<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 1996
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERNATIONAL KNIFE & SAW, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3428 57-0697252
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
1299 COX AVENUE
ERLANGER, KENTUCKY 41018
(606) 371-0333
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
WILLIAM M. SCHULT
VICE PRESIDENT-FINANCE, CHIEF FINANCIAL OFFICER AND SECRETARY
INTERNATIONAL KNIFE & SAW, INC.
1299 COX AVENUE
ERLANGER, KENTUCKY 41018
(606) 371-0333
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
BRUCE B. WOOD, ESQ.
DECHERT PRICE & RHOADS
477 MADISON AVENUE
NEW YORK, NEW YORK 10022
(212) 326-3500
------------------------
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 being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11 3/8% Senior Notes due 2006........... $90,000,000 100% $90,000,000 $31,035
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to Rule 457(f) solely for purposes of calculating the
registration fee
------------------------
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 SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INTERNATIONAL KNIFE & SAW, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(a) AND ITEM 501(b) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF THE INFORMATION
REQUIRED BY PART I OF FORM S-4
<TABLE>
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Forepart of the Registration Statement;
Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus........................... Inside Front Cover Page; Outside Back
Cover Page
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information........... Summary; Risk Factors; Selected Historical
and Pro Forma Financial Data
4. Terms of the Transaction.................. The Exchange Offer; Description of the
Notes; Certain Federal Income Tax
Consequences; Plan of Distribution
5. Pro Forma Financial Information........... Summary; Unaudited Pro Forma Consolidated
Financial Information; Selected
Historical and Pro Forma Financial Data
6. Material Contracts With the Company Being
Acquired................................ Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters...................... Not Applicable
8. Interests of Named Experts and Counsel.... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
10. Information With Respect to S-3
Registrants............................. Not Applicable
11. Incorporation of Certain Information by
Reference............................... Not Applicable
12. Information With Respect to S-2 or S-3
Registrants............................. Not Applicable
13. Incorporation of Certain Information by
Reference............................... Not Applicable
14. Information With Respect to Registrants
Other Than S-2 or S-3 Registrants....... Available Information; Summary; Risk
Factors; The Transactions; Use of
Proceeds; Capitalization; Unaudited Pro
Forma Consolidated Financial
Information; Selected Historical and Pro
Forma Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Stock Ownership;
Certain Relationships and Related
Transactions; Description of Certain
Indebtedness; Description of the Notes;
Book Entry; Delivery and Form; Plan of
Distribution; Legal Matters; Experts;
Consolidated Financial Statements
</TABLE>
<PAGE> 3
<TABLE>
<C> <S> <C>
16. Information With Respect to S-2 or S-3
Companies............................... Not Applicable
17. Information With Respect to Companies
Other Than S-2 or S-3 Companies......... Not Applicable
18. Information if Proxies, Consents or
Authorizations Are to be Solicited...... Not Applicable
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited,
or in an Exchange Offer................. The Exchange Offer; Management; Stock
Ownership; Certain Relationships and
Related Transactions; Description of
Certain Indebtedness; Description of the
Notes
</TABLE>
<PAGE> 4
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 DECEMBER 5, 1996
PROSPECTUS
OFFER TO EXCHANGE
11 3/8% SENIOR SUBORDINATED NOTES DUE 2006
FOR ALL OUTSTANDING
11 3/8% SENIOR SUBORDINATED NOTES DUE 2006
OF
INTERNATIONAL KNIFE & SAW, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON , 1997, UNLESS EXTENDED
International Knife & Saw, Inc., a Delaware corporation (the "Company"),
hereby offers to exchange an aggregate principal amount of up to $90,000,000 of
its 11 3/8% Senior Subordinated Notes due 2006 (the "New Notes") for a like
principal amount of its 11 3/8% Senior Subordinated Notes due 2006 (the
"Existing Notes") outstanding on the date hereof upon the terms and subject to
the conditions set forth in this Prospectus and in the accompanying letter of
transmittal (the "Letter of Transmittal" and, together with this Prospectus, the
"Exchange Offer"). The New Notes and the Existing Notes are hereinafter
collectively referred to as the "Notes." The terms of the New Notes are
identical in all material respects to those of the Existing Notes, except for
certain transfer restrictions and registration rights relating to the Existing
Notes. The New Notes will be issued pursuant to, and be entitled to the benefits
of, the Indenture (as defined) governing the Existing Notes.
The New Notes will bear interest from and including the date of consummation
of the Exchange Offer. Interest on the New Notes will be payable semi-annually
on May 15 and November 15 of each year, commencing May 15, 1997. Additionally,
interest on the New Notes will accrue from the last interest payment date on
which interest was paid on the Existing Notes surrendered in exchange therefor
or, if no interest has been paid on the Existing Notes, from the date of
original issue of the Existing Notes.
The New Notes will be general unsecured obligations of the Company. The New
Notes will be subordinated in right of payment to all existing and future Senior
Debt (as defined) and pari passu in right of payment with all other existing and
future senior subordinated indebtedness of the Company. Although the Company's
U.S. operations are owned directly, its foreign operations are conducted through
subsidiaries. The New Notes will be effectively subordinated to all existing and
future indebtedness and other obligations of such subsidiaries. As of September
30, 1996, on a pro forma basis after giving effect to the Transactions (as
defined), the Company would have had no Senior Debt outstanding (exclusive of
unused commitments of $20.0 million) and the Company's subsidiaries would have
had approximately $5.5 million of indebtedness outstanding (exclusive of unused
commitments of $5.0 million). The Indenture permits the Company and its
subsidiaries to incur additional indebtedness, subject to certain limitations.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement dated
November 6, 1996 (the "Registration Rights Agreement") by and between the
Company and Schroder Wertheim & Co. Incorporated and Smith Barney Inc. (the
"Initial Purchasers") with respect to the initial sale of the Existing Notes.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of
Existing Notes pursuant to the Exchange Offer may be withdrawn at any time prior
to the Expