loan Party to one
or more other Loan Parties or their Subsidiaries and, in the case of loans
between the Borrower and the Material Subsidiaries, evidenced by Intercompany
Notes.
Intercompany Notes shall mean the notes, in the form attached
hereto as Exhibit 1.1(I), executed by each of the Material Subsidiaries in favor
of the Borrower pursuant to which such Material Subsidiary evidences such
Material Subsidiary's obligations to the Borrower.
Interest Payment Date shall mean each date specified for the
payment of interest in Section 4.3.
Interest Period shall have the meaning assigned to such term in
Section 3.2.
Interest Rate Option shall mean any Revolving Credit Euro-Rate
Option, Swing Loan Quoted Rate Option or Base Rate Option.
Internal Revenue Code shall mean the Internal Revenue Code of
1986, as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations thereunder,
as from time to time in effect.
Intertech shall mean Commercial Intertech Corp., an Ohio
corporation which until the Spin-Off owned all of the capital stock of the
Borrower.
Joint Venture shall mean any corporation, partnership, limited
liability company, joint venture, or any other entity in which the Borrower
owns, directly or indirectly, 50% of the Control (as such term is defined in the
definition of "Affiliate").
Labor Contracts shall mean all employment agreements, employment
contracts, collective bargaining agreements and other agreements among any Loan
Party or Subsidiary of a Loan Party and its employees.
Law shall mean any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order,
injunction, writ, decree or award of any Official Body.
Letter of Credit shall have the meaning assigned to that term in
Section 2.10.1.
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Letter of Credit Outstandings shall mean collectively at any time the
sum of: (i) the aggregate undrawn face amount of all Letters of Credit and,
without duplication, (ii) all unpaid and outstanding Reimbursement Obligations.
Letters of Credit Fees shall have the meaning assigned to that
term in Section 2.10.3.
Level I Status shall mean that the Leverage Ratio is less than
1.5 to 1.0.
Level II Status shall mean that the Leverage Ratio is greater
than or equal to 1.5 to 1.0 and less than 2.0 to 1.0.
Level III Status shall mean that the Leverage Ratio is greater
than or equal to 2.0 to 1.0 and less than 2.5 to 1.0.
Level IV Status shall mean that the Leverage Ratio is greater
than or equal to 2.5 to 1.0 and less than 3.0 to 1.0.
Level V Status shall mean that the Leverage Ratio is greater than
or equal to 3.0 to 1.0.
Leverage Ratio shall mean at any time of determination the ratio of
Consolidated Funded Indebtedness on the relevant date to the Consolidated EBITDA
for the relevant four fiscal quarters. For purposes of the foregoing, the
Consolidated EBITDA for a given four fiscal quarter period shall be calculated
on an historic pro forma basis which includes (in the case of an acquisition) or
excludes (in the case of a disposition) the financial results of each
transaction with respect to which a Transaction Notice Certificate was required
pursuant to Section 7.2.6 or Section 7.2.7, in each case as if such
transaction described in this sentence had occurred on the first day of such
four quarter fiscal period. When the Leverage Ratio is being determined in
connection with the delivery of a Transaction Notice Certificate, the numerator
shall be Consolidated Funded Indebtedness as of the last day of the Month
preceding the relevant transaction date (adjusting to such date for any changes
in the amount of any Indebtedness for borrowed money under lines of credit
(excluding overdraft facilities), revolving credit facilities or term loans) and
the denominator shall be the Consolidated EBITDA for the four consecutive fiscal
quarters ending on the last day of the most recently ended fiscal quarter of the
Borrower prior to such transaction date for which financial statements have
become due pursuant to Section 7.3.1 or Section 7.3.2 (provided that for this
purpose, the due date of the annual financial statements required under Section
7.3.2 shall be deemed to be 60 days after the end of the fiscal year). When
the Leverage Ratio is being determined for purposes of each certificate required
pursuant Section 7.3.3, the numerator shall be Consolidated Funded Indebtedness
on the last day of the fiscal quarter or fiscal year end to which it relates and
the denominator shall be the Consolidated EBITDA for the four consecutive fiscal
quarters ending on the same date.
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Leverage Ratio Status shall be on any date of determination any of
Level I Status, Level II Status, Level III Status, Level IV Status, or Level V
Status, based on the Leverage Ratio of the Loan Parties on such date.
Lien shall mean any mortgage, deed of trust, pledge, lien, security
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, whether voluntarily or involuntarily given, including any
conditional sale or title retention arrangement, and any assignment, deposit
arrangement or lease intended as, or having the effect of, security and any
filed financing statement or other notice of any of the foregoing (whether or
not a lien or other encumbrance is created or exists at the time of the filing).
Loan Documents shall mean this Agreement, the Master Guaranty
Agreement, the Master Intercompany Subordination Agreement, the Notes, the
Intercompany Notes, and any other instruments, certificates or documents
delivered or contemplated to be delivered hereunder or thereunder or in
connection herewith or therewith, as the same may be supplemented or amended
from time to time in accordance herewith or therewith, and Loan Document shall
mean any of the Loan Documents.
Loan Parties shall mean collectively the Borrower and the Guarantors
and Loan Party shall mean separately any one of them.
Loans shall mean collectively the Revolving Credit Loans and Swing
Loans and Loan shall mean separately any of the Loans.
Master Guaranty Agreement shall mean the Master Guaranty and
Suretyship Agreement in substantially the form of Exhibit 1.1(M)(1) or in such
other form as is acceptable to the Agent in its sole discretion, in all cases
executed and delivered by the Guarantors to the Agent for the benefit of the
Banks.
Master Intercompany Subordination Agreement shall mean a subordination
agreement among the Loan Parties in the form attached hereto as Exhibit
1.1(M)(2).
Material Adverse Change shall mean any circumstance or event or set of
circumstances or events which (a) has or could reasonably be expected to have
any material adverse effect whatsoever upon the validity or enforceability of
this Agreement or any other Loan Document, (b) is or could reasonably be
expected to be material and adverse to the business, properties, assets,
financial condition, results of operations or prospects of the Loan Parties
taken as a whole, (c) impairs materially or could reasonably be expected to
impair materially the ability of the Loan Parties TAKEN AS A WHOLE TO DULY AND
PUNCTUALLY PAY OR PERFORM THEIR INDEBTEDNESS, OR (D) IMPAIRS MATERIALLY OR COULD
REASONABLY BE EXPECTED TO IMPAIR MATERIALLY THE ABILITY OF THE AGENT OR ANY OF
THE BANKS, TO THE EXTENT PERMITTED, TO ENFORCE THEIR LEGAL REMEDIES PURSUANT TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
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Material Subsidiary shall mean any Subsidiary of the Borrower having
at least 5% of the total consolidated assets of the Borrower and its
Subsidiaries or at least 5% of the total consolidated revenues of the Borrower
and its Subsidiaries for the 12-month period ending on the last day of the most
recent fiscal quarter of the Borrower.
Mellon shall mean Mellon Bank, N.A., its successors and assigns.
Month, with respect to an Interest Period under the Revolving Credit
Euro-Rate Option, shall mean the interval between the days in consecutive
calendar months numerically corresponding to the first day of such Interest
Period. If any Euro-Rate Interest Period begins on a day of a calendar month
for which there is no numerically corresponding day in the month in which such
Interest Period is to end, the final month of such Interest Period shall be
deemed to end on the last Business Day of such final month.
Multiemployer Plan shall mean any employee benefit plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which the Borrower or any member of the ERISA Group is then making or accruing
an obligation to make contributions or, within the preceding five plan years,
has made or had an obligation to make such contributions.
Multiple Employer Plan shall mean a Plan which has two or more
contributing sponsors (including the Borrower or any member of the ERISA Group)
at least two of whom are not under common control, as such a plan is described
in Sections 4063 and 4064 of ERISA.
Notes shall mean collectively the Revolving Credit Notes and Swing
Notes and Note shall mean separately any of the Notes.
Notices shall have the meaning assigned to that term in Section 10.6.
Obligation shall mean any obligation or liability of any of the Loan
Parties to the Agent or any of the Banks, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, now or hereafter
existing, or due or to become due, under or in connection with this Agreement,
the Notes, the Master Guaranty Agreement, the Letters of Credit or any other
Loan Document.
Official Body shall mean any national, federal, state, local or other
government or political subdivision or any agency, authority, bureau, central
bank, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
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Participation Advance shall mean, with respect to any Bank, such
Bank's payment in respect of its participation in a Letter of Credit Borrowing
according to its Ratable Share pursuant to Section 2.10.4.
PBGC shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA or any successor thereto.
Permitted Cash Equivalent Investments shall mean readily marketable:
(i) direct obligations of the United States of America or
any agency or instrumentality thereof or obligations backed by the full faith
and credit of the United States of America maturing in six (6) MONTHS OR LESS
FROM THE DATE OF ACQUISITION;
(ii) commercial paper maturing in six (6) months or less
rated not lower than "A-1" by Standard & Poor's Ratings Services, a division of
The McGraw Hill Companies, Inc. or "P-1" by Moody's Investors Service, Inc. on
the date of acquisition;
(iii) demand deposits, time deposits or certificates of
deposit maturing within six (6) months which (x) are held by any domestic or
foreign commercial bank which has capital and surplus in excess of $500,000,000
or the relevant foreign currency equivalent, or by a domestic commercial bank,
the holding company of which has obligations rated not lower than "A-1" by
Standard & Poor's Ratings Services, a division of the McGraw Hill Companies,
Inc. or "P-1" by Moody's Investors Service, Inc. on the date of acquisition, (y)
are deposited, held or issued, as applicable, by a financial institution
reasonably and prudently chosen by the Borrower, provided the aggregate amount
of any such deposits at any such institution shall not exceed $500,000 (or the
relevant foreign currency equivalent) at any one time or (z) are listed on
Schedule 1.1(p)(1);
(iv) repurchase obligations of any commercial bank described
in clause (iii) above with a term of not more than seven days for underlying
securities of the type described in clause (i) above; and
(v) investments in mutual funds which invest exclusively in
obligations of the type described in clauses (i) through (iv) above.
Permitted Liens shall mean:
(i) Liens for taxes, assessments, or similar charges,
incurred in the ordinary course of business and which are not yet due and
payable;
(ii) Pledges or deposits made in the ordinary course of
business to secure payment of workmen's compensation, or to participate in any
fund in connection with
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workmen's compensation, unemployment insurance, old-age pensions or other social
security programs;
(iii) Liens of mechanics, materialmen, warehousemen,
carriers, or other like Liens, securing obligations incurred in the ordinary
course of business that are not yet due and payable and Liens of landlords
securing obligations to pay lease payments that are not yet due and payable or
in default;
(iv) Good-faith pledges or deposits made in the ordinary
course of business to secure performance of bids, tenders, contracts (other than
for the repayment of borrowed money) or leases, not in excess of the aggregate
amount due thereunder, or to secure statutory obligations, or surety, appeal,
indemnity, performance or other similar bonds required in the ordinary course of
business;
(v) Encumbrances consisting of zoning restrictions,
easements or other restrictions on the use of real property, none of which
materially impairs the use of such property or the value thereof, and none of
which is violated in any material respect by existing or proposed structures or
land use;
(vi) Liens and security interests in favor of the Agent for
the benefit of the Banks in the application for a Letter of Credit;
(vii) Liens on property leased by any Loan Party or
Subsidiary of a Loan Party or other interest or title of the lessor under
operating leases securing obligations of such Loan Party or Subsidiary to the
lessor under such leases;
(viii) Any Lien or rights or restrictions with respect
thereto existing on the date of this Agreement and described on Schedule
1.1(P)(2), provided that the principal amount secured thereby is not hereafter
increased (although it may be refinanced), and no additional assets become
subject to such Lien, other than additions or accessions to the assets which are
subject to such Lien or any replacements of any such assets acquired in the
ordinary course of business;
(ix) Purchase Money Security Interests to the extent that
(X) such Purchase Money Security Interests attach to inventory purchased in the
ordinary course of business pursuant to customary payment terms and are not
perfected by the filing of financing statements or other public filings or (Y)
the aggregate amount of loans and deferred payments secured by Purchase Money
Security Interests not described in the foregoing clause (X) do not exceed at
any one time outstanding $5,000,000 (excluding for the purpose of this
computation any loans or deferred payments secured by Liens described on
Schedule 1.1(P)(2));
(x) Liens relating to the licensing by Borrower, the other
Loan Parties or their Subsidiaries of intellectual property;
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(xi) The following (A) if the validity or amount thereof is
being contested in good faith by appropriate and lawful proceedings diligently
conducted so long as levy and execution thereon have been stayed and continue to
be stayed or (B) if a final judgment is entered and such judgment is discharged
within thirty (30) days of entry or (C) if payments thereof are covered in full
(subject to customary deductibles) by an insurance company of reputable standing
which insurance company has acknowledged that the applicable policy applies to
the following and is not reserving any right to contest applicability, and in
any case they do not in the aggregate, materially impair the ability of any Loan
Party to perform its Obligations hereunder or under the other Loan Documents:
(1) Claims or Liens for taxes, assessments or charges by the
United States, or any department, agency or instrumentality thereof,
or by any state, county, municipal or other governmental agency,
including the PBGC, due and payable and subject to interest or
penalty, provided that the applicable Loan Party maintains such
reserves or other appropriate provisions as shall be required by GAAP
and pays all such taxes, assessments or charges forthwith upon the
commencement of proceedings to foreclose any such Lien;
(2) Claims, Liens or encumbrances upon, and defects of title to,
real or personal property, including any attachment of personal or
real property or other legal process prior to adjudication of a
dispute on the merits;
(3) Claims or Liens of mechanics, materialmen, warehousemen,
carriers, or other statutory nonconsensual Liens;
(xii) Liens granted by the Japanese Foreign Subsidiary in
its accounts receivable to Japanese commercial banks to secure Indebtedness
incurred in the ordinary course of business by such Japanese Subsidiary for
working capital in Japan;
(xiii) additional Liens securing Indebtedness not to exceed
at any time an amount equal to 5% of Consolidated Net Worth;
(xiv) Liens in the nature of a lease entered into as part of
a sale/leaseback transaction;
(xv) Liens on assets of a Person which exist on the date
such Person becomes the subject of an Acquisition by the Borrower or any of its
Subsidiaries, provided that the same (A) do not attach to assets of such Person
having a value in excess of 10% of the aggregate value of all assets of such
Person acquired as part of the Acquisition, as such value is reflected on the
books of such Person as of the date of consummation of such Acquisition, (B)
secure only Indebtedness owed by such Person immediately prior to the
Acquisition and (C) were not originated in anticipation of such Acquisition; and
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(xvi) Liens created in connection with the refinancing of
any Indebtedness which relates to any of the Liens described in this definition
of Permitted Liens, subject, however to the proviso set forth in clause (viii)
of this definition of Permitted Liens.
Person shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture, limited liability company, government or political subdivision or
agency thereof, or any other entity.
Plan shall mean at any time an employee pension benefit plan
(including a Multiple Employer Plan, but not a Multiemployer Plan) which is
covered by Title IV of ERISA or is subject to the minimum funding standards
under Section 412 of the Internal Revenue Code and either (i) is maintained by
any member of the ERISA Group for employees of any member of the ERISA Group or
(ii) has at any time within the preceding five years been maintained by any
entity which was at such time a member of the ERISA Group for employees of any
entity which was at such time a member of the ERISA Group.
Potential Default shall mean any event or condition which with notice,
passage of time or a determination by the Agent or the Required Banks, or any
combination of the foregoing, would constitute an Event of Default.
Principal Office shall mean the main banking office of the Agent in
Pittsburgh, Pennsylvania at the address shown on the signature page hereto.
Prohibited Transaction shall mean any prohibited transaction as
defined in Section 4975 of the Internal Revenue Code or Section 406 of ERISA for
which neither an individual nor a class exemption has been issued by the United
States Department of Labor.
Property shall mean all real property and fixtures, both owned and
leased, of the Borrower or any Subsidiary.
Purchase Money Security Interest shall mean any Liens upon real or
personal property to the extent the same secures no obligation other than (i)
loans to the Borrower or Subsidiary of the Borrower the proceeds of which were
used to acquire such property or (ii) payments owed by the Borrower or
Subsidiary constituting the balance of the purchase price for such property.
Qualified Investments shall have the meaning assigned to that
term in Section 7.2.6
Qualified Note Placement shall mean a private or public placement of
senior unsecured notes issued by the Borrower after the Closing Date, having
terms acceptable to the Agent and which in the judgment of the Agent (i) has an
average life longer than the then remaining unexpired term of the Revolving
Credit Commitments; and (ii) has covenants that are
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no more restrictive than those under this Agreement; provided that the proceeds
thereof are applied to reduce the Revolving Credit Commitments by the amount of
the financing raised.
Qualified Survivor shall mean a Person which is the surviving entity
following any acquisition of capital stock or merger, provided such surviving
Person (i) after giving effect to such acquisition of capital stock or merger
has a net worth equal to or greater than the net worth of the entities which
were the subject of such acquisition of capital stock or merger and (ii) assumes
or continues to perform, as applicable, all Obligations under the Loan Documents
to which each was a party prior to such acquisition of capital stock or merger,
and (iii) after the transaction (other than one in which the Borrower survives)
is a Subsidiary of the Borrower.
Ratable Share shall mean at any time of determination:
(i) prior to the earlier of the Expiration Date or the termination of
all of the Revolving Credit Commitments hereunder pursuant to Section 8.2.1 or
8.2.2, the proportion that a Bank's Revolving Credit Commitment bears to the
Revolving Credit Commitments of all of the Banks; and
(ii) thereafter, the proportion that the sum of a Bank's Loans and
Letter of Credit Outstandings outstanding at such time bears to the total
principal amount of all of the Loans and Letter of Credit Outstandings then
outstanding.
Regulated Substances shall mean any substance including any solid,
liquid, semisolid, gaseous, thermal, thoriated or radioactive material, refuse,
garbage, wastes, chemicals, petroleum products, by-products and coproducts,
impurities, dust, scrap, and heavy metals defined as a "hazardous substance,"
"pollutant," "pollution," "contaminant," "hazardous or toxic substance,"
"extremely hazardous substance," "toxic chemical," "toxic waste," "hazardous
waste," "industrial waste," "residual waste," "solid waste," "municipal waste,"
"mixed waste," "infectious waste," "chemotherapeutic waste," "medical waste," or
"regulated substance" or any related materials, substances or wastes as now or
hereafter defined pursuant to any Environmental Laws, ordinances, rules,
regulations or other directives of any Official Body, the generation,
manufacture, extraction, processing, distribution, treatment, storage, disposal,
transport, recycling, reclamation, use, reuse, spilling, leaking, dumping,
injection, pumping, leaching, emptying, discharge, escape, release or other
management or mismanagement of which is regulated by the Environmental Laws.
Regulation U shall mean Regulation U, T, G or X as promulgated by the
Board of Governors of the Federal Reserve System, as amended from time to time.
Reimbursement Obligation shall have the meaning assigned to such term
in Section 2.10.4.
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Reportable Event shall mean a reportable event described in Section
4043 of ERISA and regulations thereunder with respect to a Plan or Multiemployer
Plan.
Required Banks shall mean at any time of determination:
(i) prior to the earlier of the Expiration Date or a termination of
all of the Revolving Credit Commitments hereunder pursuant to Section 8.2.1 or
8.2.3, Banks, whose Revolving Credit Commitments aggregate at least 66% of
the total amount of all Revolving Credit Commitments at such time; and
(ii) thereafter, Banks whose Loans and Letter of Credit Outstandings
outstanding at such time aggregate at least 66 2/3% of the total principal
amount of all of the Loans and Letter of Credit Outstandings then outstanding.
Letter of Credit Outstandings shall be deemed, for purposes of this definition,
to be in favor of the Agent and not a participating Bank if such Bank has not
made its Participation Advance in respect thereof and shall be deemed to be in
favor of such Bank to the extent of its Participation Advance if it has made its
Participation Advance in respect thereof.
Revolving Credit Base Rate Option shall mean the option of the
Borrower to have Revolving Credit Loans bear interest at the rate and under the
terms and conditions set forth in Section 3.1.1(i).
Revolving Credit Commitment shall mean, as to any Bank at any time the
amount initially set forth opposite its name on Schedule 1.1(B) (as amended from
time to time pursuant to Section 11.11 of this Agreement) in the column labeled
"Revolving Credit Commitment" as the same may have been reduced in accordance
with Section 2.4 AND REVOLVING CREDIT COMMITMENTS SHALL MEAN THE AGGREGATE
REVOLVING CREDIT COMMITMENTS OF ALL OF THE BANKS.
Revolving Credit Euro-Rate Option shall mean the option of the
Borrower to have Revolving Credit Loans bear interest at the rate and under the
terms and conditions set forth in Section 3.1.1(ii).
Revolving Credit Loan Request shall have the meaning ascribed
thereto assigned to that term in Section 2.5.1
Revolving Credit Loans shall mean collectively and Revolving Credit
Loan shall mean separately all loans or any loan made by the Banks or one of the
Banks to the Borrower pursuant to Section 2.1 or 2.10.4.
Revolving Credit Notes shall mean collectively and Revolving Credit
Note shall mean separately all the Revolving Credit Notes of the Borrower in the
form attached
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hereto as Exhibit 1.1(R) evidencing the Revolving Credit Loans together with all
amendments, extensions, renewals, replacements, refinancings or refundings
thereof in whole or in part.
Revolving Facility Usage shall mean at any time the sum of the then
outstanding Revolving Credit Loans and Letter of Credit Outstandings.
Settlement Date shall mean each Thursday of each week and each date on
which the Agent elects to effectuate settlement pursuant to Section 4.7.
Solvent shall mean, with respect to any Person on a particular date,
that on such date (i) the fair value of the property of such Person is greater
than the total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (ii) the present fair saleable value of the assets
(including general intangibles) of such Person is not less than the amount that
will be required to pay the probable liability of such Person on its debts as
they become absolute and matured, (iii) such Person is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (iv) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature, and (v) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital after giving due
consideration to the prevailing practice in the industry in which such Person is
engaged. In computing the amount of contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount which, in light of
all the facts and circumstances existing at such time, represents the amount
that can reasonably be expected to become an actual or matured liability.
Spin-Off shall mean the dividend distribution by Intertech to its
shareholders of all of the outstanding shares of capital stock of the Borrower
to the shareholders of Intertech which occurred on September 10, 1996.
Subsidiary of any Person at any time shall mean (i) any corporation or
trust of which more than 50% (by number of shares or number of votes) of the
outstanding capital stock or shares of beneficial interest normally entitled to
vote for the election of one or more directors or trustees (regardless of any
contingency which does or may suspend or dilute the voting rights) is at such
time owned directly or indirectly by such Person or one or more of such Person's
Subsidiaries, any partnership of which such Person is a general partner or any
partnership or limited liability company of which such Person is a limited
partner or member, respectively, and as to which more than 50% of the
partnership interests or membership interests are at the time directly or
indirectly owned by such Person or one or more of such Person's Subsidiaries, or
(ii) any corporation, trust, partnership, limited liability company or other
entity which is controlled or capable of being controlled by such Person and/or
one or more of such Person's Subsidiaries.
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Swing Loan Base Rate Option shall mean the option of the Borrower to
have Swing Loans bear interest at the rate and under the terms and conditions
set forth in Section 3.1.1
Swing Loan Commitment shall mean Mellon's commitment to make Swing
Loans to the Borrower pursuant to Section 2.1.2 hereof in an aggregate
principal amount up to but not in excess of $5,000,000.
Swing Loan Quoted Rate Option shall mean the option of the Borrower to
have Swing Loans bear interest at the rate and under the terms and conditions
set forth in Section 3.1.1
Swing Loan Request shall mean a request for Swing Loans made in
accordance with Section 2.5.2 hereof.
Swing Note shall mean the Swing Loan Note of the Borrower in the form
of Exhibit 1.1(S)(1) evidencing the Swing Loans, together with all extensions,
renewals, refinancings or refundings thereof in whole or in part.
Swing Loans shall mean collectively and Swing Loan shall mean
separately all Swing Loans or any Swing Loan made by Mellon to the Borrower
pursuant to Section 2.1.2 hereof.
Syndication Assignment and Assumption Agreement shall mean a
Syndication Assignment and Assumption Agreement by and among the "Assignees" and
Mellon Bank, N.A. as the "Assignor" (each as defined therein) and the Agent,
substantially in the form of Exhibit 1.1(S)(2).
Syndication Date shall mean a date after the Closing Date selected by
the Agent and notice of which is given by the Agent to the Borrower at least
five (5) Business Days prior thereto.
Tender Offer shall mean the July, 1996 offer by United Dominion, Inc.
to Intertech's shareholders to purchase any and all shares of the common stock
of Intertech.
Transaction Notice Certificate shall mean any Transaction Notice
Certificate referred to in Section 7.2.6 or 7.2.7.
1.2 Construction.
Unless the context of this Agreement otherwise clearly requires, the
following rules of construction shall apply to this Agreement and each of the
other Loan Documents:
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1.2.1 Number; Inclusion.
References to the plural include the singular, the plural, the part
and the whole; "or" has the inclusive meaning represented by the phrase
"and/or," and "including" has the meaning represented by the phrase "including
without limitation";
1.2.2 Determination.
References to "determination" of or by the Agent or the Banks shall be
deemed to include good-faith estimates by the Agent or the Banks (in the case of
quantitative determinations) and good-faith beliefs by the Agent or the Banks
(in the case of qualitative determinations) and such determination shall be
conclusive absent manifest error;
1.2.3 Agent's Discretion and Consent.
Whenever the Agent or the Banks are granted the right herein to act in
its or their sole discretion or to grant or withhold consent such right shall be
exercised in good-faith;
1.2.4 Documents Taken as a Whole.
The words "hereof," "herein," "hereunder," "hereto" and similar terms
in this Agreement or any other Loan Document refer to this Agreement or such
other Loan Document as a whole and not to any particular provision of this
Agreement or such other Loan Document;
1.2.5 Headings.
The section and other headings contained in this Agreement or such
other Loan Document and the Table of Contents (if any) preceding this Agreement
or such other Loan Document are for reference purposes only and shall not
control or affect the construction of this Agreement or such other Loan Document
or the interpretation thereof in any respect;
1.2.6 Implied References to this Agreement.
Article, section, subsection, clause, schedule and exhibit references
are to this Agreement or such other Loan Document, as the case may be, unless
otherwise specified;
1.2.7 Persons.
Reference to any Person includes such Person's successors and assigns
but, if applicable, only if such successors and assigns are permitted by this
Agreement or such other Loan Document, as the case may be, and reference to a
Person in a particular capacity excludes such Person in any other capacity;
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1.2.8 Modifications to Documents.
Reference to any agreement (including this Agreement and any other
Loan Document together with the schedules and exhibits hereto or thereto),
document or instrument means such agreement, document or instrument as amended,
modified, replaced, substituted for, superseded or restated;
1.2.9 From, To and Through.
Relative to the determination of any period of time, "from" means
"from and including," "to" means "to but excluding," and "through" means
"through and including"; and
1.2.10 Shall; Will.
References to "shall" and "will" are intended to have the same
meaning.
1.3 Accounting Principles.
Except as otherwise provided in this Agreement, all computations and
determinations as to accounting or financial matters and all financial
statements to be delivered pursuant to this Agreement shall be made and prepared
in accordance with GAAP (including principles of consolidation where
appropriate), and all accounting or financial terms shall have the meanings
ascribed to such terms by GAAP. In the event that on or after the date hereof,
a material change occurs in GAAP, the Banks and the Borrower will consult in
good faith regarding whether such change in GAAP affects any financial covenants
contained herein that should be adjusted due to such change in GAAP.
2. REVOLVING CREDIT FACILITY
2.1 Commitments.
2.1.1 Revolving Credit Commitments.
Subject to the terms and conditions hereof and relying upon the
representations and warranties herein set forth, each Bank severally agrees to
make Revolving Credit Loans to the Borrower at any time or from time to time on
or after the date hereof to the Expiration Date in an aggregate principal amount
not to exceed at any one time such Bank's Revolving Credit Commitment minus the
sum of (i) such Bank's Revolving Credit Loans then outstanding, plus (ii) such
Bank's Ratable Share of the Letter of Credit Outstandings to the Borrower then
outstanding plus (iii) such Bank's Ratable Share of Swing Loans outstanding
that would be allocable to such Bank if Swing Loans were Revolving Credit Loans.
Within such
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limits of time and amount and subject to the other provisions of this Agreement,
the Borrower may borrow, repay and reborrow pursuant to this Section 2.1.
2.1.2 Swing Loans Commitment.
Subject to the terms and conditions hereof and relying upon the
representations and warranties herein set forth, and in order to facilitate
loans and repayments between Settlement Dates in amounts of $5,000,000 or less,
Mellon may, at its option, cancelable at any time for any reason whatsoever,
make swing loans (the "Swing Loans") to the Borrower at any time or from time to
time after the date hereof to, but not including, the Expiration Date, in an
aggregate principal amount outstanding at any one time not to exceed $5,000,000.
the aggregate principal amount of Mellon's Swing Loans and the Revolving Credit
Loans of all the Banks at any one time outstanding shall not exceed the
Revolving Credit Commitments of all the Banks. Within such limits of time and
amount and subject to the other provisions of this Agreement, the Borrower may
borrow, repay and reborrow pursuant to this Section 2.1.2
2.2 Nature of Banks' Obligations with Respect to Revolving Credit
Loans.
Each Bank shall be obligated to participate in each request for
Revolving Credit Loans pursuant to Section 2.5 in accordance with its Ratable
Share. The obligations of each Bank hereunder are several. The failure of any
Bank to perform its obligations hereunder shall not affect the Obligations of
the Borrower to any other party nor shall any other party be liable for the
failure of such Bank to perform its obligations hereunder. The Banks shall have
no obligation to make Revolving Credit Loans hereunder on or after the
Expiration Date.
2.3 Commitment Fees.
Accruing from the Closing Date until the Expiration Date, the Borrower
agrees to pay to the Agent for the account of each Bank, as consideration for
such Bank's Revolving Credit Commitment hereunder, a nonrefundable commitment
fee (the "Commitment Fee") equal to the Applicable Margin per annum (computed on
the basis of a year of 360 days and actual days elapsed) times the average daily
difference between (i) the amount of such Bank's Revolving Credit Commitment as
the same may be constituted from time to time, and (ii) the sum of such Bank's
Revolving Credit Loans outstanding plus its Ratable Share of then outstanding
Letter of Credit Outstandings excluding documentary letters of credit.
The Commitment Fee shall change on the effective date of any change in
the Applicable Margin. All Commitment Fees shall be payable in arrears on the
first Business Day of each January, April, July, and October after the Closing
Date and on the Expiration Date or upon acceleration of the Notes. For purposes
of the computation of the Commitment Fee pursuant to this Section 2.3, the
Swing Loans shall be deemed to be borrowed amounts under Mellon's Revolving
Credit Commitment.
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2.4 Voluntary Reduction of Revolving Credit Commitments.
2.4.1 General Requirements.
The Borrower shall have the right at any time and from time to
time upon not less than three (3) Business Days' prior written notice to the
Banks to permanently reduce, in a minimum amount of $3,000,000 and in integral
multiples of $1,000,000, or terminate the Revolving Credit Commitments, both
without penalty or premium, except as hereinafter set forth, provided that any
such reduction or termination shall be accompanied by (a) the payment in full by
the Borrower of any Commitment Fee then accrued on the amount of such reduction
or termination and (b) prepayment of the Revolving Credit Notes in an amount
equal to the amount by which the then outstanding balance of the Notes and
Letter of Credit Outstandings exceeds the Revolving Credit Commitments after
such reduction or termination, as applicable, together with the full amount of
interest accrued on the principal sum to be prepaid (and all amounts referred to
in Section 4.5). From the effective date of any such reduction or termination,
the obligations of Borrower to pay the Commitment Fee pursuant to Section 2.3
shall correspondingly be reduced or cease.
2.4.2 Collateral for Letter of Credit Outstandings.
In the case of a voluntary reduction by the Borrower or the
termination for any reason of the Revolving Credit Commitments, the Borrower
shall deposit in a non-interest bearing blocked cash collateral account with the
Agent (provided that (i) with the consent of the Agent, such account shall bear
interest and (ii) the Agent shall utilize good faith efforts to grant such
consent), as cash collateral for its Obligations in respect of the Letters of
Credit and related applications and agreements, the amount, if any, by which the
resulting Revolving Facility Usage exceeds the Revolving Credit Commitments as
so reduced or terminated and the Borrower hereby pledges to the Agent and the
Banks, and grants to the Agent and the Banks a security interest in, all such
cash as security for such Obligations. From time to time the Agent shall return
to the Borrower any excess of the amount held in such account over the amount by
which the Revolving Facility Usage then exceeds the Revolving Credit
Commitments.
2.5 Loan Requests.
2.5.1 Revolving Credit Loan Requests.
Except as otherwise provided herein, the Borrower may from time
to time prior to the Expiration Date request the Banks to make Revolving Credit
Loans, or renew or convert the Interest Rate Option applicable to existing
Revolving Credit Loans pursuant to Section 3.1.1, by delivering to the Agent,
(i) not later than 12:00 p.m., Pittsburgh, Pennsylvania time, three (3) Business
Days prior to the proposed Borrowing Date with respect to the making of
Revolving Credit Loans to which the Revolving Credit Euro-Rate Option applies or
the conversion to or the renewal of the Revolving Credit Euro-Rate Option for
any Revolving Credit Loans; and (ii) not later than 12:00 p.m., Pittsburgh,
Pennsylvania time on the proposed
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Borrowing Date with respect to the making of a Revolving Credit Loan to which
the Revolving Credit Base Rate Option applies or the last day of the preceding
Interest Period with respect to the conversion to the Revolving Credit Base Rate
Option for any Revolving Credit Loan, of a duly completed request therefor
substantially in the form of Exhibit 2.5.1 or a request by telephone
immediately confirmed in writing by letter, facsimile or telex in such form
(each, a " Revolving Credit Loan Request"), it being understood that the Agent
may rely on the authority of any individual making such a telephonic request
without the necessity of receipt of such written confirmation. Each Loan Request
shall be irrevocable and shall specify (i) the proposed Borrowing Date; (ii) the
aggregate amount of the proposed Revolving Credit Loans comprising each
Borrowing Tranche, which shall be in integral multiples of $1,000,000 and not
less than $3,000,000 for each Borrowing Tranche to which the Revolving Credit
Euro-Rate Option applies and not less than the lesser of $1,000,000 or the
maximum amount available for Borrowing Tranches to which the Revolving Credit
Base Rate Option applies; (iii) whether the Revolving Credit Euro-Rate Option or
Revolving Credit Base Rate Option shall apply to the proposed Revolving Credit
Loans comprising the applicable Borrowing Tranche; and (iv) in the case of a
Borrowing Tranche to which the Revolving Credit Euro-Rate Option applies, an
appropriate Interest Period for the proposed Revolving Credit Loans comprising
such Borrowing Tranche.
2.5.2 Swing Loan Request.
Except as otherwise provided herein, the Borrower may from time to
time prior to the Expiration Date request Swing Loans in integral multiples of
$1,000,000 by telephonic or written request to Mellon not later than 2:30 p.m.
Pittsburgh time on the proposed Borrowing Date (each, a "Swing Loan Request"),
it being understood that Mellon may rely on the authority of any person making a
telephonic request without the necessity of receipt of written confirmation. If
requested by Mellon, the Borrower shall deliver a duly completed request for
Swing Loans in the form of Exhibit 2.5.2 hereto. In the case of a Borrowing
Tranche to which the Swing Loan Quoted Rate Option is to apply, the request
shall also specify an appropriate Interest Period.
2.6 Making Loans.
2.6.1 Making Revolving Credit Loans.
The Agent shall, promptly after receipt by it of a Loan Request
pursuant to Section 2.5, notify the Banks of its receipt of the related Loan
Request specifying: (i) the proposed Borrowing Date of such Revolving Credit
Loans; (ii) the amount and type of each such Revolving Credit Loan and the
applicable Interest Period (if any); and (iii) the apportionment among the Banks
of such Revolving Credit Loans as determined by the Agent in accordance with
Section 2.2. Each Bank shall remit the principal amount of each Revolving
Credit Loan to the Agent such that the Agent is able to, and the Agent shall, to
the extent the Banks have made funds available to it for such purpose, fund such
Revolving Credit Loans to the Borrower in Dollars and immediately available
funds at the Principal Office prior to 2:00 p.m., Pittsburgh,
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Pennsylvania time, on the applicable Borrowing Date, provided that if the Agent
assumes pursuant to Section 9.16 that a Bank will make available to the Agent
such Bank's portion of a Revolving Credit Loan and such Bank fails to remit such
funds to the Agent in a timely manner, the Agent may elect in its sole
discretion to fund with its own funds the Revolving Credit Loans of such Bank on
such Borrowing Date, and such Bank shall be subject to the repayment obligation
in Section 9.16.
2.6.2 Making Swing Loans.
Subject to Section 6.2, Mellon at its election after receipt by
it of a Swing Loan Request pursuant to Section 2.5.2, shall fund such Swing Loan
to the Borrower in U.S. Dollars and immediately available funds at the Principal
Office prior to 3:00 p.m. Pittsburgh time on the Borrowing Date.
2.7 Borrowings to Repay Swing Loans.
Mellon may at its option, exercisable at any time after a Swing Loan
has been outstanding for more than five (5) Business Days for any reason
whatsoever, demand repayment of the Swing Loans, and each Bank shall make a
Revolving Credit Loan in an amount equal to such Bank's Ratable Share of the
aggregate principal amount of the outstanding Swing Loans, plus, if Mellon so
requests, accrued interest thereon, provided that no Bank shall be obligated in
any event to make Revolving Credit Loans in excess of its Revolving Credit
Commitment. In that event, such Revolving Credit Loans shall bear interest at
the Revolving Credit Base Rate Option and shall be deemed to have been properly
requested in accordance with Section 2.5.1 without regard to any of the
requirements of that provision. Any such prepayment of a Swing Loan subject to
the Swing Loan Quoted Rate Option shall be subject to the provisions of Section
4.6.2. Mellon shall provide notice to the Banks (which may be a telephonic or
written notice by letter, facsimile or telex) that such Revolving Credit Loans
are to be made under this Section 2.7 and of the apportionment among the Banks,
and the Banks shall be unconditionally obligated to fund such Revolving Credit
Loans (whether or not the conditions specified in Section 6.2 are then
satisfied) by the time Mellon so requests, which shall not be earlier than 12:00
p.m. Pittsburgh time on the Business Day next succeeding the date the Banks
receive such notice from Mellon.
2.8 Notes.
2.8.1 Revolving Credit Notes.
The Obligation of the Borrower to repay the aggregate unpaid
principal amount of the Revolving Credit Loans made to it by each Bank, together
with interest thereon, shall be evidenced by a Revolving Credit Note payable to
the order of such Bank in a face amount equal to the Revolving Credit Commitment
of such Bank.
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2.8.2 Swing Loan Note.
The obligation of the Borrower to repay the unpaid principal
amount of the Swing Loans made to it by Mellon, together with interest thereon,
shall be evidenced by the Swing Note payable to the order of Mellon in a face
amount of $5,000,000.
2.9 Use of Revolving Credit Proceeds.
The proceeds of the Revolving Credit Loans shall be used to repay
certain existing Indebtedness, including the term debt that resulted from the
payment of a one time dividend to Intertech, for working capital and other
general corporate purposes.
2.10 Letters of Credit Subfacility.
2.10.1 Issuance of Letters of Credit.
The Borrower may request the issuance of (or modification of any
issued) letters of credit (each a "Letter of Credit" and in the aggregate the
"Letters of Credit") on behalf of itself by delivering no later than 12:00 p.m.,
Pittsburgh, Pennsylvania time three (3) Business Days prior to the requested
date of issuance of such Letter of Credit to the Agent a written notice
specifying the proposed beneficiary, date of issuance and expiry date for such
Letter of Credit or modification to an existing Letter of Credit and the nature
of the transactions to be supported thereby. Subject to the terms and
conditions hereof and to the execution of a completed application and
continuing agreement for letters of credit in the form attached hereto as
Exhibit 2.10.1 or such other form as the Agent may specify from time to time
and in reliance on the agreements of the Banks set forth in this Section 2.10,
the Agent will issue a Letter of Credit provided that each Letter of Credit
shall (A) have a maximum maturity of 365 days from and including the date of
issuance, (B) in no event expire later than five Business Days prior to the
Expiration Date and provided further that in no event shall (i) the Letter of
Credit Outstandings exceed, at any one time, $20,000,000 or (ii) the Revolving
Facility Usage exceed, at any one time, the Revolving Credit Commitments. In
the event of any conflict between the terms of this Agreement and the terms of
the forms of application and continuing agreement for letters of credit, the
terms of this Agreement shall control (provided that terms of the Agent's form
of application and agreement for letters of credit which are in addition to
those contained herein and which do not expressly conflict with the terms
contained herein shall not be deemed to be in conflict with this Agreement),
provided, however, that notwithstanding the foregoing, the provisions of the
application and agreement for letters of credit, to the extent the same pertain
to remedies, shall govern and control. Notwithstanding the minimum draw
requirements for Revolving Credit Loans, any standby Letter of Credit may be
requested for an amount greater than or equal to $250,000 and any documentary
Letter of Credit may be requested for an amount greater than or equal to
$50,000.
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2.10.2 Participations.
Immediately upon issuance of each Letter of Credit, and without
further action, each Bank shall be deemed to, and hereby agrees that it shall,
have irrevocably purchased for such Bank's own account and risk from the Agent
an individual participation interest in such Letter of Credit and drawings
thereunder in an amount equal to such Bank's Ratable Share of the maximum amount
which is or at any time may become available to be drawn thereunder, and each
Bank shall be responsible to reimburse the Agent immediately for its Ratable
Share of any disbursement under any Letter of Credit which has not been
reimbursed by the Borrower in accordance with Section 2.10.4 by making its
Ratable Share of the Revolving Credit Loans referred to in Section 2.9.4
available to the Agent. Upon the request of any Bank and no less frequently than
once in each calendar month, the Agent shall notify each Bank of the amount of
such Bank's participation in Letters of Credit.
2.10.3 Letter of Credit Fees.
The Borrower agrees to pay to the Agent for the ratable
accounts of the Banks as provided in Section 4.2 fees ("Letters of Credit
Fees") with respect to Letter of Credit Outstandings in respect of standby and
documentary Letters of Credit in an amount equal to such Letter of Credit
Outstandings multiplied by a rate per annum, (computed on the basis of a year of
360 days, and actual days lapsed) as specified in the definition of Applicable
Margin separately for standby Letters of Credit and for documentary Letters of
Credit, for the applicable period specified below, payable quarterly in arrears
on the first Business Day of each January, April, July and October following the
Closing Date and on the earlier of the Expiration Date or the acceleration of
the Notes. Such rates (per annum) of the foregoing Letters of Credit Fees shall
change on the effective date of any change in the Applicable Margin.
The Borrower shall also pay to the Agent for its sole account
(i) a fronting fee equal to one-eighth of one percent (0.125%) per annum of the
aggregate undrawn face amount of each Letter of Credit payable quarterly in
arrears and (ii) its then in effect customary issuance fees and administrative
expense payable with respect to its Letters of Credit as the Agent may generally
charge or incur from time to time in connection with the issuance, maintenance,
modification (if any), assignment or transfer (if any), negotiation, and
administration of letters of credit, payable at such times as the Agent may
specify.
2.10.4 Disbursements, Reimbursement.
Borrower shall be obligated immediately to reimburse the Agent
(each a "Reimbursement Obligation") for all amounts which the Agent is required
to pay pursuant to the Letters of Credit issued by the Agent on or before the
date on which the Agent is required to make payment with respect to a draft
presented thereunder. The Agent will promptly notify the Borrower of each demand
or presentment for payment or draft accepted for payment or other drawing under
each Letter of Credit issued by the Agent. The Agent shall promptly notify each
Bank of the amount required to be paid by such Bank as a result of a drawing
upon such Letter
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of Credit if the Borrower has not timely reimbursed the Agent for such draw. If
such notice is received by a Bank before 1:00 p.m., Pittsburgh, Pennsylvania
time, such Bank shall deliver such Bank's Ratable Share of such payment in
immediately available funds to the Agent on that Business Day. If such notice is
received by a Bank after 1:00 p.m., Pittsburgh, Pennsylvania time, such Bank
shall before 10:00 a.m., Pittsburgh, Pennsylvania time, on the next succeeding
Business Day deliver to the Agent such Bank's Ratable Share of such payment as a
Revolving Credit Loan from such Bank in immediately available funds.
2.10.5 Documentation.
The Borrower agrees to be bound by the terms of the Agent's
application and agreement for letters of credit and the Agent's written
regulations and customary practices relating to letters of credit, though such
interpretation may be different from the Borrower's own. In the event of a
conflict between such application or agreement and this Agreement, this
Agreement shall govern (provided that terms of the Agent's application and
agreement for letters of credit which are in addition to those contained herein
and which do not expressly conflict with the terms contained herein shall be
deemed not to be in conflict with this Agreement). It is understood and agreed
that, except in the case of gross negligence or willful misconduct, the Agent
shall not be liable for any error, negligence and/or mistakes, whether of
omission or commission, in following the Borrower's instructions or those
contained in the Letters of Credit issued by the Agent or any modifications,
amendments or supplements thereto.
2.10.6 Determinations to Honor Drawing Requests.
In determining whether to honor any request for drawing under
any Letter of Credit by the beneficiary thereof, the Agent shall be responsible
only to determine that the documents and certificates required to be delivered
under such Letter of Credit have been delivered and that they appear to comply
on their face with the requirements of such Letter of Credit.
2.10.7 Nature of Participation and Reimbursement Obligations.
The obligation of the Banks to participate in Letters of Credit
pursuant to Section 2.10.2 and the obligation of the banks pursuant to section
2.10.4 to fund Revolving Credit Loans upon a draw under a Letter of Credit or to
acquire participations in Letters of Credit and the Obligations of the Borrower
to reimburse the Agent upon a draw under any Letter of Credit pursuant to
section 2.10 shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of such sections under all
circumstances, including the following circumstances:
(i) the failure of any Loan Party or any other Person to
comply with the conditions set forth in Sections 2.1
or 6.2 or as otherwise set forth in this Agreement
for the making of a Revolving Credit Loan, it being
acknowledged that such
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conditions are not required for the making of a
Revolving Credit Loan under SECTION 2.10.4;
(ii) any lack of validity or enforceability of any Letter
of Credit;
(iii) the existence of any claim, set-off, defense or other
right which any Loan Party, the Agent or any Bank may
have at any time against a beneficiary or any
transferee of any Letter of Credit (or any Persons
for whom any such transferee may be acting), the
Agent or any Bank or any other Person or whether in
connection with this Agreement, the transactions
contemplated herein or any unrelated transaction
(including any underlying transaction between any
Loan Party or Subsidiaries of a Loan Party and the
beneficiary for which any Letter of Credit was
procured);
(iv) any draft, demand, certificate or other document
presented under any Letter of Credit proving to be
forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or
inaccurate in any respect even if the Agent has been
notified thereof;
(v) payment by the Agent under any Letter of Credit
against presentation of a demand, draft or
certificate or other document which does not comply
with the terms of such Letter of Credit;
(vi) any adverse change in the business, operations,
properties, assets, condition (financial or
otherwise) or prospects of the Borrower, any other
Loan Party or Subsidiaries of a Loan Party;
(vii) any breach of this Agreement or any other Loan
Document by any party thereto;
(viii) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing;
(ix) the fact that an Event of Default or a Potential
Default shall have occurred and be continuing; and
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(x) the fact that the Expiration Date shall have passed or
this Agreement or the Revolving Credit Commitments
hereunder shall have been terminated.
2.10.8 Indemnity.
In addition to amounts payable as provided in Section 9.5, the
Borrower hereby agrees to pay and to protect, indemnify and save harmless the
Agent and the Banks from and against any and all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including reasonable fees,
expenses and disbursements of counsel and/or allocated costs of internal
counsel) which any of them may incur or be subject to as a consequence, direct
or indirect, of (i) the issuance of any Letter of Credit, other than as a result
of (A) the gross negligence or willful misconduct of the Agent with respect to
the Letters of Credit as determined by a final judgment of a court of competent
jurisdiction or (B) subject to the following clause (ii), the wrongful dishonor
by the Agent of a proper demand for payment made under any Letter of Credit or
(ii) the failure of the Agent to honor a drawing under any such Letter of Credit
as a result of any act or omission, whether rightful or wrongful, of any present
or future de jure or de facto government or governmental authority (all such
acts or omissions herein called "Governmental Acts").
2.10.9 Liability for Acts and Omissions.
As between any Loan Party and the Agent, such Loan Party assumes
all risks of the acts and omissions of, or misuse of the Letters of Credit by,
the respective beneficiaries of the Letters of Credit. In furtherance and not in
limitation of the foregoing, neither the Agent nor any Bank shall be responsible
for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect
of any document submitted by any party in connection with the application for an
issuance of any Letter of Credit issued by the Agent, even if it should in fact
prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent
or forged (even if the Agent shall have been notified thereof); (ii) the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason; (iii) failure of the beneficiary of
any such Letter of Credit to comply fully with any conditions required in order
to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they be in cipher; (v) errors in
interpretation of technical terms; (vi) any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under any such
Letter of Credit or of the proceeds thereof; (vii) the misapplication by the
beneficiary of any such Letter of Credit of the proceeds of any drawing under
such Letter of Credit; or (viii) any consequences arising from causes beyond the
control of the Agent, including any Governmental Acts, and none of the above
shall affect or impair, or prevent the vesting of, any of the Agent's rights or
powers hereunder.
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In furtherance and extension and not in limitation of the specific
provisions set forth above, any action taken or omitted by the Agent under or in
connection with the Letters of Credit issued by it or any documents and
certificates delivered thereunder, if taken or omitted in good faith, shall not
put the Agent under any resulting liability to the Borrower or any Banks.
The Banks and any Loan Party may not commence a proceeding against the
Agent for wrongful disbursement under a Letter of Credit issued by the Agent as
a result of acts or omissions constituting gross negligence or willful
misconduct of the Agent, until the Banks have made and the Borrower has repaid
the Revolving Credit Loans described in Section 2.10.4; provided, however, that
nothing in this Section 2.10 shall adversely affect the right of any Loan
Party, after such payment, to commence any proceeding against the Agent for any
breach of its obligations hereunder.
3. INTEREST RATES
3.1 Interest
The Borrower shall pay interest in respect of the outstanding unpaid
principal amount of the Loans as selected by it from the Base Rate Option or
Revolving Credit Euro-Rate Option set forth below applicable to the Loans, it
being understood that, subject to the provisions of this Agreement, the Borrower
by delivering to the Agent a duly completed Loan Request may select different
Interest Rate Options and different Interest Periods to apply simultaneously to
the Loans comprising different Borrowing Tranches and may convert to or renew
one or more Interest Rate Options with respect to all or any portion of the
Revolving Credit Loans comprising any Borrowing Tranche by delivering to the
Agent a duly completed Loan Request by the time described in Section 2.5 for
conversion or renewal of such Interest Rate Option for a Revolving Credit Loan,
provided that there shall not be at any one time outstanding more than ten (10)
Borrowing Tranches in the aggregate among all the Loans. If at any time the
designated rate applicable to any Loan made by any Bank exceeds such Bank's
highest lawful rate, the rate of interest on such Bank's Loan shall be limited
to such Bank's highest lawful rate.
3.1.1 Interest Rate Options.
The Borrower shall have the right to select from the following
Interest Rate Options applicable to the Loans (provided that the Euro-Rate
Option is not available with respect to Swing Loans and the Swing Loan Quoted
Rate Option is not available with respect to Revolving Credit Loans):
(i) Base Rate Option: A fluctuating rate per annum
(computed on the basis of a year of 365 days and
actual days elapsed) equal to the Base Rate plus the
Applicable Margin, such interest rate to change
automatically from time to time
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effective as of the effective date of (A) each change
in the Base Rate and (B) each change in the Applicable
Margin.
(ii) Revolving Credit Euro-Rate Option: A rate per annum
(computed on the basis of a year of 360 days and
actual days elapsed) equal to the Euro-Rate plus the
Applicable Margin, such interest rate shall change on
the effective date of any change in the Applicable
Margin.
(iii) Swing Loan Quoted Rate Option: A fixed rate per annum
based upon Mellon's cost of funds plus a margin as
such rate is set and quoted to the Borrower on any
given day by Mellon in its sole discretion.
3.2 Interest Periods.
The interest period specified in a Loan Request (the "Interest
Period") (i) during which a Euro Rate Option shall apply shall be one, two,
three or six Months, provided, that prior to the Business Day following the
Syndication Date, such Interest Period shall be one month and (ii) during which
a Swing Loan Quoted Rate Option shall apply shall be one, two, three, four or
five Business Days or two or three weeks or thirty (30) days; and provided,
further, that:
3.2.1 Ending Date and Business Day.
Any Interest Period which would otherwise end on a date which is
not a Business Day shall be extended to the next succeeding Business Day unless
such Business Day falls in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day;
3.2.2 Amount of Borrowing Tranche.
Each Borrowing Tranche of a Loan to which the Revolving Credit
Euro-Rate Option applies shall be in integral multiples of $1,000,000 and not
less than $3,000,000;
3.2.3 Termination Before Expiration Date.
The Borrower shall not select, convert to or renew an Interest
Period for any portion of the Loans that would end after the Expiration Date;
and
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3.2.4 Renewals.
In the case of the renewal of a Revolving Credit Euro-Rate Option
at the end of an Interest Period, the first day of the new Interest Period shall
be the last day of the preceding Interest Period, without duplication in payment
of interest for such day.
3.3 Interest After Default.
To the extent permitted by Law, upon the occurrence of an Event of
Default and until such time such Event of Default shall have been cured or
waived:
3.3.1 Letters of Credit Fees, Interest Rate.
The Letters of Credit Fees and the rate of interest for each Loan
otherwise applicable pursuant to Section 2.10 or Section 3.1, respectively,
shall be increased by 2.0% per annum;
3.3.2 Other Obligations.
Each other Obligation hereunder if not paid when due shall bear
interest at a rate per annum equal to the sum of the rate of interest applicable
under the Base Rate Option plus an additional 2.0% per annum from the time such
Obligation becomes due and payable and until it is paid in full; and
3.3.3 Acknowledgment.
The Borrower acknowledges that the increased rates referred to in
this Section 3.3 reflect, among other things, the fact that the Loans or other
amounts have become a substantially greater risk given their default status and
that the Banks are entitled to additional compensation for such risk. All such
interest shall be payable by Borrower upon demand by the Agent.
3.4 Euro-Rate Unascertainable.
3.4.1 Unascertainable.
If on any date on which a Euro-Rate would otherwise be
determined, the Agent shall have determined that:
(i) adequate and reasonable means do not exist for
ascertaining such Euro-Rate, or
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(ii) a contingency has occurred which materially and
adversely affects the London interbank market relating
to the Euro-Rate, then the Agent shall have the rights
specified in Section 3.4.3.
3.4.2 Illegality; Increased Costs; Deposits Not Available.
If at any time any Bank shall have determined that:
(i) the making, maintenance or funding of any Loan to
which a Revolving Credit Euro-Rate Option applies has
been made impracticable or unlawful by compliance by
such Bank in good faith with any Law or any
interpretation or application thereof by any Official
Body or with any request or directive of any Official
Body (whether or not having the force of Law), or
(ii) such Revolving Credit Euro-Rate Option will not
adequately and fairly reflect the cost to such Bank of
the establishment or maintenance of any such Loan, or
(iii) after making all reasonable efforts, deposits of the
relevant amount in Dollars for the relevant Interest
Period for a Loan to which a Revolving Credit Euro-
Rate Option applies, are not available to such Bank
with respect to such Loan in the London interbank
market,
then such Bank shall have the rights specified in Section 3.4.3.
3.4.3 Agent's and Bank's Rights.
In the case of any event specified in Section 3.4.1, the Agent
shall promptly so notify the Banks and the Borrower thereof, and in the case of
a determination specified in Section 3.4.2, such Bank shall promptly so notify
the Agent and endorse a certificate to such notice as to the specific
circumstances of such notice, and the Agent shall promptly send copies of such
notice and certificate to the other Banks and the Borrower. Upon such date as
shall be specified in such notice (which shall not be earlier than the date such
notice is given) the obligation of (A) the Banks, in the case of such notice
given by the Agent in respect of Section 3.4.1, or (B) such Bank, in the case
of such notice given by such Bank in respect of Section 3.4.2, to allow the
Borrower to select, convert to or renew a Revolving Credit Euro-Rate Option
shall be suspended until the Agent shall have later notified the Borrower, or
such Bank shall have later notified the Agent, of the Agent's or such Bank's, as
the case may be, determination that the circumstances giving rise to such
previous determination no longer exist.
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If at any time the Agent makes a determination under Section 3.4.1 and the
Borrower has previously notified the Agent of its selection of, conversion to or
renewal of a Revolving Credit Euro-Rate Option and such Interest Rate Option has
not yet gone into effect, such notification shall be deemed to provide for
selection of, conversion to or renewal of the Base Rate Option otherwise
available with respect to the affected Loans. If any Bank notifies the Agent of
a determination under Section 3.4.2, the Borrower shall, subject to the
Borrower's indemnification Obligations under Section 4.6.2, as to any Loan of
such Bank to which a Revolving Credit Euro-Rate Option applies, on the date
specified in such notice convert such Loan to the Base Rate Option otherwise
available with respect to such Loan. Absent due notice from the Borrower of
conversion, such Loan shall automatically be converted to the Base Rate Option
otherwise available with respect to such Loan upon such specified date. Upon any
such conversion, the Borrower shall have the right to prepay Loans in the amount
of such Loan on the date of such conversion without providing the notice
otherwise required by Section 4.4.1. If an event occurs that makes the
applicable Euro-Rate Option no longer available to the Borrower, the Borrower,
the Agent and the Banks shall negotiate in good faith to provide a replacement
Interest Rate Option for the affected Euro-Rate Option that is mutually
satisfactory.
3.5 Selection of Interest Rate Options.
If the Borrower fails to select a new Interest Period to apply to any
Borrowing Tranche to which a Revolving Credit Euro-Rate Option applies at the
expiration of an existing Interest Period applicable to such Borrowing Tranche
in accordance with the provisions of Section 3.2, the Borrower shall be deemed
to have converted such Borrowing Tranche to the Revolving Credit Base Rate
Option commencing upon the last day of such Interest Period.
4. PAYMENTS
4.1 Payments.
All payments and prepayments to be made in respect of principal,
interest, Commitment Fees, Letters of Credit Fees, the Agent's Fee, or other
amounts due from the Borrower hereunder (other than the fees and expenses
referenced in Section 2.10.3 which are to be paid to the Agent as provided in
such sections and the fees and expenses referenced in Section 9.15, each of
which shall be paid in accordance with such sections) shall be payable prior to
12:00 p.m., Pittsburgh, Pennsylvania time, on the date when due without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived by the Borrower, and without set-off, counterclaim or other
deduction of any nature, and an action therefor shall immediately accrue to the
extent of any non-payment thereof. Payments of principal and interest on Loans
and of Commitment Fees and Letters of Credit Fees shall be made to the Agent at
the Principal Office for the ratable accounts of the Banks in Dollars and in
immediately available funds, and the Agent shall promptly distribute such
amounts to the Banks in immediately available funds; provided that in the event
payments are received by noon (Pittsburgh, Pennsylvania time) by the Agent with
respect to the Loans and such payments are not distributed
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to the Banks on the same day received by the Agent, the Agent shall pay the
Banks the Federal Funds Effective Rate with respect to the amount of such
payments for each day held by the Agent and not distributed to the Banks. The
Agent's and each Bank's statement of account, ledger or other relevant record
shall, in the absence of manifest error, be conclusive as the statement of the
amount of principal of and interest on the Loans and other amounts owing under
this Agreement and shall be deemed an "account stated."
4.2 Pro Rata Treatment of Banks.
Each borrowing of a Revolving Credit Loan shall be allocated to each
Bank according to its Ratable Share, and each selection of, conversion to or
renewal of any Interest Rate Option and each payment or prepayment by the
Borrower with respect to principal, interest, Commitment Fees related to the
Revolving Credit Loans, Letters of Credit Fees, or other fees (except for the
Agent's Fee, and any fees to the Agent with respect to the issuance,
administration or payments under Letters of Credit) or amounts due from the
Borrower hereunder to the Banks with respect to the Revolving Credit Loans to
it, shall (except as provided in Section 3.4.2 [Illegality, Increased Costs;
Deposits not Available], 4.4 [Voluntary Prepayments] or 4.5 [Additional
Compensation in Certain Circumstances]) be made in proportion to the applicable
Revolving Credit Loans outstanding from each Bank and, if no such Revolving
Credit Loans are then outstanding, in proportion to the Ratable Share of each
Bank.
4.3 Interest Payment Dates.
Interest on Loans to which the Base Rate Option applies shall be due
and payable in arrears on the first Business Day of each January, April, July
and October after the date hereof and on the Expiration Date and upon
acceleration of the Notes. Interest on Loans to which the Revolving Credit
Euro-Rate Option applies shall be due and payable on the last day of each
Interest Period for those Loans and, if any such Interest Period is longer than
three Months, also on the last day of every third Month during such Interest
Period. Interest on Swing Loans subject to the Swing Loan Quoted Rate Option
shall be due and payable in arrears on the first Business Day of each January,
April, July and October and upon acceleration of the Notes. Without limitation
on Section 4.4.1, interest on mandatory prepayments of principal under Section
4.5 shall be due on the date such mandatory prepayment is due. Interest on the
principal amount of each Loan or other monetary Obligation shall be due and
payable on demand after such principal amount or other monetary Obligation
becomes due and payable (whether on the stated maturity date, upon acceleration
or otherwise).
4.4 Voluntary Prepayments.
4.4.1 Right to Prepay.
The Borrower shall have the right at its option from time to time
to prepay the Loans in whole or part without premium or penalty (except as
provided in Section 4.5):
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(i) at any time with respect to any Loan to which the Base
Rate Option applies,
(ii) on the last day of the applicable Interest Period with
respect to Loans to which a Revolving Credit Euro-Rate
Option or a Swing Loan Quoted Rate Option applies, and
(iii) on the date specified in a notice by any Bank pursuant
to Section 3.4 [Euro-Rate Unascertainable], with
respect to any Loan to which a Revolving Credit Euro-
Rate Option applies.
Whenever the Borrower desires to prepay any part of the Loans, it
shall provide a prepayment notice to the Agent not later than 10:00 a.m.,
Pittsburgh, Pennsylvania time on the Business Day prior to the date of
prepayment of Loans setting forth the following information (provided no notice
from Borrower is required pursuant to subsection (iii) above):
(x) the date, which shall be a Business Day, on which the
proposed prepayment is to be made;
(y) a statement indicating the application of the prepayment to
the Revolving Credit Loans; and
(z) the total principal amount of such prepayment, which shall
not be less than $3,000,000 or integral multiples of $1,000,000.
All prepayment notices shall be irrevocable. The principal amount
of the Loans for which a prepayment notice is given, together with interest on
such principal amount, shall be due and payable on the date specified in such
prepayment notice as the date on which the proposed prepayment is to be made. If
the Borrower prepays a Loan pursuant to this Section but fails to specify the
applicable Borrowing Tranche which the Borrower is prepaying, the prepayment
shall be applied first to Swing Loans to which the Swing Loan Base Rate Option
applies, then to Revolving Credit Loans to which the Base Rate Option applies,
then to Swing Loans to which the Swing Loan Quoted Rate Option applies, then to
Revolving Credit Loans to which the Revolving Credit Euro-Rate Option applies.
Any prepayment hereunder shall be subject to the Borrower's Obligation to
indemnify the Banks under Section 4.6.2.
4.5 Mandatory Reduction of Commitments; Mandatory Payments and
Prepayments.
4.5.1 Qualified Note Placement.
If the Borrower issues notes pursuant to a Qualified Note
Placement, simultaneously with the closing thereof, the proceeds of such
issuance shall be first applied to
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Swing Loans to which the Swing Loan Base Rate Option applies, then to Revolving
Credit Loans to which the Base Rate Option applies, then to Swing Loans to which
the Swing Loan Quoted Rate Option applies, then to Revolving Credit Loans to
which the Revolving Credit Euro-Rate Option applies. Upon each mandatory
prepayment of Loans pursuant to this Section 4.5.1, the Revolving Credit
Commitments automatically shall be permanently and irrevocably reduced by an
amount equal to such prepayment.
4.6 Additional Compensation in Certain Circumstances.
4.6.1 Increased Costs or Reduced Return Resulting From Taxes,
Reserves, Capital Adequacy Requirements, Expenses, Etc.
If any Law, guideline or interpretation or any change in any Law,
guideline or interpretation or application thereof by any Official Body charged
with the interpretation or administration thereof or compliance with any request
or directive (whether or not having the force of Law) of any central bank or
other Official Body:
(i) subjects any Bank to any tax or changes the basis of
taxation with respect to this Agreement, the Notes,
the Loans or payments by the Borrower of principal,
interest, Commitment Fees, or other amounts due from
the Borrower hereunder or under the Notes (except for
taxes on the overall net income of such Bank),
(ii) imposes, modifies or deems applicable any reserve,
special deposit or similar requirement against credits
or commitments to extend credit extended by, or assets
(funded or contingent) of, deposits with or for the
account of, or other acquisitions of funds by, any
Bank, or
(iii) imposes, modifies or deems applicable any capital
adequacy or similar requirement (A) against assets
(funded or contingent) of, or letters of credit, other
credits or commitments to extend credit extended by,
any Bank, or (B) otherwise applicable to the
obligations of any Bank under this Agreement,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon any
Bank with respect to this Agreement, the Notes or the making, maintenance or
funding of any part of the Loans (or, in the case of any capital adequacy or
similar requirement, to have the effect of reducing the rate of return on any
Bank's capital, taking into consideration such Bank's customary policies with
respect to capital adequacy) by an amount which such Bank in its sole discretion
deems to be material, such Bank shall from time to time notify the Borrower and
the Agent of the amount determined in good
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faith (using any averaging and attribution methods employed in good faith which
shall be binding upon the parties absent manifest error) by such Bank to be
necessary to compensate such Bank for such increase in cost, reduction of income
or additional expense or reduced rates of return. Such notice shall set forth in
reasonable detail the basis for such determination. Such amount shall be due and
payable by the Borrower to such Bank five (5) Business Days after such notice is
given, subject, however, to the provisions of Section 10.5.3.
4.6.2 Indemnity.
In addition to the compensation required by Section 4.6.1, the
Borrower shall indemnify each Bank against all liabilities, losses or expenses
(including loss of margin, any loss or expense incurred in liquidating or
employing deposits from third parties and any loss or expense incurred in
connection with funds acquired by a Bank to fund or maintain Loans subject to a
Revolving Credit Euro-Rate Option) which such Bank sustains or incurs as a
consequence of any
(i) payment, prepayment, conversion or renewal of any Loan
to which a Revolving Credit Euro-Rate Option applies
on a day other than the last day of the corresponding
Interest Period (whether or not such payment or
prepayment is mandatory, voluntary or automatic and
whether or not such payment or prepayment is then
due),
(ii) attempt by the Borrower to revoke (expressly, by later
inconsistent notices or otherwise) in whole or part
any Loan Requests under Section 2.5 or any notice
relating to prepayments under Section 4.4, or
(iii) default by the Borrower in the performance or
observance of any covenant or condition contained in
this Agreement or any other Loan Document, including
any failure of the Borrower to pay when due (by
acceleration or otherwise) any principal, interest,
Commitment Fee or any other amount due hereunder.
If any Bank sustains or incurs any such loss or expense, it shall
from time to time notify the Borrower of the amount determined in good faith by
such Bank (which determination may include such assumptions, allocations of
costs and expenses and averaging or attribution methods as such Bank shall deem
reasonable which shall be binding on the parties absent manifest error) to be
necessary to indemnify such Bank for such loss or expense. Such notice shall set
forth in reasonable detail the basis for such determination. Such amount shall
be due and payable by the Borrower to such Bank ten (10) Business Days after
such notice is given.
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4.7 Settlement Date Procedures.
In order to minimize the transfer of funds between the Banks and the
Agent, the Borrower may borrow, repay and reborrow Swing Loans, and Mellon may
make Swing Loans, as provided in Section 2.1.2 hereof during the period
between Settlement Dates. On each Settlement Date, the Banks agree among
themselves to effect a settlement so that each Bank shall have its Ratable Share
of all Revolving Credit Loans (including those Revolving Credit Loans designated
by Mellon as Swing Loans) outstanding as of the close of business on the
business day immediately preceding such Settlement Date. not later than 10:00
a.m. on each Settlement Date when Swing Loans are outstanding, the Agent shall
notify each Bank of its Ratable Share of the Revolving Credit Loans outstanding
as of the close of business on the business day immediately preceding such
Settlement Date. Prior to 3:00 p.m. Pittsburgh time on such Settlement Date,
each Bank shall pay to the Agent the amount, if any, necessary to effectuate the
settlement contemplated by this Section, and the Agent shall promptly pay to
each Bank its Ratable Share of all payments, if any, made by the Borrower to the
Agent with respect to the Revolving Credit Loans not theretofor paid and any
payments due such Bank in settlement under this Section. The Agent shall also
effect settlement in accordance with this Section 4.7 on the proposed Borrowing
Dates for all Revolving Credit Loans and may at its option effect settlement on
any other Business Day. if an Event of Default shall occur and on the date of
such occurrence the sum of Mellon's Revolving Credit Loans shall be less than
Mellon's Ratable Share of all Revolving Credit Loans, Mellon shall pay to the
Agent the amount, if any, necessary to effectuate the settlement between the
Banks as contemplated by this Section 4.7. These settlement procedures are
established solely as a matter of administrative convenience, and nothing
contained in this Section 4.7 shall relieve the Banks of their obligations to
fund Revolving Credit Loans on dates other than a Settlement Date pursuant to
Section 2.7. Mellon may at any time, at its option, for any reason whatsoever
require each Bank to pay immediately to Mellon such Bank's Ratable Share of the
outstanding Swing Loans, and each Bank may at any time require the Agent to pay
immediately to such Bank its Ratable Share of all payments made by the Borrower
to the Agent with respect to the Revolving Credit Loans.
4.8 Interbank Market Presumption.
For all purposes of this Agreement and each Note with respect to any
aspects of the Euro-Rate, any Loan under the Revolving Credit Euro-Rate Option,
each Bank and Agent shall be presumed to have obtained rates, funding,
currencies, deposits, and the like in the applicable interbank market regardless
whether it did so or not; and, each Bank's and Agent's determination of amounts
payable under, and actions required or authorized by, Sections 3.4 and 4.6
shall be calculated, at each Bank's and Agent's option, as though each Bank and
Agent funded its share of each Borrowing Tranche of Loans under the Revolving
Credit Euro-Rate Option through the purchase of deposits of the types and
maturities corresponding to the deposits used as a reference in accordance with
the terms hereof in determining the Euro-Rate applicable to such Loans, whether
in fact that is the case.
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4.9 Taxes.
4.9.1 No Deductions.
All payments made by the Borrower hereunder and under each Note
shall be made free and clear of and without deduction for any present or future
taxes, levies, imposts, deductions, charges, or withholdings, and all
liabilities with respect thereto, excluding taxes imposed on the net income of
any Bank and all income and franchise taxes applicable to any Bank of the United
States (all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings, and liabilities being hereinafter referred to as "Taxes"). If the
Borrower shall be required by Law to deduct any Taxes from or in respect of any
sum payable hereunder or under any Note, (i) the sum payable shall be increased
as may be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section) each Bank
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall timely pay the full amount deducted to the relevant tax authority
or other authority in accordance with applicable Law.
4.9.2 Stamp Taxes.
In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges, or
similar levies which arise from any payment made hereunder or from the
execution, delivery, or registration of, or otherwise with respect to, this
Agreement or any Note (hereinafter referred to as "Other Taxes").
4.9.3 Indemnification for Taxes Paid by a Bank.
The Borrower shall indemnify each Bank for the full amount of
Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 4.9) paid by
any Bank and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. This indemnification shall be made within 30 days
from the date a Bank makes written demand therefor.
4.9.4 Certificate.
Within 30 days after the date of any payment of any Taxes by the
Borrower, the Borrower shall furnish to each Bank, at its address referred to
herein, the original or a certified copy of a receipt evidencing payment
thereof. If no Taxes are payable in respect of any payment by the Borrower, the
Borrower shall, if so requested by a Bank, provide a certificate of an officer
of the Borrower to that effect.
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4.9.5 Survival.
Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
Sections 4.9.1 through 4.9.4 shall survive the payment in full of principal
and interest hereunder and under any instrument delivered hereunder.
5. REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties.
The Borrower represents and warrants to the Agent and each of the
Banks as follows:
5.1.1 Organization and Qualification.
Each Loan Party and each Subsidiary of any Loan Party is a
corporation or partnership, duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each Loan Party and
each Subsidiary of any Loan Party has the lawful power to own or lease its
properties and to engage in the business it presently conducts or proposes to
conduct. Each Loan Party and each Subsidiary of any Loan Party is listed on
Schedule 5.1.1 and is duly licensed or qualified and in good standing in each
jurisdiction where the property owned or leased by it or the nature of the
business transacted by it or both makes such licensing or qualification
necessary (except where the failure to be so licensed or qualified would not
constitute a Material Adverse Change), and upon request of the Agent, the
Borrower will promptly furnish a written list of every jurisdiction where each
Subsidiary and Loan Party is so qualified.
5.1.2 Subsidiary and Joint Venture Matters.
Schedule 5.1.2 sets forth the authorized, issued and outstanding
capital stock of or ownership interest in each Subsidiary and each Joint Venture
and the record owner of such capital stock or other ownership interest, as the
case may be. Other than as set forth on Schedule 5.1.2, each of the Borrower's
Subsidiaries is directly or indirectly wholly owned by the Borrower and all of
the issued and outstanding shares of capital stock of each such Subsidiary
(referred to herein as the "Subsidiary Shares") are owned free and clear in each
case of any Lien and each Joint Venture interest is owned by the Borrower or any
of its Subsidiaries free and clear of any Lien. All Subsidiary Shares have been
validly issued, and all Subsidiary Shares are fully paid and, except as
otherwise set forth on such Schedule 5.1.2, nonassessable. There are no
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options, warrants or other rights outstanding to purchase any Subsidiary Shares
except as indicated on Schedule 5.1.2.
5.1.3 Power and Authority.
Each Loan Party has full power to enter into, execute, deliver
and carry out this Agreement and the other Loan Documents to which it is a
party, to incur the Indebtedness contemplated by the Loan Documents and to
perform its Obligations under the Loan Documents to which it is a party, and all
such actions have been duly authorized by all necessary proceedings on its part.
5.1.4 Validity and Binding Effect.
This Agreement has been duly and validly executed and delivered
by each Loan Party, and each other Loan Document which any Loan Party is
required to execute and deliver on or after the date hereof will have been duly
executed and delivered by such Loan Party on the required date of delivery of
such Loan Document. This Agreement and each other Loan Document constitutes, or
will constitute, legal, valid and binding obligations of each Loan Party which
is or will be a party thereto on and after its date of delivery thereof,
enforceable against such Loan Party in accordance with its terms, except to the
extent that enforceability of any such Loan Document may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforceability of creditors' rights generally or limiting the
right of specific performance.
5.1.5 No Conflict.
Neither the execution and delivery of this Agreement or the other
Loan Documents by any Loan Party nor the consummation of the transactions herein
or therein contemplated or compliance with the terms and provisions hereof or
thereof by any of them (i) will conflict with, constitute a default under or
result in any breach of (A) the terms and conditions of the certificate of
incorporation, bylaws or other organizational documents of any Loan Party or any
of its Subsidiaries which is a party thereto or (B) any Law or any agreement or
instrument or order, writ, judgment, injunction or decree to which any such Loan
Party or any of its Subsidiaries is a party, is bound by or is subject, which
conflict, default or breach reasonably would be expected to result in a Material
Adverse Change, or (ii) will result in the creation or enforcement of any Lien
whatsoever upon any property (now or hereafter acquired) of any Loan Party or
any of its Subsidiaries (other than Liens granted under the Loan Documents).
5.1.6 Litigation.
Except as set forth on Schedule 5.1.6, there are no actions,
suits, proceedings or investigations pending or, to the knowledge of any Loan
Party, threatened against such Loan Party or any Subsidiary of any Loan Party at
law or equity before any Official Body which individually or in the aggregate
may result in any Material Adverse Change. None of the
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Loan Parties or any Subsidiaries of any Loan Party is in violation of any order,
writ, injunction or any decree of any Official Body which reasonably would be
expected to result in any Material Adverse Change.
5.1.7 Title to Properties.
Each Loan Party and each Subsidiary of any Loan Party has good
and marketable title to or a valid leasehold interest in all material
properties, assets and other rights which it purports to own or lease or which
are reflected as owned or leased on its books and records, free and clear of all
Liens except Permitted Liens, and subject to the terms and conditions of the
applicable leases. All material leases of property are in full force and effect
without the necessity for any consent which has not previously been obtained
upon consummation of the transactions contemplated hereby.
5.1.8 Financial Statements.
(i) Historical Statements. The Borrower has delivered to
the Agent copies of its (A) audited consolidated year-
end financial statements for and as of the end of the
three fiscal years ended October 31, 1995 (the "Annual
Statements" ) and (B) unaudited consolidated interim
financial statements for the fiscal year to date and
as of the end of the fiscal quarter ended July 31,
1996 (the "Interim Statements", and together with the
Annual Statements, the "Historical Statements"). The
Historical Statements were compiled from the books and
records maintained by the Borrower's management, are
correct and complete and fairly represent the
consolidated financial condition of the Borrower and
its Subsidiaries as of their dates and the results of
operations for the fiscal periods then ended and have
been prepared in accordance with GAAP consistently
applied;
(ii) Financial Projections. The Borrower has delivered to
the Agent financial projections of the Borrower and
its Subsidiaries for fiscal years 1996, 1997, 1998,
1999, 2000, and 2001 derived from various assumptions
of the Borrower's management (the "Financial
Projections"). The Financial Projections reflect the
reasonable expectations of the Borrower's management
as of the Closing Date in light of the history of the
business, present and foreseeable conditions and
intentions of the Borrower's management, all based on
the assumptions thereto, which assumptions were made
and based upon information available at the
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time of preparation of such projections. The Financial
Projections accurately reflect the liabilities of the
Borrower and its Subsidiaries incurred pursuant to the
Loan Documents upon consummation of the transactions
contemplated hereby as of the Closing Date; and
(iii) Accuracy of Financial Statements. Neither the Borrower
nor any Subsidiary of the Borrower has as of the date
of the Historical Statements any material liabilities,
contingent or otherwise, or forward or long-term
commitments that are not disclosed in the Historical
Statements or in the notes thereto, and except as
disclosed therein there are no unrealized or
anticipated losses from any commitments of the
Borrower or any Subsidiary of the Borrower which
reasonably would be expected to cause a Material
Adverse Change. Since October 31, 1995, no Material
Adverse Change has occurred provided however, that
neither the Tender Offer nor the Spin-Off shall be
deemed to constitute a Material Adverse Change for the
purposes of this clause (iii).
5.1.9 Margin Stock.
None of the Loan Parties or any Subsidiaries of any Loan Party
engages or intends to engage principally, or as one of its important activities,
in the business of extending credit for the purpose, immediately, incidentally
or ultimately, of purchasing or carrying margin stock (within the meaning of
Regulation U). No part of the proceeds of any Loan or issued Letter of Credit
has been or will be used, immediately, incidentally or ultimately, to purchase
or carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock or to refund Indebtedness originally
incurred for such purpose, or for any purpose which entails a violation of or
which is inconsistent with the provisions of the regulations of the Board of
Governors of the Federal Reserve System.
5.1.10 Full Disclosure.
Neither this Agreement nor any other Loan Document, nor any
certificate, statement, agreement or other documents furnished to the Agent or
any Bank in connection herewith or therewith, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which they were made, not misleading. There is no fact known to any Executive
Officer of any Loan Party which materially adversely affects the business,
property, assets, financial condition, results of operations or prospects of any
Loan Party or Subsidiary of any Loan Party which has not been set forth in this
Agreement or in the certificates, statements,
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agreements or other documents furnished in writing to the Agent and the Banks
prior to or at the date hereof in connection with the transactions contemplated
hereby.
5.1.11 Taxes.
All federal, state, local and other tax returns required to have
been filed with respect to each Loan Party and each Subsidiary of any Loan Party
have been filed, other than those for which the failure to file the same would
not reasonably be expected to result in a Material Adverse Change, and payment
or adequate provision has been made for the payment of all taxes, fees,
assessments and other governmental charges shown to be owing pursuant to said
returns or to assessments received, except to the extent that such taxes, fees,
assessments and other charges are being contested in good faith by appropriate
proceedings diligently conducted and for which such reserves or other
appropriate provisions, if any, as shall be required by GAAP shall have been
made. Except with respect to the consolidated Federal income tax return for
Intertech and its Subsidiaries for the fiscal year ended October 31, 1993, there
are no agreements or waivers extending the statutory period of limitations
applicable to any federal income tax return of any Loan Party or Subsidiary of
any Loan Party for any period.
5.1.12 Consents and Approvals.
No consent, approval, exemption, order or authorization of, or a
registration or filing with, any Official Body or any other Person is required
by any Law or any agreement in connection with the execution, delivery and
carrying out of this Agreement and the other Loan Documents by any Loan Party,
except as listed on Schedule 5.1.12, all of which shall have been obtained or
made on or prior to the Closing Date except as otherwise indicated on Schedule
5.1.12.
5.1.13 No Event of Default; Compliance with Instruments.
No event has occurred and is continuing and no condition exists
now or will exist after giving effect to and as a result of the extensions of
credit to be made on the Closing Date under the Loan Documents which constitutes
an Event of Default or Potential Default. None of the Loan Parties or any
Subsidiaries of any Loan Party is in violation of (i) any term of its
certificate of incorporation, bylaws, or other organizational documents or (ii)
any material agreement or instrument to which it is a party or by which it or
any of its properties may be subject or bound where such violation would
constitute a Material Adverse Change.
5.1.14 Patents, Trademarks, Copyrights, Licenses, Etc.
A Loan Party or a Subsidiary of a Loan Party owns or possesses
all the material patents, trademarks, service marks, trade names, copyrights,
licenses, registrations, franchises, permits and rights necessary to own and
operate its properties and to carry on its
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business as presently conducted and planned to be conducted by the Borrower and
its Subsidiaries taken as a whole, without known conflict by, or with the rights
of, others.
5.1.15 Insurance.
The Borrower has delivered to the Agent a true and correct
listing of the property and general liability insurance of the Borrower. No
notice has been given or claim made and to the best knowledge of the Executive
Officers and the individuals responsible for insurance matters of the Loan
Parties no grounds exist to cancel or avoid any of such policies or bonds or to
reduce the coverage provided thereby. Such policies and bonds provide adequate
coverage from reputable and financially sound insurers in amounts sufficient to
insure the assets and risks of each Loan Party and each Subsidiary of any Loan
Party in accordance with prudent business practice in the industry of the Loan
Parties and their Subsidiaries.
5.1.16 Compliance with Laws.
The Loan Parties and their Subsidiaries are in compliance in all
material respects with all applicable Laws (other than Environmental Laws which
are specifically addressed in Section 5.1.21) in all jurisdictions in which any
Loan Party or Subsidiary of any Loan Party is presently or currently anticipates
it will be doing business except where the failure to do so would not constitute
a Material Adverse Change.
5.1.17 Material Contracts.
Each material contract relating to the business operations of
each Loan Party and each Subsidiary of any Loan Party, is valid, binding and
enforceable upon such Loan Party or Subsidiary to the extent such Person is a
party thereto in accordance with its respective terms, and the Loan Party which
is a party thereto has not received actual notice of a default thereunder with
respect to parties other than such Loan Party or Subsidiary. For purposes of
this Section 5.1.17 the term "material contracts" shall mean those contracts or
other agreements which the Borrower would be required to file with the
Securities and Exchange Commission pursuant to item 601(a)(10) of Regulation S-K
promulgated under the Securities Act of 1933 and the Securities Exchange Act of
1934.
5.1.18 Investment Companies.
None of the Loan Parties or any Subsidiary of any Loan Party is
an "investment company" registered or required to be registered under the
Investment Company Act of 1940 or under the "control" of an "investment company"
as such terms are defined in the Investment Company Act of 1940 and shall not
become such an "investment company" or under such "control".
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5.1.19 Plans and Benefit Arrangements.
Except as set forth on Schedule 5.1.19:
(i) The Borrower and each other member of the ERISA Group
are in compliance in all material respects with any
applicable provisions of ERISA with respect to all
Benefit Arrangements, Plans and Multiemployer Plans.
There has been no Prohibited Transaction with respect
to any Benefit Arrangement or any Plan or, to the best
knowledge of the Borrower, with respect to any
Multiemployer Plan or Multiple Employer Plan, which
reasonably would be expected to result in any material
liability of the Borrower or any other member of the
ERISA Group. The Borrower and all other members of the
ERISA Group have made when due any and all payments
required to be made under any agreement relating to a
Multiemployer Plan or a Multiple Employer Plan or any
Law pertaining thereto. With respect to each Plan and
Multiemployer Plan, the Borrower and each other member
of the ERISA Group (i) have fulfilled in all material
respects their obligations under the minimum funding
standards of ERISA, (ii) have not incurred any
liability to the PBGC, and (iii) have not had asserted
against them any penalty for failure to fulfill the
minimum funding requirements of ERISA;
(ii) To the best of each Loan Parties' knowledge, each
Multiemployer Plan and Multiple Employer Plan is able
to pay benefits thereunder when due;
(iii) Neither the Borrower nor any other member of the ERISA
Group has instituted or intends to institute
proceedings to terminate any Plan;
(iv) No event requiring notice to the PBGC under Section
302(f)(4)(A) of ERISA has occurred or is reasonably
expected to occur with respect to any Plan, and no
amendment with respect to which security is required
under Section 307 of ERISA has been made or is
reasonably expected to be made to any Plan;
(v) The aggregate actuarial present value of all benefit
liabilities (whether or not vested) under the Plans,
determined on an ongoing basis, as disclosed in, and
as of
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the date of, the most recent actuarial report for
each such Plan, does not exceed the aggregate fair
market value of the assets of such Plans;
(vi) Neither the Borrower nor any other member of the
ERISA Group has incurred or reasonably expects to
incur any material withdrawal liability under ERISA
to any Multiemployer Plan or Multiple Employer Plan.
Neither the Borrower nor any other member of the
ERISA Group has been notified by any Multiemployer
Plan or Multiple Employer Plan that such
Multiemployer Plan or Multiple Employer Plan has been
terminated within the meaning of Title IV of ERISA
and, to the best knowledge of the Borrower, no
Multiemployer Plan or Multiple Employer Plan is
reasonably expected to be reorganized or terminated,
within the meaning of Title IV of ERISA;
(vii) To the extent that any Benefit Arrangement is
insured, the Borrower and all other members of the
ERISA Group have paid when due all premiums required
to be paid for all periods through the Closing Date.
To the extent that any Benefit Arrangement is funded
other than with insurance, the Borrower and all other
members of the ERISA Group have made when due all
contributions required to be paid for all periods
through the Closing Date; and
(viii) All Plans, Benefit Arrangements and Multiemployer
Plans have been administered in all material respects
in accordance with their terms and applicable Law.
5.1.20 Employment Matters.
Each of the Loan Parties and each of their Subsidiaries is in
compliance with the Labor Contracts and all applicable federal, state and local
labor and employment Laws including those related to equal employment
opportunity and affirmative action, labor relations, minimum wage, overtime,
child labor, medical insurance continuation, worker adjustment and relocation
notices, immigration controls and worker and unemployment compensation, where
the failure to comply reasonably would be expected to constitute a Material
Adverse Change. There are no outstanding grievances, arbitration awards or
appeals therefrom arising out of the Labor Contracts or current or threatened
strikes, picketing, handbilling or other work stoppages or slowdowns at
facilities of any of the Loan Parties or any of their Subsidiaries which in any
case would constitute a Material Adverse Change.
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5.1.21 Environmental Matters.
----------------------
Except as disclosed on Schedule 5.1.21:
(i) Except for notices which would not reasonably be
expected to result in a Material Adverse Change, none
of the Loan Parties or any Subsidiary of any Loan
Party has received any Environmental Complaint from
any Official Body or private Person alleging that such
Loan Party or Subsidiary or any prior owner of any
Property or acquirer of any Property from any Loan
Party or Subsidiary is a potentially responsible party
under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S) 9601, et
seq., and none of the Loan Parties has any reason to
believe that such an Environmental Complaint might be
received. There are no pending or, to any Loan Party's
knowledge, threatened Environmental Complaints
relating to any Loan Party or any Subsidiary of any
Loan Party or, to any Loan Party's knowledge, any
prior or subsequent owner of any Property pertaining
to, or arising out of, any Environmental Conditions
which reasonably would be expected to result in a
Material Adverse Change,
(ii) Except for Environmental Conditions, violations or
failures which individually and in the aggregate would
not reasonably be expected to result in a Material
Adverse Change, there are no circumstances at, on or
under any Property that constitute a breach of or non-
compliance with any of the Environmental Laws, and
there are no past or present Environmental Conditions
at, on or under any Property or, to any Loan Party's
knowledge, at, on or under adjacent property, that
prevent compliance with the Environmental Laws at any
Property,
(iii) Neither any Property nor any structures, improvements,
equipment, fixtures, activities or facilities thereon
or thereunder contain or use Regulated Substances,
except in compliance with Environmental Laws, which
would reasonably be expected to result in a Material
Adverse Change. There are no processes, facilities,
operations, equipment or other activities at, on or
under any Property, or, to any Loan Party's knowledge,
at, on or under adjacent property, that currently
result in the release or threatened
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release of Regulated Substances onto any Property,
except to the extent that such releases or threatened
releases are not a breach of or otherwise not a
violation of the Environmental Laws or would not
reasonably be expected to result in a Material Adverse
Change,
(iv) There are no aboveground storage tanks, underground
storage tanks or underground piping associated with
such tanks, used for the management of Regulated
Substances at, on or under any Property that (a) do
not have, to the extent required by Environmental
Laws, a full operational secondary containment system
in place, and (b) are not otherwise in compliance with
all Environmental Laws, except in any case where such
would not reasonably be expected to result in a
Material Adverse Change. There are no abandoned
underground storage tanks or underground piping
associated with such tanks, previously used for the
management of Regulated Substances at, on or under any
Property that have not either been closed in place in
accordance with Environmental Laws or removed in
compliance with all applicable Environmental Laws and
no contamination associated with the use of such tanks
exists on any Property that is not in compliance with
Environmental Laws, except in any case where such
would not reasonably be expected to result in a
Material Adverse Change,
(v) The applicable Loan Party or a Subsidiary of a Loan
Party has all permits, licenses, authorizations, plans
and approvals necessary under the Environmental Laws
for the conduct of the business of the Borrower and
its Subsidiaries taken as a whole, except in any case
where the failure to so have would not reasonably be
expected to result in a Material Adverse Change. Each
Loan Party and each Subsidiary of a Loan Party has
submitted all notices, reports and other filings
required by the Environmental Laws to be submitted to
an Official Body which pertain to past and current
operations on any Property, except in any case where
the failure to so submit would not reasonably be
expected to result in a Material Adverse Change, and
(vi) Except for violations which individually and in the
aggregate would not result in a Material Adverse
Change,
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all past and present on-site generation, storage,
processing, treatment, recycling, reclamation,
disposal or other use or management of Regulated
Substances at, on, or under any Property and all off-
site transportation, storage, processing, treatment,
recycling, reclamation, disposal or other use or
management of Regulated Substances have been done in
accordance with the Environmental Laws.
5.1.22 Senior Debt Status.
-------------------
The Obligations of each Loan Party under this Agreement, the
Notes, the Master Guaranty Agreement and each of the other Loan Documents to
which it is a party do rank and will rank no less than pari passu in priority of
payment with all other Indebtedness of such Loan Party except Indebtedness of
such Loan Party to the extent secured by Permitted Liens. There is no Lien upon
or with respect to any of the properties or income of any Loan Party or
Subsidiary of any Loan Party which secures indebtedness or other obligations of
any Person except for Permitted Liens.
5.1.23 Solvency.
---------
The Borrower and each Domestic Subsidiary is Solvent.
5.1.24 Schedule of Indebtedness.
-------------------------
The Borrower has no Indebtedness not listed on Schedule 5.1.24
except items not exceeding $500,000 individually or $1,000,000 in the aggregate.
5.1.25 Material Adverse Change.
------------------------
Since October 31, 1995, no Material Adverse Change has occurred,
provided however, that neither the Tender Offer nor the Spin-Off shall be deemed
to constitute a Material Adverse Change for the purposes of this Section 5.1.25.
5.2 Updates to Schedules.
---------------------
Except as set forth in the next sentence, no Schedule to this
Agreement may be updated, amended or modified without the consent of the
Required Banks given or withheld in their sole and absolute discretion. The
Borrower shall provide to the Agent updates to Schedule 5.1.1, 5.1.2 and 5.1.24
on a quarterly basis provided, however, that the Agent's receipt of any such
update shall not imply that the Agent or any Bank has consented to any event,
transaction or change of circumstance reflected in such update, all of which
shall continue to be governed by the other provisions of this Agreement.
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6. CONDITIONS OF LENDING
---------------------
The obligation of each Bank to make Loans and of the Agent to
issue Letters of Credit is subject to the performance by each of the Loan
Parties of its Obligations to be performed hereunder at or prior to the making
of any such Loans or issuance of such Letters of Credit and to the satisfaction
of the following further conditions:
6.1 First Revolving Credit Loans.
-----------------------------
On the Closing Date:
6.1.1 Officer's Certificate.
----------------------
The representations and warranties of the Borrower contained in
Article 5 and in each of the other Loan Documents shall be true and accurate on
and as of the Closing Date with the same effect as though such representations
and warranties had been made on and as of such date (except representations and
warranties which relate solely to an earlier date or time, which representations
and warranties shall be true and correct on and as of the specific dates or
times referred to therein), and the Borrower shall have performed and complied
with all covenants and conditions hereof and thereof, no Event of Default or
Potential Default shall have occurred and be continuing or shall exist; and
there shall be delivered to the Agent for the benefit of each Bank a certificate
of the Borrower dated the Closing Date and signed by its Chief Executive
Officer, President or Chief Financial Officer, to each such effect.
6.1.2 Secretary's Certificate.
------------------------
There shall be delivered to the Agent for the benefit of each
Bank a certificate dated the Closing Date and signed by the Secretary or an
Assistant Secretary of the Borrower, certifying as appropriate as to:
(i) all action taken by the Borrower in connection with
this Agreement and the other Loan Documents;
(ii) the names of the officer or officers authorized to
sign this Agreement and the other Loan Documents
and the true signatures of such officer or officers
and specifying the Authorized Officers permitted to
act on behalf of the Borrower for purposes of this
Agreement and the true signatures of such officers,
on which the Agent and each Bank may conclusively
rely; and
(iii) copies of its organizational documents, including
its certificate of incorporation and bylaws (or
their equivalents) as in effect on the Closing Date
certified by
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the appropriate governmental official where such
documents are filed in a governmental office together
with certificates from the appropriate governmental
officials as to the continued existence and good
standing of the Borrower in each jurisdiction where
organized or qualified to do business.
6.1.3 Delivery of Loan Documents.
---------------------------
The Loan Documents shall have been executed and delivered to the Agent
for the benefit of the Banks.
6.1.4 Opinions of Counsel.
--------------------
There shall be delivered to the Agent for the benefit of each Bank
written opinions of counsel for the Loan Parties listed on Schedule 6.1.4 (who
may rely on the opinions of such other counsel as may be acceptable to the
Agent), dated the Closing Date and in form and substance satisfactory to the
Agent and its counsel.
6.1.5 Legal Details.
--------------
All legal details and proceedings in connection with the transactions
contemplated by this Agreement and the other Loan Documents shall be in form and
substance reasonably satisfactory to the Agent and its counsel, and the Agent
shall have received all such other counterpart originals or certified or other
copies of such documents and proceedings in connection with such transactions,
in form and substance reasonably satisfactory to the Agent and said counsel, as
the Agent or said counsel may reasonably request.
6.1.6 Payment of Fees and Reimbursement of Expenses.
----------------------------------------------
The Borrower shall have paid or caused to be paid to the Agent for
itself (and, as applicable, for the account of the Banks) to the extent not
previously paid (i) all fees accrued through the Closing Date set forth in the
commitment letter and related fee letter each dated October 15, 1996 and (ii)
all costs and expenses for which the Agent and the Banks are entitled to be
reimbursed thereunder and under this Agreement, to the extent they have been
incurred as of the Closing Date.
6.1.7 Consents.
---------
All material consents required to effectuate the transactions
contemplated hereby as set forth on Schedule 5.1.12 shall have been obtained.
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6.1.8 Officer's Certificate Regarding MACs.
Since October 31, 1995 (i) no Material Adverse Change shall have
occurred and (ii) there shall have been no material change in the management of
the Borrower (except as disclosed to the Banks in a writing referencing this
provision); and there shall have been delivered to the Agent for the benefit of
each Bank a certificate dated the Closing Date and signed by the Chief Executive
Officer, President or Chief Financial Officer of the Borrower to each such
effect; provided, however neither the Tender Offer nor the Spin-Off shall be
deemed to constitute a Material Adverse Change.
6.1.9 No Violation of Laws.
The making of the Loans and issuance of the Letters of Credit
shall not contravene any Law applicable to any Loan Party or any of the Banks.
6.1.10 No Actions or Proceedings.
No action, proceeding, investigation, regulation or legislation
shall have been instituted, threatened or proposed against the Borrower, any
Subsidiary, the Agent or any Bank or any of their respective officers or
directors in their capacity as such before any court, governmental agency or
legislative body to enjoin, restrain or prohibit, or to obtain damages in
respect of, this Agreement or the other Loan Documents, which, in the Agent's
sole discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement or any of the other Loan Documents.
6.1.11 Insurance Policies; Certificates of Insurance.
The Borrower shall have delivered to the Agent upon its request
evidence acceptable to the Agent that adequate insurance in compliance with
Section 7.1.3 is in full force and effect and that all premiums then due
thereon have been paid, together with if requested by the Agent a certified
copy of each Loan Party's casualty insurance policy or policies.
6.1.12 Termination of Existing Debt.
The Borrower simultaneously shall have terminated the
Indebtedness incurred under and paid all amounts owed under the Credit Agreement
dated as of August 9, 1996 among the Borrower, the banks parties thereto and
Mellon Bank, N.A., as Agent.
6.1.13 Solvency Certificate.
The Chief Financial Officer or any other Person specifically
authorized by resolution of the Borrower shall certify as to the solvency and
capital adequacy of the Borrower after giving effect to the transactions
contemplated.
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6.2 Each Additional Loan or Letter of Credit Issuance.
At the time of making any Loans or issuance of any Letters of Credit
other than Loans made or Letters of Credit issued on the Closing Date and after
giving effect to the proposed extensions of credit: the representations and
warranties of the Borrower contained in Article 5 and in the other Loan
Documents shall be true on and as of the date of such additional Loan or Letter
of Credit with the same effect as though such representations and warranties had
been made on and as of such date (except representations and warranties which
expressly relate solely to an earlier date or time, which representations and
warranties shall be true and correct on and as of the specific dates or times
referred to therein) and the Loan Parties shall have performed and complied with
all covenants and conditions hereof; no Event of Default or Potential Default
shall have occurred and be continuing or shall exist; the making of the Loans or
issuance of such Letter of Credit shall not contravene any Law applicable to any
Loan Party or Subsidiary of any Loan Party or any of the Banks; and the Borrower
shall have delivered to the Agent, a duly executed and completed Loan Request or
application for a Letter of Credit, as the case may be.
6.3 Syndication.
6.3.1 Syndication Representation and Warranties.
On the Syndication Date, the representations and warranties of
the Borrower contained in Article 5 and in the other Loan Documents shall be
true on and as of such date with the same effect as though such representations
and warranties had been made on and as of such date (except representations and
warranties which expressly relate solely to an earlier date or time, which
representations and warranties shall be true and correct on and as of the
specific dates or times referred to therein) and the Loan Parties shall have
performed and complied with all covenants and conditions hereof; and no Event of
Default or Potential Default shall have occurred and be continuing or shall
exist.
6.3.2 Syndication Documents.
On the Syndication Date, the Borrower shall deliver to the Agent
for the benefit of the Banks (a) an Officer's Certificate dated as of the
Syndication Date with respect to the matters set forth in Section 6.3.1 and
Section 6.1.8(i), (b) a Secretary's Certificate dated as of the Syndication
Date with respect to the matters set forth in Section 6.1.2(i) and 6.1.2(ii)
and that there have been no changes in the charter documents or bylaws of the
Borrower or any other Loan Party since the Closing Date, (c) Notes dated as of
the Syndication Date which give effect to the syndication on the Syndication
Date of the Revolving Credit Commitments of the Banks which originally executed
the Credit Agreement in exchange for the original Notes issued to such Banks,
(d) written opinions of the counsel to the Borrower identified in Section 6.1.4
with respect to such matters as the Agent may request and (e) acknowledgments
dated as of the Syndication Date to the Loan Documents in form and substance
satisfactory to the Agent.
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6.3.3 Syndication Cooperation
The Agent, with the Borrower's assistance, will prepare and
distribute a Confidential Information Memorandum (the "Memorandum") for the
purpose of syndicating the credit facilities provided under this Agreement to
financial institutions. The Agent will not distribute the Memorandum to any
party that is not subject to a customary confidentiality agreement. The Borrower
will use all reasonable efforts to assist the Agent in syndicating the credit
facilities, including participating in meetings with potential syndicate
members. Until the closing on the initial syndication, , except as otherwise
required by Law, the Borrower will not, and will not permit any of its
affiliates to, syndicate or issue, attempt to syndicate or issue, announce or
otherwise authorize the announcement of the syndication or issuance of, or enter
into discussions concerning the syndication of the credit facilities or any
other debt facility to be syndicated, in each case without the prior written
consent of the Agent, which will not be unreasonably withheld.
7. COVENANTS
---------
7.1 Affirmative Covenants.
The Borrower covenants and agrees that until payment in full of the
Loans and Reimbursement Obligations and interest thereon, expiration or
termination of all Letters of Credit, satisfaction of all of the Loan Parties'
other Obligations under the Loan Documents and termination of the Revolving
Credit Commitments, the Borrower and its Subsidiaries shall comply at all times
with each of the following affirmative covenants:
7.1.1 Preservation of Existence, Etc.
The Borrower and, except as permitted by Section 7.2.6, each
Material Subsidiary shall maintain its corporate existence and its license or
qualification and good standing in each jurisdiction in which its ownership or
lease of property or the nature of its business makes such license or
qualification necessary, except where the failure to be so licensed or qualified
would not result in a Material Adverse Change.
7.1.2 Payment of Liabilities, Including Taxes, Etc.
Each Loan Party shall, and shall cause each of its Subsidiaries
to, duly pay and discharge all liabilities to which it is subject or which are
asserted against it, promptly as and when the same shall become due and payable,
including all taxes, assessments and governmental charges upon it or any of its
properties, assets, income or profits, prior to the date on which penalties
attach thereto, except to the extent that such liabilities, including taxes,
assessments or charges, are being contested in good faith and by appropriate and
lawful proceedings diligently
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conducted and for which such reserve or other appropriate provisions, if any, as
shall be required by GAAP shall have been made, but only to the extent that
failure to discharge any such liabilities would not result in any additional
liability which would adversely affect to a material extent the financial
condition of the Loan Parties and their Subsidiaries taken as a whole, provided
that the Loan Parties and their Subsidiaries will pay all such liabilities
forthwith upon the commencement of proceedings to foreclose any Lien which may
have attached as security therefor unless and as long as such proceedings are
stayed.
7.1.3 Maintenance of Insurance.
Each Loan Party shall, and shall cause each of its Subsidiaries to,
insure its properties and assets against loss or damage by fire and such other
insurable hazards as such assets are commonly insured (including fire, extended
coverage, property damage, workers' compensation, public liability and business
interruption insurance) and against other risks (including errors and omissions
with respect to directors and officers) in such amounts as similar properties
and assets are insured by prudent companies in similar circumstances carrying on
similar businesses, and with reputable and financially sound insurers, including
self-insurance to the extent customary, for each such Loan Party or Subsidiary
of a Loan Party within its respective industry. At the request of the Agent, the
Loan Parties shall deliver to the Agent on the Closing Date and annually
thereafter an original certificate of insurance signed by the Loan Parties'
independent insurance broker describing and certifying as to the existence of
the insurance required to be maintained by this Agreement and the other Loan
Documents
7.1.4 Maintenance of Properties and Leases.
Each Loan Party shall, and shall cause each of its Subsidiaries to,
maintain in good repair, working order and condition (ordinary wear and tear
excepted) in accordance with the general practice of other businesses of similar
character and size, all of those material properties necessary to its business,
and from time to time, such Loan Party or such Subsidiary will make or cause to
be made all appropriate repairs, renewals or replacements thereof.
7.1.5 Maintenance of Patents, Trademarks, Etc.
Each Loan Party shall, and shall cause each of its Subsidiaries to,
maintain in full force and effect all patents, trademarks, service marks, trade
names, copyrights, licenses, franchises, permits and other authorizations
necessary for the ownership and operation of its properties and business if the
failure so to maintain the same would constitute a Material Adverse Change.
7.1.6 Visitation Rights.
Each Loan Party shall, and shall cause each of its Subsidiaries to,
permit any of the officers or authorized employees or representatives of the
Agent (at the Borrower's expense) or any of the Banks to visit and inspect any
of its properties and to examine and make
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excerpts from its books and records and discuss its business affairs, finances
and accounts with its Authorized Officers, all in such detail as any of the
Banks may reasonably request, provided that each Bank shall provide the Borrower
and the Agent with reasonable notice prior to any visit or inspection, the Banks
shall attempt to reasonably coordinate such requests and all information
obtained by any Bank shall be subject to Section 10.12.
7.1.7 Keeping of Records and Books of Account.
The Borrower shall, and shall cause each Subsidiary to, maintain and
keep proper books and records which will enable the Borrower and its
Subsidiaries to issue consolidated and consolidating financial statements in
accordance with GAAP and as otherwise required by applicable Laws of any
Official Body having jurisdiction over the Borrower or any Subsidiary of the
Borrower, and in which full, true and correct entries shall be made in all
material respects of all dealings and business and financial affairs on a
consolidated and consolidating basis.
7.1.8 Plans and Benefit Arrangements.
The Borrower shall, and shall cause each other member of the ERISA
Group to, comply with ERISA, the Internal Revenue Code and other applicable Laws
applicable to Plans and Benefit Arrangements except where such failure, alone or
in conjunction with any other failure, would not result in a Material Adverse
Change. Without limiting the generality of the foregoing, the Borrower shall
cause all of its Plans and all Plans maintained by any other member of the ERISA
Group to be funded in accordance with the minimum funding requirements of ERISA
and shall make, and cause each other member of the ERISA Group to make, in a
timely manner, all contributions due to Plans, Benefit Arrangements and
Multiemployer Plans.
7.1.9 Compliance with Laws.
Each Loan Party shall, and shall cause each of its Subsidiaries to,
comply with all applicable Laws, including all Environmental Laws, in all
respects, provided that it shall not be deemed to be a violation of this Section
7.1.9 if any failure to comply with any Law would not result in fines,
penalties, remediation costs, other similar liabilities or injunctive relief
which in the aggregate would reasonably be expected to constitute a Material
Adverse Change.
7.1.10 Use of Proceeds.
The Borrower will use the Letters of Credit and the proceeds of the
Loans only for lawful purposes in accordance with Sections 2.9 and the other
provisions of this Agreement and such uses shall not contravene any applicable
Law or any other provision hereof.
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7.1.11 Subordination of Intercompany Loans.
Each Loan Party shall cause any Intercompany Loans owed by any Loan
Party to the Borrower or any of its Subsidiaries to be subordinated pursuant to
the terms of the Master Intercompany Subordination Agreement and evidenced by an
Intercompany Note.
7.1.12 Post-Closing Matters.
The Borrower shall deliver to the Agent for the benefit of the Banks
the documents set forth on Schedule 7.1.12 at the times indicated therein.
7.1.13 Payment of Intercompany Obligations Related to Intertech
The Borrower and its Subsidiaries shall settle all obligations owed by
them in respect of all Indebtedness owed as of the date of the Spin-Off to
Intertech and its Subsidiaries (after the Spin-Off) in a manner (including by
set-off to the extent feasible) and within the time period that will enable
Intertech and its Subsidiaries to meet its similar obligations in the manner and
within the time set forth in the Form 10.
7.1.14 Interest Rate Protection.
On or before the earlier of eighteen (18) months after the Closing
Date or the Trigger Date, the Borrower shall have entered into an interest rate
protection agreement or agreements in each case for a period of at least three
years which in the aggregate are in an amount equal to at least 33 1/3% of
Consolidated Funded Indebtedness at such time, and with such other terms and
conditions as shall be acceptable to the Agent (the "Interest Rate Protection
Agreements"). Documentation for the Interest Rate Protection Agreements shall be
in a standard International Swap Dealer Association Agreement, and shall not
require that any collateral be provided as security for such agreement. As used
in this Section 7.1.14, "Trigger Date" means 15 days after the last day of the
first thirty (30) consecutive day period in which the Euro-Rate with respect to
Loans in Dollars was greater than or equal to at least eight percent (8%) for at
least ten (10) days. Notwithstanding the foregoing provisions, if, within the
time period set forth herein, the Borrower shall have completed a Qualified Note
Placement, the Borrower will be deemed to have satisfied, or partially
satisfied, the requirements of this Section 7.1.14 to the extent of the
aggregate principal amount of the Notes issued in the Qualified Note Placement.
7.2 Negative Covenants.
The Borrower covenants and agrees that until payment in full of the
Loans and Reimbursement Obligations and interest thereon, expiration or
termination of all Letters of Credit, satisfaction of all of the Loan Parties'
other Obligations hereunder and termination of the Revolving Credit Commitments,
the Borrower and its Subsidiaries shall comply with each of the following
negative covenants:
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7.2.1 Indebtedness.
-------------
The Borrower shall not, and shall not permit any of its Subsidiaries
to, at any time create, incur, assume or suffer to exist any Indebtedness,
except the following:
(i) Indebtedness under the Loan Documents;
(ii) existing Indebtedness as set forth on Schedule 5.1.24
(including any extensions, amendments or refinancings or
renewals thereof, provided there is no increase in the
outstanding amount thereof or imposition of additional
material obligations therein unless otherwise specified on
Schedule 5.1.24);
(iii) Indebtedness for borrowed money other than under the Loan
Documents which does not have covenants that in the
judgment of the Agent individually or in the aggregate are
more restrictive in any material respect than under the
Loan Documents;
(iv) Indebtedness (to the extent not of a type included in
Consolidated Funded Indebtedness) of Domestic Subsidiaries
which shall not exceed $5,000,000 in the aggregate, minus
the amount of the then outstanding Guaranties referred to
in clause (iii) of Section 7.2.3;
(v) Indebtedness of a Foreign Subsidiary to a Foreign
Subsidiary, Indebtedness of a Loan Party to a Foreign
Subsidiary or Indebtedness of a Loan Party to a Loan
Party;
(vi) Indebtedness of a Foreign Subsidiary to a Loan Party or
Indebtedness of a Foreign Subsidiary to any other Person,
provided, that the aggregate of all such Indebtedness,
including any Indebtedness of this type set forth on
Schedule 5.1.24, does not exceed at any one time
outstanding $25,000,000 through fiscal year end 1998, and
$30,000,000 thereafter, in each case, minus the amount of
the then outstanding Guarantees referred to in clause (iv)
of Section 7.2.3;
(vii) any Indebtedness incurred as part of a Qualified Note
Placement; and
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(viii) any Guarantees permitted by Section 7.2.3.
7.2.2 Liens; Further Negative Pledges.
--------------------------------
The Borrower shall not, and shall not permit any of its Subsidiaries
to, (i) at any time create, incur, assume or suffer to exist any Lien on any of
its assets, whether real or personal property or fixtures, tangible or
intangible, or now owned or hereafter acquired (the "Assets"), or agree or
become liable to do so, except permitted liens, (ii) suffer to exist any
indebtedness which if unpaid might by Law or upon bankruptcy or insolvency, or
otherwise, be given priority over its general creditors or (iii) at any time,
directly or indirectly, enter into any agreement, understanding or other
arrangement which purports to restrict in any manner the ability of the Borrower
or any of its Subsidiaries to grant security interests or Liens to the Agent for
the benefit of the Agent and the Banks with respect to any Asset or Assets of
the Borrower or any of its Subsidiaries that have not theretofore been
encumbered or made subject to the grant of a security interest in favor of or
for the benefit of the Agent and the Banks; provided however that a written
agreement of a type described in the preceding clause (iii) containing terms
satisfactory to the Agent may be entered into by one or more of the Borrower or
any of its Subsidiaries in favor of the note purchasers in a Qualified Note
Placement that is privately placed.
7.2.3 Guaranties.
-----------
The Borrower shall not, and shall not permit any of its Subsidiaries
to, at any time, directly or indirectly, become liable in respect of any
Guaranty, except for: (i) Guaranties of Indebtedness of the Loan Parties under
the Loan Documents; (ii) Guaranties of Indebtedness of Foreign Subsidiaries
which Indebtedness constitutes Consolidated Funded Indebtedness; (iii)
Guaranties by the Borrower or any of its Domestic Subsidiaries not included in
clause (i) or (ii) above so long as the liability of the Borrower and its
Domestic Subsidiaries thereunder does not exceed in the aggregate at any time
outstanding $3,000,000; and (iv) Guaranties by Foreign Subsidiaries not included
in clauses (i) or (ii) above so long as the liability of the Foreign
Subsidiaries thereunder does not exceed in the aggregate at any time outstanding
$5,000,000.
7.2.4 Loans and Investments.
----------------------
The Borrower shall not, and shall not permit any of its Subsidiaries
to, at any time make or suffer to remain outstanding any loan or advance to, or
purchase, acquire or own any stock, bonds, notes or securities of, or any equity
interest in, or any other investment or interest in, or make any capital
contribution to, any other Person, or agree, become or remain liable to do any
of the foregoing, except as set forth on Schedule 7.2.4 and:
(i) trade credit extended on usual and customary terms in the
ordinary course of business;
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(ii) advances to employees to meet expenses incurred by such
employees in the ordinary course of business;
(iii) Permitted Cash Equivalent Investments;
(iv) investments in Foreign Subsidiaries by Loan Parties so
long as the aggregate outstanding amount of such
investments permitted by this Section 7.2.4(iv) (excluding
Indebtedness of Foreign Subsidiaries to Loan Parties
permitted by Section 7.2.1(vi), Indebtedness of Foreign
Subsidiaries to Loan Parties set forth on Schedule 7.2.1,
and investments which arise and exist as part of a Loan
Party's permitted acquisition pursuant to Section 7.2.6)
does not exceed at any one time $7,500,000;
(v) investments in other Loan Parties;
(vi) investments in Foreign Subsidiaries by Foreign
Subsidiaries;
(vii) liquidations, mergers, consolidations and acquisitions
permitted by Section 7.2.6, provided, that in the case of
a Foreign Subsidiary making an acquisition, after giving
effect thereto, the aggregate investments in Foreign
Subsidiaries by Loan Parties does not exceed the amount
permitted by clause (iv) above;
(viii) capital expenditures made in the ordinary course of
business;
(ix) investments permitted by clause (y) of Section 7.2.9; and
(x) debt securities having maturities no longer than 6 months
in an aggregate amount not exceeding $2,500,000 at any one
time;
provided, however, in no event shall the aggregate investments made by the Loan
Parties after the date hereof of the types described in clauses (vii) and (ix)
above exceed $20,000,000.
7.2.5 Dividends and Related Distributions.
------------------------------------
During the first two years after the Closing Date, the Borrower shall
not, and shall not permit any of its Subsidiaries to, declare, make or pay, or
agree to become or remain liable to make or pay, any dividend or other
distribution of any nature (whether in cash,
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property, securities or otherwise) on account of or in respect of its shares of
capital stock or partnership or other equity interests on account of the
purchase, redemption, retirement or acquisition of its shares of capital stock
(or warrants, options or rights therefor) or partnership or other equity
interests, except:
(i) dividends or other distributions payable to another Loan
Party or Subsidiary;
(ii) dividends made by the Borrower described in Section 7.1.13;
(iii) stock repurchases made by the Borrower for the purpose of
utilization in employee benefit plans in the amount of
$3,000,000 in each of the first two fiscal years after the
Closing Date, provided that the aggregate stock repurchases
in such years does not exceed $5,000,000.
7.2.6 Liquidations, Mergers, Consolidations, Acquisitions.
----------------------------------------------------
The Borrower shall not, and shall not permit any of its Subsidiaries
to, dissolve, liquidate or wind-up its affairs, or become a party to any merger
or consolidation, or acquire by purchase, lease or otherwise all or
substantially all of the assets, capital stock, or equity interests of any other
Person except, subject in each case to Section 7.2.7, as follows:
(i) the Borrower may acquire by merger (provided the Borrower
is thereafter a Qualified Survivor), or may acquire the
capital stock or other equity interests of or in, or may
acquire all or a portion of the assets of (including as a
result of a liquidation or dissolution of), any existing
Subsidiary of the Borrower;
(ii) any Domestic Subsidiary may acquire by merger (provided the
survivor is a Qualified Survivor), or may acquire the
capital stock or other equity interests of or in, or may
acquire all or a portion of the assets of (including as a
result of a liquidation or dissolution of), any other
existing Domestic Subsidiary or any existing Foreign
Subsidiary;
(iii) any Foreign Subsidiary may acquire by merger (provided the
survivor is a Qualified Survivor), or may acquire the
capital stock or other equity interests of or in, or may
acquire all or a portion of the assets of (including as a
result
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of a liquidation or dissolution of), any other existing
Foreign Subsidiary;
(iv) each of the Borrower and its Subsidiaries may make
Acquisitions of Persons (other than the Borrower or an
existing Subsidiary of the Borrower) that are in the same
or a similar line of business then being conducted by the
Borrower or any of its Subsidiaries provided the survivor
is a Qualified Survivor and provide further that
immediately after giving effect to any such Acquisition the
aggregate Consideration paid or given by the Borrower or
any of its Subsidiaries with respect to all Acquisitions
then made by the Borrower and its Subsidiaries pursuant to
this clause (iv) does not exceed on a cumulative basis
$20,000,000 minus the cumulative Consideration paid or
given by the Borrower and its Subsidiaries since the
Closing Date to acquire interests in Joint Ventures as
permitted by Section 7.2.9; and
provided, however, that any Acquisition permitted in clause (iv) above shall be
permitted only if
(A) both immediately before and after the consummation of
the transaction there exists no Event of Default or
Potential Default,
(B) the Borrower is in compliance with its representations,
warranties and covenants hereunder after giving effect to
the transaction,
(C) if the transaction involves Consideration greater than
$1,000,000, the Borrower shall have computed the Leverage
Ratio (in the manner required in the definition thereof) as
of the date (the "Transaction Date") of such transaction
and there shall be an adjustment of the fees and interest
rates effective on the Transaction Date if the Leverage
Ratio Status changes on such date, and
(D) there was delivered to the Agent no later than five (5)
Business Days after the Transaction Date a certificate in
the form of Exhibit 7.2.6 (the "Transaction Notice
Certificate") executed by an Executive Officer of the
Borrower certifying as to compliance with the foregoing
clauses (A), (B) and (C) above;
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7.2.7 Dispositions of Assets or Subsidiaries
--------------------------------------
The Borrower shall not, and shall not permit any of its Subsidiaries
to, sell, convey, assign, lease, spin-off as an in-kind dividend distribution,
abandon or otherwise transfer or dispose of, voluntarily or involuntarily, any
of its properties or assets, tangible or intangible (including sale, assignment,
discount or other disposition of accounts, contract rights, chattel paper,
equipment or general intangibles with or without recourse or of capital stock,
partnership interests or other equity interests issued by a Subsidiary of the
Borrower, except as permitted by Section 7.2.6 and except as follows:
(i) transactions involving the sale of inventory in the
ordinary course of business;
(ii) any sale, transfer or lease or abandonment of assets in the
ordinary course of business which are no longer necessary
or required in the conduct of the Borrower's or such
Subsidiary's business;
(iii) any sale, transfer or lease of assets (x) by any Domestic
Subsidiary to another Loan Party, (y) by any Foreign
Subsidiary directly owned by one or more Loan Parties to
another Foreign Subsidiary or another Loan Party or (z) by
any Foreign Subsidiary that is not directly owned by one or
more Loan Parties to a Foreign Subsidiary or another Loan
Party;
(iv) the discounting, assigning or sale of accounts receivable
of the Japanese Foreign Subsidiary in connection with
Indebtedness incurred in the ordinary course of business by
such Foreign Subsidiary for working capital in Japan;
(v) any licensing of intellectual property in the ordinary
course of business; and
(vi) any sale of assets, other than those specifically excepted
pursuant to clauses (i) through (v) above, provided that
upon the closing thereof the present value of the
Consideration to be received by the seller in respect of
the sale together with all such Consideration in respect of
all other sale transactions pursuant to this clause (vi)
consummated on and after the Closing Date does not exceed
$10,000,000 in the aggregate;
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provided, however, that no transactions identified in clause (vi) above shall be
permitted unless:
(A) both immediately before and after the consummation of
the transaction there exists no Event of Default or
Potential Default,
(B) the Borrower is in compliance with its representations,
warranties and covenants hereunder after giving effect to
the transaction,
(C) in the event the proposed transaction is for
Consideration in excess of $1,000,000, the Borrower shall
have computed the Leverage Ratio (in the manner required in
the definition thereof) as of the date (the "Transaction
Date") of such transaction and there shall be an adjustment
of the fees and interest rates effective on the Transaction
Date if the Leverage Ratio Status changes on such date, and
(D) there was delivered to the Agent no later than five (5)
Business Days after the Transaction Date a Transaction
Notice Certificate executed by an Executive Officer of the
Borrower certifying as to compliance with the foregoing
clauses (A), (B) and (C) above.
7.2.8 Affiliate Transactions.
-----------------------
Except as set forth on Schedule 7.2.8 the Borrower shall not, and
shall not permit any of its Subsidiaries to, enter into or carry out any
transaction with any of its Affiliates (including purchasing property or
services from or selling property or services to any Affiliate of any Loan Party
or other Person other than the Borrower or any of its Subsidiaries) unless such
transaction is not otherwise prohibited by this Agreement and, is entered into
in the ordinary course of business upon fair and reasonable arm's-length terms
and conditions or is approved by independent Directors of the Borrower's Board
of Directors or an appropriate committee thereof as being upon fair and
reasonable arm's length terms and conditions (including without limitation
employment arrangements with any Executive Officer of the Borrower or any
Subsidiary), all of which are fully disclosed to the Agent and are in accordance
with all applicable Law.
7.2.9 Subsidiaries, Partnerships and Joint Ventures.
----------------------------------------------
The Borrower shall not, and shall not permit any of its Subsidiaries
to, own or create directly or indirectly any Subsidiaries other than (i) any
Domestic Subsidiary which has joined the Master Guaranty Agreement, as
Guarantor, on the date required pursuant to Section 10.18, as applicable and
joined the Master Intercompany Subordination Agreement, (ii)
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any Foreign Subsidiary which is directly owned by the Borrower and/or one or
more Domestic Subsidiaries; and (iii) any Foreign Subsidiary which is directly
owned by one or more Foreign Subsidiaries. Each of the Borrower and its
Subsidiaries shall not become or agree to become or permit any of its
Subsidiaries to become a general or limited partner in any general or limited
partnership or a joint venturer in any Joint Venture or a member in any limited
liability company other than solely with Persons who are or pursuant to such
transaction will become either a Subsidiary of the Borrower or a Joint Venture,
provided that the cumulative aggregate Consideration paid on and after the
Closing Date to acquire interests in Joint Ventures shall not exceed $5,000,000
and when aggregated with Acquisitions permitted pursuant to clause (iv) of
Section 7.2.6 shall not exceed $20,000,000, and provided further that the
Borrower and its Subsidiaries may be general or limited partners in other Loan
Parties.
7.2.10 Continuation of or Change in Business.
--------------------------------------
The Borrower shall not, and shall not permit any of its Subsidiaries
to, engage in any business other than substantially those businesses as
conducted and operated by the Borrower and its Subsidiaries on the Closing Date
and those businesses reasonably related thereto.
7.2.11 Plans and Benefit Arrangements.
-------------------------------
The Borrower shall not, and shall not permit any of its
Subsidiaries to:
(i) fail to satisfy the minimum funding requirements of ERISA
and the Internal Revenue Code with respect to any Plan
where such would result in a Material Adverse Change;
(ii) request a minimum funding waiver from the Internal Revenue
Service with respect to any Plan;
(iii) engage in a Prohibited Transaction with any Plan, Benefit
Arrangement or Multiemployer Plan which, alone or in
conjunction with any other circumstances or set of
circumstances resulting in liability under ERISA, would
constitute a Material Adverse Change;
(iv) permit the aggregate actuarial present value of all benefit
liabilities (whether or not vested) under the Plans,
determined on an ongoing basis, as disclosed in the most
recent actuarial report completed with respect to each such
Plan, to exceed, as of any actuarial valuation date, 120%
of the fair market value of the assets of such Plans;
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(v) fail to make when due any contribution to any
Multiemployer Plan that the Borrower or any
member of the ERISA Group may be required to make
under any agreement relating to such
Multiemployer Plan, or any Law pertaining thereto
where such would result in a Material Adverse
Change;
(vi) withdraw (completely or partially) from any
Multiemployer Plan or withdraw (or be deemed
under Section 4062(e) of ERISA to withdraw) from
any Multiple Employer Plan, where any such
withdrawal would result in a material liability
of the Borrower or any member of the ERISA Group;
(vii) terminate, or institute proceedings to terminate,
any Plan, where such termination would result in
a material liability to the Borrower or any
member of the ERISA Group;
(viii) make any amendment to any Plan with respect to
which security is required under Section 307 of
ERISA; or
(ix) fail to give any and all notices and make all
disclosures and governmental filings required
under ERISA or the Internal Revenue Code, where
such failure would result in a Material Adverse
Change.
7.2.12 Fiscal Year.
------------
The Borrower shall not, and shall not permit any Subsidiary of
the Borrower to, change its fiscal year from the fiscal year ending on October
31 each year.
7.2.13 Issuance of Stock.
------------------
The Borrower shall not, and shall not permit any of its
Subsidiaries to, issue any additional shares of its capital stock or any
options, warrants or other rights in respect thereof other than to another Loan
Party or Subsidiary of a Loan Party or to a Person which becomes a Loan Party or
Subsidiary of a Loan Party, including as a result thereof. Notwithstanding the
foregoing, nothing contained herein shall prohibit the Borrower from issuing
shares of its capital stock or other equity interests of the Borrower.
7.2.14 Changes in Organizational Documents.
------------------------------------
Except as permitted by Section 7.2.6, the Borrower shall not,
and shall not permit any of its Subsidiaries to, amend in any respect its
certificate of incorporation (including
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any provisions or resolutions relating to capital stock), by-laws or other
organizational documents without providing at least five (5) calendar days'
prior written notice to the Agent and the Banks and, in the event such change
would be adverse to the Banks as determined by the Required Banks in their sole
discretion, obtaining the prior written consent of the Required Banks.
7.2.15 Minimum Fixed Charge Coverage Ratio.
------------------------------------
The Borrower shall not permit the Fixed Charge Coverage Ratio to
be less than the following:
(i) 1.25 to 1.00 with respect to the relevant period
ending on October 31, 1996, and January 31, April
30, and July 31, 1997; or
(ii) 1.50 to 1.00 with respect to each period of
determination ending on or after October 31, 1997.
7.2.16 Maximum Leverage Ratio.
----------------------
The Borrower shall not permit at any time during the respective
periods set forth below the Leverage Ratio to be greater than as follows:
<TABLE>
<CAPTION>
DATES RATIO
- ----- -----
<S> <C>
Closing Date through October 30,1997: 3.25 to 1.00
October 31, 1997 through October 30, 1999: 3.00 to 1.00
October 31, 1999 and thereafter: 2.50 to 1.00
</TABLE>
7.2.17 Minimum Consolidated Net Worth.
------------------------------
The Borrower shall not permit at any time Consolidated Net
Worth to be less than the Base Net Worth.
7.2.18 Amendments to Certain Documents.
-------------------------------
The Borrower shall not permit, without the prior written consent
of the Required Banks, any material amendment, waiver or modification to any
document, indenture, agreement or instrument evidencing any Indebtedness set
forth on Schedule 5.1.24 except for amendments, waivers or modifications to
provisions which do not change or otherwise affect the terms of such agreements
or instruments in a material manner.
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7.2.19 No Prepayment of Existing Indebtedness.
The Borrower shall not permit the prepayment, directly or
indirectly (including without limitation on the foregoing any purchase of one or
more of the notes issued thereunder or any interest or participation in any such
notes), prior to the stated maturity thereof of any principal of any
Indebtedness set forth on section 1 of Schedule 5.1.24 or any notes issued in a
Qualified Note Placement.
7.3 Reporting Requirements.
The Borrower covenants and agrees that until payment in full of
the Loans and Reimbursement Obligations and interest thereon, expiration or
termination of all Letters of Credit, satisfaction of all of the Loan Parties'
other Obligations hereunder and under the other Loan Documents and termination
of the Revolving Credit Commitments, the Borrower will furnish or cause to be
furnished to the Agent for itself and on behalf of each of the Banks (wherever
referenced in Section 7.3, the term "consolidating" is limited to consolidating
information on a basis consistent with current accounting practices of the
Borrower):
7.3.1 Quarterly Financial Statements.
As soon as available and in any event within forty-five (45)
calendar days after the end of each of the first three fiscal quarters in each
fiscal year, financial statements of the Borrower, consisting of a consolidated
and consolidating balance sheet as of the end of such fiscal quarter and related
consolidated and consolidating statements of income, stockholders' equity and
cash flows for the fiscal quarter then ended and the fiscal year through that
date, all in reasonable detail and certified (subject to normal year-end audit
adjustments) by the Chief Executive Officer, President or Chief Financial
Officer of the Borrower as having been prepared in accordance with GAAP and as
to fairness of presentation, consistently applied, and setting forth in
comparative form the respective financial statements for the corresponding date
and period in the previous fiscal year.
7.3.2 Annual Financial Statements.
As soon as available and in any event within ninety (90)
calendar days after the end of each fiscal year of the Borrower, consolidated
and consolidating financial statements of the Borrower consisting of a
consolidated and consolidating balance sheet as of the end of such fiscal year,
and related consolidated and consolidating statements of income, stockholders'
equity and cash flows for the fiscal year then ended, all in reasonable detail
and setting forth in comparative form the financial statements as of the end of
and for the preceding fiscal year, and with respect to the consolidated
statements, certified by independent certified public accountants of nationally
recognized standing reasonably satisfactory to the Agent. The certificate or
report of accountants shall be free of qualifications (other than any
consistency qualification that may result from a change in the method used to
prepare the financial statements as to which such accountants concur) and shall
be accompanied by a letter or report of such
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accountants addressed to the Agent for the benefit of the Banks confirming the
Borrower's calculations with respect to the certificate to be delivered pursuant
to Section 7.3.3 with respect to such financial statements.
7.3.3 Certificate of the Borrower.
----------------------------
Concurrently with the financial statements of the Borrower
furnished to the Agent and to the Banks pursuant to Sections 7.3.1 and 7.3.2,
a certificate of the Borrower signed by the Chief Executive Officer, President
or Chief Financial Officer of the Borrower, in the form of Exhibit 7.3.3, to
the effect that, except as described pursuant to Section 7.3.4, (i) the
representations and warranties contained in Article 5 and in the other Loan
Documents are true on and as of the date of such certificate with the same
effect as though such representations and warranties had been made on and as of
such date (except representations and warranties which expressly relate solely
to an earlier date or time) and the Borrower has performed and complied in all
material respects with all covenants and conditions hereof, (ii) no Event of
Default or Potential Default exists and is continuing on the date of such
certificate and (iii) containing calculations in sufficient detail to
demonstrate compliance as of the date of such financial statements with all
financial covenants contained in Section 7.2.
7.3.4 Notice of Default.
------------------
Promptly after any Executive Officer of any Loan Party has
learned of the occurrence of an Event of Default or Potential Default, a
certificate signed by the Chief Executive Officer, President or Chief Financial
Officer of such Loan Party setting forth the details of such Event of Default or
Potential Default and the action which the such Loan Party proposes to take with
respect thereto.
7.3.5 Notice of Litigation.
---------------------
Promptly after the commencement thereof, notice of all actions,
suits, proceedings or investigations before or by any Official Body or any other
Person against any Loan Party or Subsidiary of any Loan Party which involve a
claim or series of uninsured claims (provided that a claim shall be deemed to be
uninsured unless the insurance company is a reputable insurance company and has
acknowledged that the claim is covered by the applicable insurance policy
without any reservation to challenge the applicability thereof) in excess of
$5,000,000 or which if adversely determined would reasonably be expected to
constitute a Material Adverse Change.
7.3.6 Budgets, Forecasts, Other Reports and Information.
--------------------------------------------------
Promptly upon their becoming available to any Loan Party:
(i) a summary (in detail reasonably satisfactory to the
Agent) of the consolidated annual operating budget
of the
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Borrower, which shall be (x) certified by the
Chief Financial Officer of the Borrower as
having been prepared in accordance with
reasonable assumptions and (y) supplied not
later than the end of the first quarter of the
fiscal year to which such budget pertains;
(ii) any reports, notices or proxy statements
generally distributed by the Borrower to its
stockholders on a date no later than the date
supplied to such stockholders;
(iii) regular or periodic reports, including Forms 10-
K, 10-Q and 8-K, registration statements and
prospectuses, as may be filed by the Borrower
with the Securities and Exchange Commission;
(iv) a copy of any order in any proceeding to which
the Borrower or any of its Subsidiaries is a
party issued by any Official Body, which order,
if carried out, reasonably would be expected to
result in a Material Adverse Change; and
(v) such other reports and information as any of the
Banks may from time to time reasonably request.
The Loan Parties shall also notify the Banks
promptly of the enactment or adoption of any Law
which reasonably would be expected to result in
a Material Adverse Change.
7.3.7 Notices Regarding Plans and Benefit Arrangements.
-------------------------------------------------
7.3.7.1 Certain Events.
---------------
Promptly upon becoming aware of the occurrence thereof,
notice (including the nature of the event and, when known, any action taken or
threatened by the Internal Revenue Service or the PBGC with respect thereto) of:
(i) any Reportable Event with respect to the Borrower
or any other member of the ERISA Group (regardless
of whether the obligation to report said Reportable
Event to the PBGC has been waived),
(ii) any Prohibited Transaction which could subject the
Borrower or any other member of the ERISA Group to
a civil penalty assessed pursuant to Section 502(i)
of ERISA or a tax imposed by Section 4975 of the
Internal Revenue
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<PAGE>
Code in connection with any Plan, any Benefit
Arrangement or any trust created thereunder,
(iii) any assertion of material withdrawal liability with
respect to any Multiemployer Plan,
(iv) any partial or complete withdrawal from a
Multiemployer Plan by the Borrower or any other
member of the ERISA Group under Title IV of ERISA (or
assertion thereof), where such withdrawal is likely
to result in material withdrawal liability,
(v) any cessation of operations (by the Borrower or any
other member of the ERISA Group) at a facility in the
circumstances described in Section 4063(e) of ERISA,
(vi) withdrawal by the Borrower or any other member of the
ERISA Group from a Multiple Employer Plan,
(vii) a failure by the Borrower or any other member of the
ERISA Group to make a payment to a Plan required to
avoid imposition of a Lien under Section 302(f) of
ERISA,
(viii) the adoption of an amendment to a Plan requiring the
provision of security to such Plan pursuant to
Section 307 of ERISA, or
(ix) any change in the actuarial assumptions or funding
methods used for any Plan, other than those required
by GAAP, where the effect of such change is to
materially increase or materially reduce the unfunded
benefit liability or obligation to make periodic
contributions.
7.3.7.2 Notices of Involuntary Termination and Annual
Reports.
Promptly after receipt thereof, copies of (a) all notices
received by the Borrower or any other member of the ERISA Group of the PBGC's
intent to terminate any Plan administered or maintained by the Borrower or any
member of the ERISA Group, or to have a trustee appointed to administer any such
Plan; and (b) at the request of the Agent or any Bank each annual report (IRS
Form 5500 series) and all accompanying schedules, the most recent actuarial
reports, the most recent financial information concerning the financial status
of each Plan administered or maintained by the Borrower or any other member of
the ERISA Group, and schedules showing the amounts contributed to each such Plan
by or on behalf of the
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<PAGE>
Borrower or any other member of the ERISA Group in which any of their personnel
participate or from which such personnel may derive a benefit, and each Schedule
B (Actuarial Information) to the annual report filed by the Borrower or any
other member of the ERISA Group with the Internal Revenue Service with respect
to each such Plan.
7.3.7.3 Notice of Voluntary Termination.
Promptly upon the filing thereof, copies of any Form 5310,
or any successor or equivalent form to Form 5310, filed with the PBGC in
connection with the termination of any Plan.
8. DEFAULT
8.1 Events of Default.
An Event of Default shall mean the occurrence or existence of any one
or more of the following events or conditions (whatever the reason therefor and
whether voluntary, involuntary or effected by operation of Law):
8.1.1 Payments Under Loan Documents.
The Borrower shall fail to pay when due any principal of any Loan
(including scheduled installments, mandatory prepayments or the payment due at
maturity) or any Reimbursement Obligations or shall fail to pay within two (2)
Business Days when due any interest on any Loan or on any Reimbursement
Obligations or any other amount owing hereunder or under the other Loan
Documents after such principal, interest or other amount becomes due in
accordance with the terms hereof or thereof;
8.1.2 Breach of Warranty.
Any representation or warranty made or deemed made at any time by
any of the Loan Parties herein or by any of the Loan Parties in any other Loan
Document, or in any certificate, other instrument or statement furnished
pursuant to the provisions hereof or thereof, shall prove to have been false or
misleading in any material respect as of the time it was made or deemed made or
furnished;
8.1.3 Breach of Negative Covenants and Sections 7.1.12 or
7.1.14.
The Borrower shall default in the observance or performance of
any covenant contained in Section 7.2 or the covenants contained in Sections
7.1.12 or 7.1.14;
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<PAGE>
8.1.4 Breach of Other Covenants.
Any of the Loan Parties shall default in the observance or
performance of any other covenant, condition or provision hereof or of any other
Loan Document and such default shall continue unremedied for a period of thirty
(30) Business Days after any Executive Officer of the Borrower becomes aware of
the occurrence thereof (such grace period to be applicable only in the event
such default can be remedied by corrective action of the Loan Parties as
determined by the Agent in its sole discretion);
8.1.5 Defaults in Other Agreements or Indebtedness.
If a breach, default or event of default shall occur at any time
under the terms of any other agreement involving borrowed money or the extension
of credit or any other Indebtedness under which any Loan Party or Subsidiary of
any Loan Party may be obligated as a borrower or guarantor in excess of
$5,000,000 in the aggregate and such breach, default or event of default
consists of the failure to pay (beyond any period of grace permitted with
respect thereto,) any Indebtedness when due (whether at stated maturity, by
acceleration or otherwise) or such breach or default permits or causes the
acceleration of any Indebtedness or the termination of any commitment to lend;
provided, however, that no default shall exist under this Section 8.1.5 if any
such breach, default or event of default described herein is waived in a manner
that fully cures or eliminates such breach, default or event of default, except
that if (i) such waiver is with respect to a breach, default or event of default
arising under the agreement in question which is the result of (A) the failure
by the Borrower or any Loan Party to (1) make any payments of principal or
interest under such agreement when due thereunder or (2) comply with any
financial covenants set forth in such agreement or (B) any representation or
warranty made by the Borrower or any Loan Party in such agreement proving to be
false or misleading in any material respect at the time such representation or
warranty was made or deemed made, or (ii) the Indebtedness under such agreement
actually is accelerated as a result of such breach, default or event of default,
then a default shall exist under this Section 8.1.5, notwithstanding any waiver
described herein or rescission of acceleration.
8.1.6 Final Judgments or Orders.
Any final judgments or orders for the payment of money in excess
of $5,000,000 in the aggregate shall be entered against any Loan Party by a
court having jurisdiction in the premises, which judgment either (i) is not
discharged, vacated, bonded or stayed pending appeal within a period of sixty
(60) days from the date of entry, or (ii) is not fully insured (provided that a
judgment shall be deemed to be uninsured unless the insurance company is a
reputable insurance company and has acknowledged that the judgment is covered by
the applicable insurance policy without any reservation to challenge the
applicability thereof) or the Borrower or any of its Subsidiaries' assets having
a value on its respective books in excess of $5,000,000 in the aggregate are
attached, seized, levied upon or subjected to a writ or distress
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warrant; or such come within the possession of any receiver, trustee, custodian
or assignee for the benefit of creditors and the same is not cured within sixty
(60) days thereafter;
8.1.7 Loan Document Unenforceable.
Any of the Loan Documents shall cease to be legal, valid and
binding agreements enforceable against the party executing the same or such
party's successors and assigns (as permitted under the Loan Documents) in
accordance with the respective terms thereof or shall in any way be terminated
(except in accordance with its terms) or become or be declared ineffective or
inoperative or shall in any way be challenged or contested;
8.1.8 Notice of Lien or Assessment.
A notice or notices of Lien or assessment in excess of $5,000,000
in the aggregate which are not Permitted Liens are filed of record with respect
to all or any part of any of the Borrower's or any of its Subsidiaries' assets
by the United States, or any department, agency or instrumentality thereof, or
by any state, county, municipal or other governmental agency, including the
PBGC, or if any taxes or debts owing at any time or times hereafter to any one
of these becomes payable and the same is not paid within sixty (60) days after
the same becomes payable (unless the validity or amount thereof is being
contested in good faith by appropriate and lawful proceedings diligently
conducted so long as levy and execution thereon have been stayed and continue to
be stayed);
8.1.9 Insolvency.
The Borrower, any Material Subsidiary, or one or more other
Subsidiaries of the Borrower which individually or in the aggregate represent
more than five percent (5%) of the book value of the consolidated assets of the
Borrower and its Subsidiaries, ceases to be able to pay its debts as they become
due, admits in writing its inability to pay its debts as they mature or is no
longer Solvent;
8.1.10 Events Relating to Plans and Benefit Arrangements.
Any of the following occurs: (i) any Reportable Event, which the
Agent and the Required Banks determine in good faith constitutes grounds for the
termination of any Plan by the PBGC or the appointment of a trustee to
administer or liquidate any Plan, shall have occurred and be continuing; (ii)
proceedings shall have been instituted or other action taken to terminate any
Plan, or a termination notice shall have been filed with respect to any Plan;
(iii) a trustee shall be appointed to administer or liquidate any Plan; (iv) the
PBGC shall give notice of its intent to institute proceedings to terminate any
Plan or Plans or to appoint a trustee to administer or liquidate any Plan; and,
in the case of the occurrence of (i), (ii), (iii) or (iv) above, the Agent
determines in good faith that the amount of the Borrower's liability is likely
to exceed 10% of its Consolidated Net Worth; (v) the Borrower or any member of
the ERISA Group shall fail to make any contributions when due to a Plan or a
Multiemployer Plan; (vi) the Borrower or
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any other member of the ERISA Group shall make any amendment to a Plan with
respect to which security is required under Section 307 of ERISA; (vii) the
Borrower or any other member of the ERISA Group shall withdraw completely or
partially from a Multiemployer Plan; (viii) the Borrower or any other member of
the ERISA Group shall withdraw (or shall be deemed under Section 4062(e) of
ERISA to withdraw) from a Multiple Employer Plan; or (ix) any applicable Law is
adopted, changed or interpreted by any Official Body with respect to or
otherwise affecting one or more Plans, Multiemployer Plans or Benefit
Arrangements and, with respect to any of the events specified in (v), (vi),
(vii), (viii) or (ix), the Agent and the Required Banks determine in good faith
that any such occurrence would be reasonably likely to materially and adversely
affect the total enterprise represented by the Borrower and the other members of
the ERISA Group;
8.1.11 Cessation of Business.
Except as permitted by Section 7.2.6 or Section 7.2.7, the
Borrower, any Material Subsidiary or one or more other Subsidiaries of the
Borrower which individually or in the aggregate represent more than five percent
(5%) of the book value of the consolidated assets of the Borrower and its
Subsidiaries, ceases to conduct its or their business as contemplated or such
Person or Persons are enjoined, restrained or in any way prevented by court
order from conducting all or any material part of their respective business and
such injunction, restraint or other preventive order is not dismissed within
thirty (30) days after the entry thereof;
8.1.12 Change of Control.
(i) Any person or group of persons (within the meaning of Section
13(a) or 14(a) of the Securities Exchange Act of 1934, as amended) shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by
the Securities and Exchange Commission under said Act)of 20% or more of the
voting capital stock of the Borrower; or (ii) within a period of twelve (12)
consecutive calendar months, individuals who were directors on the board of
directors of the Borrower on the first day of such period together with any
directors whose election by such board of directors or whose nomination for
election by the shareholders was approved by a vote of the majority of the
directors then in office shall cease to constitute a majority of the board of
directors of the Borrower;
8.1.13 Involuntary Proceedings.
An Insolvency Proceeding shall have been instituted by a Person
other than the Borrower or any of its Subsidiary in a court having jurisdiction
in the premises seeking a decree or order for relief in respect of the Borrower
or any of its Subsidiary, and such proceeding shall remain undismissed or
unstayed and in effect for a period of sixty (60) consecutive days or such court
shall enter a decree or order granting any of the relief sought in such
proceeding; unless in the case of any Subsidiary that is not a Borrower or a
Material Subsidiary, the same would not be a Material Adverse Change;
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8.1.14 Voluntary Proceedings.
A Borrower or any Material Subsidiary shall, or if it would be a
Material Adverse Change any other Subsidiary shall, commence a voluntary
Insolvency Proceeding, or shall fail generally to pay its debts as they become
due, or shall take any action in furtherance of any of the foregoing.
8.1.15 Material Adverse Change.
There shall have occurred a Material Adverse Change.
8.2 Consequences of Event of Default.
8.2.1 Events of Default Other Than Bankruptcy, Insolvency or
Reorganization Proceedings.
If an Event of Default specified under Sections 8.1.1 through
8.1.12 shall occur and be continuing, the Banks and the Agent shall be under no
further obligation to make Loans or issue Letters of Credit, as the case may be,
and the Agent may, and upon the request of the Required Banks, shall (i) by
written notice to the Borrower, terminate the Revolving Credit Commitments,
declare the unpaid principal amount of the Notes and all Reimbursement
Obligations then outstanding and all interest accrued thereon, any unpaid fees
and all other indebtedness of the Borrower to the Banks hereunder and thereunder
to be forthwith due and payable, and the same shall thereupon become and be
immediately due and payable to the Agent for the benefit of each Bank without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived, and (ii) require the Borrower to, and the Borrower
shall thereupon, deposit in a non-interest bearing account with the Agent, as
cash collateral for its Obligations under the Loan Documents, an amount equal to
the maximum amount currently or at any time thereafter available to be drawn on
all outstanding Letters of Credit, and the Borrower hereby pledges to the Agent
and the Banks, and grants to the agent and the banks a security interest in, all
such cash as security for such Obligations. Upon the curing of all existing
Events of Default to the satisfaction of the Required Banks, the Agent shall
return such cash collateral to the Borrower;
8.2.2 Bankruptcy, Insolvency or Reorganization Proceedings.
If an Event of Default specified under Section 8.1.13 or 8.1.14
shall occur, the Revolving Credit Commitments shall automatically terminate, the
Banks shall make no Loans hereunder and the unpaid principal amount of the
Notes, and all Reimbursement Obligations then outstanding and all interest
accrued thereon, any unpaid fees and all other Indebtedness of the Borrower to
the Banks hereunder and thereunder shall be immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived;
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8.2.3 Set-off.
If an Event of Default shall occur and be continuing, any Bank
to whom any Obligation is owed by any Loan Party hereunder or under any other
Loan Document or any participant of such Bank which has agreed in writing to be
bound by the provisions of Section 9.13 and any branch, Subsidiary or Affiliate
of such Bank or participant anywhere in the world shall have the right, subject
to the approval of the Required Banks, in addition to all other rights and
remedies available to it, to set off against and apply to the then unpaid
balance of all the Loans and all other Obligations of the Borrower and the other
Loan Parties hereunder or under any other Loan Document any debt owing to, and
any other funds held in any manner for the account of, the Borrower or such
other Loan Party by such Bank or participant or by such branch, Subsidiary or
Affiliate, including all funds in all deposit accounts (whether time or demand,
general or special, provisionally credited or finally credited, or otherwise)
now or hereafter maintained by the Borrower or such other Loan Party for its own
account (but not including funds held in custodian or trust accounts) with such
Bank or participant or such branch, Subsidiary or Affiliate; provided, however,
that the Agent shall use reasonable, good faith efforts to notify the applicable
Loan Party of the exercise of such right of set-off as soon as possible after
such exercise. Such right shall exist whether or not any Bank or the Agent shall
have made any demand under this Agreement or any other Loan Document, whether or
not such debt owing to or funds held for the account of the Borrower or such
other Loan Party is or are matured or unmatured and regardless of the existence
or adequacy of any collateral, any Guaranty or any other security, right or
remedy available to any Bank or the Agent;
8.2.4 Suits, Actions, Proceedings.
If an Event of Default shall occur and be continuing, and
whether or not the Agent shall have accelerated the maturity of Loans pursuant
to any of the foregoing provisions of this Section 8.1.15, the Agent or any
Bank, with the approval of the Required Banks, if owed any amount with respect
to the Notes, may proceed to protect and enforce its rights by suit in equity,
action at law and/or other appropriate proceeding, whether for the specific
performance of any covenant or agreement contained in this Agreement or the
Notes, including as permitted by applicable Law the obtaining of the ex parte
appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of the Agent or such Bank;
8.2.5 Application of Proceeds.
From and after the date on which the Agent has taken any action
pursuant to this Section 8.1.15 and until all Obligations of the Loan Parties
have been paid in full, any and all proceeds received by the Agent from any sale
or other disposition of any collateral, or any part thereof, the exercise of any
other remedy by the Agent, shall be applied as follows:
(i) first, to reimburse the Agent and the Banks for
reasonable out-of-pocket costs, expenses and
disbursements, including
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reasonable attorneys' and paralegals' fees and legal
expenses, incurred by the Agent or the Banks in
connection with realizing on any collateral or
collection of any Obligations of any of the Loan
Parties under any of the Loan Documents, including
advances made by the Banks or any one of them or the
Agent for the reasonable maintenance, preservation,
protection or enforcement of, or realization upon, any
collateral, including advances for taxes, insurance,
repairs and the like and reasonable expenses incurred
to sell or otherwise realize on, or prepare for sale
or other realization on, any of any collateral;
(ii) second, to the repayment of all Indebtedness then due
and unpaid of the Loan Parties to the Banks incurred
under this Agreement or any of the other Loan
Documents, whether of principal, interest, fees,
expenses or otherwise, in such manner as the Agent may
determine in its discretion; and
(iii) the balance, if any, to the Borrower or as required by
Law.
8.2.6 Other Rights and Remedies.
The Agent may, and upon the request of the Required Banks shall,
exercise all post-default rights granted to the Agent and the Banks under the
Loan Documents or applicable Law.
9. THE AGENT
9.1 Appointment.
Each Bank hereby irrevocably designates, appoints and authorizes
Mellon Bank, N.A. to act as Agent for such Bank under this Agreement and to
execute and deliver or accept on behalf of each of the Banks the other Loan
Documents. Each Bank hereby irrevocably authorizes, and each holder of any Note
by the acceptance of a Note shall be deemed irrevocably to authorize, the Agent
to take such action on its behalf under the provisions of this Agreement and the
other Loan Documents and any other instruments and agreements referred to
herein, and to exercise such powers and to perform such duties hereunder as are
specifically delegated to or required of the Agent by the terms hereof, together
with such powers as are reasonably incidental thereto. Mellon Bank, N.A. agrees
to act as the Agent on behalf of the Banks to the extent provided in this
Agreement.
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9.2 Delegation of Duties.
The Agent may perform any of its respective duties hereunder by or
through agents or employees (provided such delegation does not constitute a
relinquishment of its duties as Agent) and, subject to Sections 9.5 and 9.6,
shall be entitled to engage and pay for the advice or services of any attorneys,
accountants or other experts concerning all matters pertaining to its duties
hereunder and to rely upon any advice so obtained.
9.3 Nature of Duties; Independent Credit Investigation.
The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement and no implied covenants, functions,
responsibilities, duties, obligations, or liabilities shall be read into this
Agreement or otherwise exist. The duties of the Agent shall be mechanical and
administrative in nature. Agent shall not have by reason of this Agreement a
fiduciary or trust relationship in respect of any Bank; and nothing in this
Agreement, expressed or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of this Agreement except as
expressly set forth herein. Each Bank expressly acknowledges (i) that the Agent
has not made any representations or warranties to it and that no act by the
Agent hereafter taken, including any review of the affairs of any of the Loan
Parties, shall be deemed to constitute any representation or warranty by the
Agent to any Bank; (ii) that it has made and will continue to make, without
reliance upon the Agent, its own independent investigation of the financial
condition and affairs and its own appraisal of the creditworthiness of each of
the Loan Parties in connection with this Agreement and the making and
continuance of the Loans hereunder; and (iii) except as expressly provided
herein, that the Agent shall have no duty or responsibility, either initially or
on a continuing basis, to provide any Bank with any credit or other information
with respect thereto, whether coming into its possession before the making of
any Loan or at any time or times thereafter.
9.4 Actions in Discretion of Agent; Instructions from the Banks.
The Agent agrees, upon the written request of the Required Banks, to
take or refrain from taking any action of the type specified as being within the
Agent's rights, powers or discretion herein, provided that the Agent shall not
be required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement or any other Loan Document or applicable
Law. In the absence of a request by the Required Banks, the Agent shall have
authority, in its sole discretion, to take or not to take any such action,
unless this Agreement specifically requires the consent of the Required Banks or
all of the Banks. Any action taken or failure to act pursuant to such
instructions or discretion shall be binding on the Banks, subject to Section
9.6. Subject to the provisions of Section 9.6, no Bank shall have any right
of action whatsoever against the Agent as a result of the Agent acting or
refraining from acting hereunder in accordance with the instructions of the
Required Banks, or in the absence of such instructions, in the absolute
discretion of the Agent.
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9.5 Reimbursement and Indemnification of Agent by the Borrower.
The Borrower agrees unconditionally upon demand to pay or reimburse
the Agent and to save the Agent harmless against (i) liability for the payment
of all reasonable out-of-pocket costs, expenses and disbursements, including
fees and expenses of counsel, appraisers and environmental consultants, except
with respect to clauses (A), (B) and (C) below, incurred by the Agent (a) in
connection with the development, negotiation, preparation, printing, execution,
syndication, administration, performance and interpretation of this Agreement
and the other Loan Documents, and other instruments and documents to be
delivered hereunder, (b) relating to any amendments, waivers or consents
pursuant to provisions hereof, (c) in connection with the enforcement of this
Agreement or any other Loan Document, or collection of amounts due hereunder or
thereunder or the proof and allowability of any claim arising under this
Agreement or any other Loan Document, whether in bankruptcy or receivership
proceedings or otherwise, and (d) in any workout, restructuring or in connection
with the protection, preservation, exercise or enforcement of any of the terms
hereof or of any rights hereunder or under any other Loan Document or in
connection with any foreclosure, collection or bankruptcy proceedings; (ii) all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted by or asserted against the Agent, in its
capacity as such, as a result of the use of the proceeds of the Loans; and (iii)
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against the Agent, in its capacity as
such, in any way relating to or arising out of this Agreement or any other Loan
Documents or any action taken or omitted by the Agent hereunder or thereunder,
provided that the Borrower shall not be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements (A) if the same results from the Agent's gross
negligence or willful misconduct, or (B) if the Borrower was not given notice of
the subject claim and the opportunity to participate in the defense thereof, at
its expense (except that the Borrower shall remain liable to the extent such
failure to give notice does not result in a loss to the Borrower), or (C) if the
same results from a compromise or settlement agreement entered into without the
consent of the Borrower, which shall not be unreasonably withheld. In addition,
the Borrower agrees to reimburse and pay all reasonable out-of-pocket expenses
of the Agent's regular employees and agents engaged to perform audits of the
books, records and properties of the Loan Parties and their Subsidiaries.
9.6 Exculpatory Provisions.
None of the Agent or any of its respective directors, officers,
employees, agents, attorneys or Affiliates shall (a) be liable to any Bank for
any action taken or omitted to be taken by it or them hereunder, or in
connection herewith including pursuant to any Loan Document, unless caused by
its or its respective directors, officers, employees, agents, attorneys or
Affiliates own gross negligence or willful misconduct, (b) be responsible in any
manner to any of the Banks for the effectiveness, enforceability, genuineness,
validity or due execution of this
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Agreement or any other Loan Documents or for any recital, representation,
warranty, document, certificate, report or statement herein or made or furnished
under or in connection with this Agreement or any other Loan Documents, or (c)
be under any obligation to any of the Banks to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions hereof or
thereof on the part of the Loan Parties, or the financial condition of the Loan
Parties, or the existence or possible existence of any Event of Default or
Potential Default. None of the Agent or any Bank or any of their respective
directors, officers, employees, agents, attorneys or Affiliates shall be liable
to any of the Loan Parties for any consequential, special or indirect damages,
losses or expenses (including without limitation, counsel fees) resulting from
any breach of contract, tort or other wrong in connection with the negotiation,
documentation, administration or collection of the Loans or any of the Loan
Documents.
9.7 Reimbursement and Indemnification by Banks of the Agent.
Each Bank agrees to reimburse and indemnify the Agent (to the extent
not reimbursed by the Borrower and without limiting the Obligation of the
Borrower to do so) in proportion to its Ratable Share from and against all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in its capacity as such or
in its capacity of issuing Letters of Credit, in any way relating to or arising
out of this Agreement or any other Loan Documents or any action taken or omitted
by the Agent hereunder or thereunder, provided that no Bank shall be liable for
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements (a) if the same
results from the Agent's gross negligence or willful misconduct, or (b) if such
Bank was not given notice of the subject claim and the opportunity to
participate in the defense thereof, at its expense (except that such Bank shall
remain liable to the extent such failure to give notice does not result in a
loss to the Bank), or (c) if the same results from a compromise and settlement
agreement entered into without the consent of such Bank, which shall not be
unreasonably withheld. In addition, each Bank agrees promptly upon demand to
reimburse the Agent (to the extent not reimbursed by the Borrower and without
limiting the Obligation of the Borrower to do so) in proportion to its Ratable
Share for all amounts due and payable by the Borrower to the Agent in connection
with the Agent's periodic audit of the Loan Parties' books, records and business
properties.
9.8 Reliance by Agent.
The Agent shall be entitled to rely upon any writing, telegram, telex
or teletype message, resolution, notice, consent, certificate, letter,
cablegram, statement, order or other document or conversation by telephone or
otherwise believed by it to be genuine and correct and to have been signed, sent
or made by the proper Person or Persons, and upon the advice and opinions of
counsel and other professional advisers selected by the Agent. The Agent shall
be fully justified in failing or refusing to take any action hereunder unless it
shall first be indemnified to its satisfaction by the Banks against any and all
liability and expense (other than a
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liability or expense relating to gross negligence or willful misconduct) which
may be incurred by it by reason of taking or continuing to take any such action.
9.9 Notice of Default.
The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Potential Default or Event of Default unless the Agent has
received written notice from a Bank or the Borrower referring to this Agreement,
describing such Potential Default or Event of Default and stating that such
notice is a "notice of default."
9.10 Notices.
The Agent shall promptly send to each Bank a copy of all notices and
other documents received from the Borrower pursuant to the provisions of this
Agreement or the other Loan Documents promptly upon receipt thereof. The Agent
shall promptly notify the Borrower and the other Banks of each change in the
Base Rate and the effective date thereof.
9.11 Banks in Their Individual Capacities.
With respect to the Revolving Credit Commitments and the Loans made by
it, the Agent shall have the same rights and powers hereunder as any other Bank
and may exercise the same as though it were not the Agent, and the term "Banks"
shall, unless the context otherwise indicates, include the Agent in its
individual capacity. The Agent and its Affiliates and each of the Banks and
their respective Affiliates may, without liability to account, except as
prohibited herein, make loans to, accept deposits from, discount drafts for, act
as trustee under indentures of, and generally engage in any kind of banking or
trust business with, the Loan Parties and their Affiliates, in the case of the
Agent, as though it were not acting as Agent hereunder and in the case of each
Bank, as though such Bank were not a Bank hereunder.
9.12 Holders of Notes.
The Agent may deem and treat any payee of any Note as the owner
thereof for all purposes hereof unless and until written notice of the
assignment or transfer thereof shall have been filed with the Agent. Any
request, authority or consent of any Person who at the time of making such
request or giving such authority or consent is the holder of any Note shall be
conclusive and binding on any subsequent holder, transferee or assignee of such
Note or of any Note or Notes issued in exchange therefor.
9.13 Equalization of Banks.
The Banks and the holders of any participations in any Notes agree
among themselves that, with respect to all amounts received by any Bank or any
such holder for application on any Obligation hereunder or under any Note or
under any such participation, whether received by voluntary payment, by
realization upon security, by the exercise of the right
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of set-off or banker's lien, by counterclaim or by any other non-pro rata
source, equitable adjustment will be made in the manner stated in the following
sentence so that, in effect, all such excess amounts will be shared ratably
among the Banks and such holders in proportion to their interests in payments
under the Notes, except as otherwise provided in Sections 3.4.2 or 4.6.1. The
Banks or any such holder receiving any such amount shall purchase for cash from
each of the other Banks an interest in such Bank's Loans in such amount as shall
result in a ratable participation by the Banks and each such holder in the
aggregate unpaid amount under the Notes, provided that if all or any portion of
such excess amount is thereafter recovered from the Bank or the holder making
such purchase, such purchase shall be rescinded and the purchase price restored
to the extent of such recovery, together with interest or other amounts, if any,
required by law (including court order) to be paid by the Bank or the holder
making such purchase.
9.14 Successor Agent.
----------------
The Agent (i) may resign as Agent or (ii) shall resign if such
resignation is requested by the Required Banks (if the Agent is a Bank, the
Agent's Loans and its Revolving Credit Commitment shall be considered in
determining whether the Required Banks have requested such resignation), in
either case of (i) or (ii) by giving not less than thirty (30) days' prior
written notice to the Borrower. If the Agent shall resign under this Agreement,
then subject to the consent of the Borrower (which consent shall not be
unreasonably withheld and which consent shall not be required during any period
in which an Event of Default exists) either (a) the Required Banks shall appoint
from among the Banks a successor agent for the Banks, or (b) if a successor
agent shall not be so appointed and approved within the thirty (30) day period
following the Agent's notice to the Banks of its resignation, then the Agent
shall appoint a successor agent who shall serve as Agent until such time as the
Required Banks appoint a successor agent. Upon its appointment, such successor
agent shall succeed to the rights, powers and duties of the Agent and the term
"Agent" shall mean such successor effective upon its appointment, and the former
Agent's rights, powers and duties as Agent shall be terminated without any other
or further act or deed on the part of such former Agent or any of the parties to
this Agreement. After the resignation of any Agent hereunder, the provisions of
this Article 9 shall inure to the benefit of such former Agent and such former
Agent shall not by reason of such resignation be deemed to be released from
liability for any actions taken or not taken by it while it was an Agent under
this Agreement.
9.15 Other Fees.
-----------
The Borrower shall pay to the Agent the fees due pursuant to
that certain commitment letter and related fee letter, each dated October 15,
1996, at the times and in the amounts set forth in such letters.
9.16 Availability of Funds.
----------------------
Unless the Agent shall have been notified by a Bank prior to the
date upon which a Loan is to be made that such Bank does not intend to make
available to the Agent such Bank's
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portion of such Loan, the Agent may assume that such Bank has made or will make
such proceeds available to the Agent on such date and the Agent may, in reliance
upon such assumption (but shall not be required to), make available to the
Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the Agent by such Bank, the Agent shall be entitled to recover
such amount on demand from such Bank (or, if such Bank fails to pay such amount
forthwith upon such demand, from the Borrower) together with interest thereon,
in respect of each day during the period commencing on the date such amount was
made available to the Borrower and ending on the date the Agent recovers such
amount, at a rate per annum equal to the Federal Funds Effective Rate.
9.17 Calculations.
-------------
In the absence of gross negligence or willful misconduct, the
Agent shall not be liable for any error in computing the amount payable to any
Bank whether in respect of the Loans, fees or any other amounts due to the Banks
under this Agreement. In the event an error in computing any amount payable to
any Bank is made, the Agent, the Borrower and each affected Bank shall,
forthwith upon discovery of such error, make such adjustments as shall be
required to correct such error, and any compensation therefor will be calculated
at the Federal Funds Effective Rate.
9.18 Beneficiaries.
---------------
Except as expressly provided herein, the provisions of this
Article 9 are solely for the benefit of the Agent and the Banks, and the Loan
Parties shall not have any rights to rely on or enforce any of the provisions
hereof. In performing its functions and duties under this Agreement, the Agent
shall act solely as agent of the Banks and does not assume and shall not be
deemed to have assumed any obligation toward or relationship of agency or trust
with or for any of the Loan Parties.
10. MISCELLANEOUS
-------------
10.1 Modifications, Amendments or Waivers.
-------------------------------------
With the written consent of the Required Banks, the Agent,
acting on behalf of all the Banks, and the Borrower, on behalf of the Loan
Parties, may from time to time enter into written agreements amending or
changing any provision of this Agreement or any other Loan Document or the
rights of the Banks or the Loan Parties hereunder or thereunder, or may grant
written waivers or consents to a departure from the due performance of the
Obligations of the Loan Parties hereunder or thereunder; provided, however, that
the written consent of the Required Banks shall not be required with respect to
the joinder of additional Loan Parties pursuant to Section 10.18. Any such
agreement, waiver or consent made with such written
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consent shall be effective to bind all the Banks and the Loan Parties; provided,
that, without the written consent of all the Banks, no such agreement, waiver or
consent may be made which will:
10.1.1 Increase of Revolving Credit Commitments; Extension of
------------------------------------------------------
Expiration Date.
---------------
Increase the amount of the Revolving Credit Commitment of any
Bank hereunder or extend the Expiration Date;
10.1.2 Extension of Payment; Reduction of Principal, Interest
------------------------------------------------------
or Fees; Modification of Terms of Payment.
-----------------------------------------
Whether or not any Loans are outstanding, extend the time for
payment of principal or interest of any Loan, the Commitment Fee or any other
fee payable to any Bank, or reduce the principal amount of or the rate of
interest borne by any Loan or reduce the Commitment Fee or any other fee payable
to any Bank, or otherwise affect the terms of payment of the principal of or
interest of any Loan, the Commitment Fee or any other fee payable to any Bank;
10.1.3 Release of Guarantor.
--------------------
Release any Domestic Subsidiary from its Obligations under the
Master Guaranty Agreement; or
10.1.4 Miscellaneous.
--------------
Amend Sections 4.2 [Pro Rata Treatment of Banks], 9.6
[Exculpatory Provisions] or 9.13 [Equalization of Banks] or this Section 10.1,
alter any provision regarding the pro rata treatment of the Banks, change the
definition of Required Banks, or change any requirement providing for the Banks
or the Required Banks to authorize the taking of any action hereunder.
No agreement, waiver or consent which would modify the
interests, rights or obligations of the Agent in its capacity as Agent, or its
capacity as the issuer of Letters of Credit shall be effective without the
written consent of the Agent.
10.2 No Implied Waivers; Cumulative Remedies; Writing Required.
---------------------------------------------------------------
No course of dealing and no delay or failure of the Agent or any
Bank in exercising any right, power, remedy or privilege under this Agreement or
any other Loan Document shall affect any other or future exercise thereof or
operate as a waiver thereof, nor shall any single or partial exercise thereof or
any abandonment or discontinuance of steps to enforce such a right, power,
remedy or privilege preclude any further exercise thereof or of any other right,
power, remedy or privilege. The rights and remedies of the Agent and the Banks
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under this Agreement and any other Loan Documents are cumulative and not
exclusive of any rights or remedies which they would otherwise have. Any waiver,
permit, consent or approval of any kind or character on the part of any Bank of
any breach or default under this Agreement or any such waiver of any provision
or condition of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing.
10.3 Reimbursement and Indemnification of Banks by the Borrower; Taxes.
-----------------------------------------------------------------
The Borrower agrees unconditionally upon demand to pay or reimburse to each
Bank and to save each Bank harmless against (i) liability for the payment of all
reasonable out-of-pocket costs, expenses and disbursements (including fees and
expenses of counsel for each Bank except with respect to (A), (B) and (C)
below), incurred by such Bank (a) in connection with the administration and
interpretation of this Agreement, the other Loan Documents, and the other
instruments and documents to be delivered hereunder, provided such reimbursement
with respect to administration only shall be available to such Bank at a time
when an Event of Default shall have occurred and be continuing, (b) relating to
any amendments, waivers or consents pursuant to provisions hereof, (c) in
connection with the enforcement of this Agreement or any other Loan Document, or
collection of amounts due hereunder or thereunder or the proof and allowability
of any claim arising under this Agreement or any other Loan Document, whether in
bankruptcy or receivership proceedings or otherwise, and (d) in any workout,
restructuring or in connection with the protection, preservation, exercise or
enforcement of any of the terms hereof or of any rights hereunder or under any
other Loan Document or in connection with any foreclosure, collection or
bankruptcy proceedings; (ii) all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted by or
asserted against such Bank as a result of the use of the proceeds of the Loans;
and (iii) all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against such Bank,
in its capacity as such, in any way relating to or arising out of this Agreement
or any other Loan Documents or any action taken or omitted by such Bank
hereunder or thereunder, provided that the Borrower shall not be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements (A) if the same results from
such Bank's gross negligence or willful misconduct, or (B) if the Borrower was
not given notice of the subject claim and the opportunity to participate in the
defense thereof, at its expense (except that the Borrower shall remain liable to
the extent such failure to give notice does not result in a loss to the
Borrower), or (C) if the same results from a compromise or settlement agreement
entered into without the consent of the Borrower, which shall not be
unreasonably withheld. The Banks will attempt to minimize the fees and expenses
of legal counsel for the Banks which are subject to reimbursement by the
Borrower hereunder by considering the usage of one law firm to represent the
Banks and the Agent if appropriate under the circumstances. The Borrower agrees
unconditionally to pay all stamp, document, transfer, recording or filing taxes
or fees and similar impositions now or hereafter determined by the Agent or any
Bank to be payable in connection with this Agreement or any other Loan Document,
and the Borrower
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agrees unconditionally to save the Agent and the Banks harmless from and against
any and all present or future claims, liabilities or losses with respect to or
resulting from any omission to pay or delay in paying any such taxes, fees or
impositions, except as provided otherwise above.
10.4 Holidays.
--------
Whenever any payment or action to be made or taken hereunder shall be
stated to be due on a day which is not a Business Day, such payment or action
shall be made or taken on the next following Business Day (except as provided in
Section 3.2.1 with respect to Interest Periods under the Revolving Credit Euro-
Rate Option), and such extension of time shall be included in computing interest
or fees, if any, in connection with such payment or action.
10.5 Funding by Branch, Subsidiary or Affiliate.
------------------------------------------
10.5.1 Notional Funding.
----------------
Each Bank shall have the right from time to time, without notice to the
Borrower, to deem any branch, Subsidiary or Affiliate (which for the purposes of
this Section 10.5 shall mean any corporation or association which is directly or
indirectly controlled by or is under direct or indirect common control with any
corporation or association which directly or indirectly controls such Bank) of
such Bank to have made, maintained or funded any Loan to which the Revolving
Credit Euro-Rate Option applies at any time, provided that immediately following
(on the assumption that a payment were then due from the Borrower to such other
office), and as a result of such change, the Borrower would not be under any
greater financial obligation pursuant to Section 4.5 than it would have been in
the absence of such change. Notional funding offices may be selected by each
Bank without regard to such Bank's actual methods of making, maintaining or
funding the Loans or any sources of funding actually used by or available to
such Bank; and
10.5.2 Actual Funding.
--------------
Each Bank shall have the right from time to time to make or maintain any
Loan by arranging for a branch, Subsidiary or Affiliate of such Bank to make or
maintain such Loan subject to the last sentence of this Section 10.5.2. If any
Bank causes a branch, Subsidiary or Affiliate to make or maintain any part of
the Loans hereunder, all terms and conditions of this Agreement shall, except
where the context clearly requires otherwise, be applicable to such part of the
Loans to the same extent as if such Loans were made or maintained by such Bank,
but in no event shall any Bank's use of such a branch, Subsidiary or Affiliate
to make or maintain any part of the Loans hereunder cause such Bank or such
branch, Subsidiary or Affiliate to incur any cost or expenses payable by the
Borrower hereunder or require the Borrower to pay any other compensation to any
Bank (including any expenses incurred or payable pursuant to Section 4.5) which
would otherwise not be incurred.
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10.5.3 Changes to Other Branches, Subsidiaries or Affiliates.
-----------------------------------------------------
If a Bank claims any additional amounts payable pursuant to Section 4.5 or
that it is unable to make Loans to which a Revolving Credit Euro-Rate Option
applies, it shall use its reasonable efforts (consistent with legal and
regulatory restrictions) to avoid the need for paying such additional amounts or
such inability, including changing the jurisdiction of its applicable lending
office or moving the Loan to a Subsidiary or Affiliate; provided, however, that
the taking of any such action would not, in the reasonable judgment of such
Bank, be disadvantageous to such Bank.
10.6 Notices.
-------
All notices, requests, demands, directions and other communications (as
used in this Section 10.6, collectively referred to as "notices") given to or
made upon any party hereto under the provisions of this Agreement shall be by
telephone or in writing (including telex or facsimile communication) unless
otherwise expressly permitted hereunder and shall be delivered or sent by telex
or facsimile to the respective parties at the addresses and numbers set forth
under their respective names on the signature pages to this Agreement or any
Guaranty or in accordance with any subsequent unrevoked written direction from
any party to the others. All notices shall, except as otherwise expressly herein
provided, be effective (a) in the case of telex or facsimile, when received, (b)
in the case of hand-delivered notice, when hand-delivered, (c) in the case of
telephone, when telephoned, provided, however, that in order to be effective,
telephonic notices must be confirmed in writing no later than the next day by
letter, facsimile or telex, (d) if given by mail, four (4) days after such
communication is deposited in the mail with first-class postage prepaid, return
receipt requested, and (e) if given by any other means (including by air
courier), when delivered; provided, that notices to the Agent shall not be
effective until received. Any Bank giving any notice to any Loan Party shall
simultaneously send a copy thereof to the Agent, and the Agent shall promptly
notify the other Banks of the receipt by it of any such notice.
10.7 Severability.
------------
The provisions of this Agreement are intended to be severable. If any
provision of this Agreement shall be held invalid or unenforceable in whole or
in part in any jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without in any
manner affecting the validity or enforceability thereof in any other
jurisdiction or the remaining provisions hereof in any jurisdiction.
10.8 Governing Law.
-------------
Each Letter of Credit and Section 2.10 shall be subject to the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500, as the same may be revised or amended
from time to time, and to the extent not inconsistent therewith, the internal
laws of the Commonwealth of Pennsylvania without
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regard to its conflict of laws principles and the balance of this Agreement
shall be deemed to be a contract under the Laws of the Commonwealth of
Pennsylvania and for all purposes shall be governed by and construed and
enforced in accordance with the internal laws of the Commonwealth of
Pennsylvania without regard to its conflict of laws principles.
10.9 Prior Understanding.
-------------------
This Agreement and the other documents and instruments executed in
connection herewith supersede all prior understandings and agreements, whether
written or oral, between the parties hereto and thereto relating to the
transactions provided for herein and therein, including any prior
confidentiality agreements and commitments except that the Borrower's fee
payment obligations contained in the fee letter referred to in Section 9.15
shall continue in full force and effect.
10.10 Duration; Survival.
------------------
All representations and warranties of the Loan Parties contained herein or
made in connection herewith shall survive the making of Loans and issuance of
Letters of Credit and shall not be waived by the execution and delivery of this
Agreement, any investigation by the Agent or the Banks, the making of Loans,
issuance of Letters of Credit, or payment in full of the Loans. All covenants
and agreements of the Loan Parties contained in Sections 7.1, 7.2 and 7.3
shall continue in full force and effect from and after the date hereof so long
as the Borrower may borrow or request Letters of Credit hereunder and until
termination of the Revolving Credit Commitments, repayment of all Loans and
expiration or termination of all Letters of Credit. All covenants and agreements
of the Borrower contained herein relating to the payment of principal, interest,
premiums, additional compensation or expenses and indemnification, including
those set forth in the Notes, Article 4 and Sections 9.5, 9.7 and 10.3,
shall survive payment in full of the Loans, expiration or termination of the
Letters of Credit and termination of the Revolving Credit Commitments.
10.11 Successors and Assigns.
----------------------
This Agreement shall be binding upon and shall inure to the benefit of the
Banks, the Agent, the Loan Parties and their respective successors and assigns,
except that, other than as contemplated by Sections 7.2.6 and 7.2.7, none of
the Loan Parties may assign or transfer any of its rights and Obligations
hereunder or any interest herein without consent of all Banks. Each Bank may, at
its own cost, make assignments of or sell participations in all or any part of
its Revolving Credit Commitment and Loans and its Ratable Share of Letter of
Credit Outstandings to one or more banks or other entities, subject to the
consent of the Borrower (which consent shall not be required during any period
in which an Event of Default exists), and the Agent with respect to any
assignee, such consents not to be unreasonably withheld, and provided that (i)
assignments may not be made in amounts less than $5,000,000 and (ii) after
giving effect to such assignment, no Bank which remains a Bank thereafter shall
have Commitments of less than $5,000,000. In the case of an assignment, upon
receipt by the Agent of the Syndication
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Assignment and Assumption Agreement with respect to all assignments made as part
of the initial syndication of the credit facilities under the Agreement after
the Closing Date, or the Assignment and Assumption Agreement with respect to
each subsequent assignment, the assignee or assignees shall have, to the extent
of such assignment (unless otherwise provided therein), the same rights,
benefits and obligations as it would have if it had been a signatory Bank
hereunder, the Revolving Credit Commitments in Section 2.1 shall be adjusted
accordingly and Schedule 1.1(B) to this Agreement shall be modified by Schedule
I to the Syndication Assignment and Assumption Agreement with respect to all
assignments made as part of the initial syndication of the credit facilities
under this Agreement after the Closing Date or by Schedule I to each Assignment
and Assumption Agreement with respect to subsequent assignments, and upon
surrender of any Notes subject to such assignment, the Borrower shall execute
and deliver new Notes to the assignee in an amount equal to the amount of the
Revolving Credit Commitments assumed by it and new Notes to the assigning Bank
in an amount equal to the Revolving Credit Commitments retained by it hereunder.
Any assigning Bank shall pay to the Agent a service fee in the amount of $3,500
for each assignment, which amount shall not be subject to reimbursement or
indemnification by the Borrower. In the case of a participation, the participant
shall only have the rights specified in Section 8.2.3 (the participant's rights
against such Bank in respect of such participation to be those set forth in the
agreement executed by such Bank in favor of the participant relating thereto and
not to include any voting rights), all of such Bank's obligations under this
Agreement or any other Loan Document shall remain unchanged, and all amounts
payable by any Loan Party hereunder or thereunder shall be determined as if such
Bank had not sold such participation. Any assignee or participant which is not
incorporated under the Laws of the United States of America or a state thereof
shall deliver to the Borrower and the Agent the form of certificate described in
Section 10.17 relating to federal income tax withholding. Each Bank may furnish
any publicly available information concerning any Loan Party or its Subsidiaries
and any other information concerning any Loan Party or its Subsidiaries in the
possession of such Bank from time to time to assignees and participants
(including prospective assignees or participants), provided that such assignees
and participants agree to be bound by the provisions of Section 10.12.
Notwithstanding any other language in this Agreement, any Bank may at any time
assign all or any portion of its rights under this Agreement and its Notes to a
Federal Reserve Bank as collateral in accordance with Regulation A and the
applicable Operating Circular of such Federal Reserve Bank.
10.12 Confidentiality.
---------------
The Agent and the Banks each agree to keep confidential all information
obtained from any Loan Party or its Subsidiaries which is nonpublic and
confidential or proprietary in nature (including any information the Borrower
specifically designates as confidential), except as provided below, and to use
such information only in connection with their respective capacities under this
Agreement and for the purposes contemplated hereby. The Agent and the Banks
shall be permitted to disclose such information (i) to outside legal counsel,
accountants and other professional advisors who need to know such information in
connection with the administration and enforcement of this Agreement and who are
notified that the information is to be treated as
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confidential, (ii) to assignees and participants as contemplated by Section
10.11, (iii) to the extent requested by any bank regulatory authority or, with
notice to the Borrower if not prohibited, as otherwise required by applicable
Law or by any subpoena or similar legal process, or in connection with any
investigation or proceeding arising out of the transactions contemplated by this
Agreement, (iv) if it becomes publicly available other than as a result of a
breach of this Agreement or becomes available from a source not known to be
subject to confidentiality restrictions, (v) if the Borrower shall have
consented to such disclosure, or (vi) after notice to the Borrower unless the
Borrower is an adverse party in such litigation, in connection with any
litigation to which any Bank is a party the subject matter of which involves
this Agreement or is deemed necessary upon the advice of legal counsel of such
Bank by such Bank in any defense of such litigation.
10.13 Counterparts.
This Agreement may be executed by different parties hereto on any
number of separate counterparts, including facsimiles, each of which, when so
executed and delivered, shall be an original, and all such counterparts shall
together constitute one and the same instrument.
10.14 Agent's or Bank's Consent.
Whenever the Agent's or any Bank's consent is required to be obtained
under this Agreement or any of the other Loan Documents as a condition to any
action, inaction, condition or event, the Agent and each Bank shall be
authorized to give or withhold such consent in its sole discretion and to
condition its consent upon the giving of additional collateral, the payment of
money or any other matter.
10.15 Exceptions.
The representations, warranties and covenants contained herein shall
be independent of each other, and no exception to any representation, warranty
or covenant shall be deemed to be an exception to any other representation,
warranty or covenant contained herein unless expressly provided, nor shall any
such exceptions be deemed to permit any action or omission that would be in
contravention of applicable Law.
10.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL.
EACH LOAN PARTY HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE
JURISDICTION OF THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY AND THE UNITED
STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA, AND WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH LOAN
PARTY AT THE ADDRESSES PROVIDED FOR IN SECTION 10.6 AND SERVICE SO MADE SHALL
BE DEEMED TO BE COMPLETED UPON ACTUAL
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RECEIPT THEREOF. EACH LOAN PARTY WAIVES ANY OBJECTION TO JURISDICTION AND VENUE
OF ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT
ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR INCONVENIENT FORUM. EACH
LOAN PARTY, THE AGENT AND THE BANKS HEREBY WAIVE TRIAL BY JURY IN ANY ACTION,
SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE COLLATERAL TO THE FULL EXTENT
PERMITTED BY LAW.
10.17 Tax Withholding Clause.
Each Bank or assignee or participant of a Bank that is not
incorporated under the Laws of the United States of America or a state thereof
agrees that it will deliver to each of the Borrower and the Agent two (2) duly
completed copies of the following: (i) Internal Revenue Service Form W-9, 4224
or 1001, or other applicable form prescribed by the Internal Revenue Service,
certifying that such Bank, assignee or participant is entitled to receive
payments under this Agreement and the other Loan Documents without deduction or
withholding of any United States federal income taxes, or is subject to such tax
at a reduced rate under an applicable tax treaty, or (ii) Internal Revenue
Service Form W-8 or other applicable form or a certificate of such Bank,
assignee or participant indicating that no such exemption or reduced rate is
allowable with respect to such payments. Each Bank, assignee or participant
required to deliver to the Borrower and the Agent a form or certificate pursuant
to the preceding sentence shall deliver such form or certificate as follows: (A)
each Bank which is a party hereto on the Closing Date shall deliver such form or
certificate at least five (5) Business Days prior to the first date on which any
interest or fees are payable by the Borrower hereunder for the account of such
Bank; (B) each assignee or participant shall deliver such form or certificate at
least five (5) Business Days before the effective date of such assignment or
participation (unless the Agent in its sole discretion shall permit such
assignee or participant to deliver such form or certificate less than five (5)
Business Days before such date in which case it shall be due on the date
specified by the Agent). Each Bank, assignee or participant which so delivers a
Form W-8, W-9, 4224 or 1001 further undertakes to deliver to each of the
Borrower and the Agent two (2) additional copies of such form (or a successor
form) on or before the date that such form expires or becomes obsolete or after
the occurrence of any event requiring a change in the most recent form so
delivered by it, and such amendments thereto or extensions or renewals thereof
as may be reasonably requested by the Borrower or the Agent, either certifying
that such Bank, assignee or participant is entitled to receive payments under
this Agreement and the other Loan Documents without deduction or withholding of
any United States federal income taxes or is subject to such tax at a reduced
rate under an applicable tax treaty or stating that no such exemption or reduced
rate is allowable. The Agent shall be entitled to withhold United States
federal income taxes at the full withholding rate unless the Bank, assignee or
participant establishes an exemption or that it is subject to a reduced rate as
established pursuant to the above provisions.
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10.18 Joinder of Subsidiaries.
Any Subsidiary of the Borrower which is required to join the Master
Guaranty Agreement pursuant to Section 7.2.9 shall execute and deliver to the
Agent a signature page to the Master Guaranty Agreement and to the Master
Intercompany Subordination Agreement. The Loan Parties shall deliver such
Guarantor Joinder and the other documents required by this Section 10.18 to the
Agent within five (5) Business Days after the date of the filing of such
Subsidiary's articles of incorporation if the Subsidiary is a corporation, the
date of the filing of its certificate of limited partnership if it is a limited
partnership or the date of its organization if it is an entity other than a
limited partnership or corporation or, if acquired, the date of acquisition. The
Agent shall have received, for its benefit and the benefit of the Banks,
opinions of the Loan Parties legal counsel in form and substance satisfactory to
the Agent together with such other documents, certificates and agreements as the
Agent may request to effectuate the provisions of this Section 10.18.
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[SIGNATURE PAGE 1 OF 2 TO CREDIT AGREEMENT]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Agreement as of the day and year first above
written.
BORROWER:
ATTEST: CUNO INCORPORATED.
By: /s/ Ronald C. Drabik
---------------------------
Title: Chief Financial Officer
------------------------
[Seal]
Address for Notices:
400 Research Parkway
Meriden CT 06450
Telecopier No. (203) 238-8912
Attention: Ronald C. Drabik
Telephone No. (203) 237-5541
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[SIGNATURE PAGE 2 OF 2 TO CREDIT AGREEMENT]
MELLON BANK, N.A., Individually as
a Bank and as Agent
By: /s/ John Paul Marotta
--------------------------------
Title: Assistant Vice President
-----------------------------
Address for Notices:
Legal Documents:
Mellon Financial Services
65 East 55th Street, 15th Floor
New York, NY 10022-3219
Telecopier No. (212) 702-5269
Attention: John Paul Marotta
Telephone No. (212) 702-4029
Administrative Notices:
Mellon Bank, N.A.
Loan Administration
Three Mellon Bank Center
Pittsburgh, PA 15259
Telecopier No. (412) 236-2027
Mellon's Wiring Instructions:
MELLON BANK
PITTSBURGH, PA
ABA #043000261
ATTN: LOAN ADMINISTRATION
CREDIT ACCOUNT #___________
REF: CUNO Incorporated
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<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "SELECTED FINANCIAL
AND OTHER DATA" and "EXPERTS" and to the use of our reports dated December 16,
1996, in the Registration Statement (Form S-1 No. 333- ) and related
Prospectus of CUNO Incorporated for the registration of 2,000,000 shares of its
common stock.
/s/ Ernst & Young LLP
Hartford, Connecticut
February 26, 1997
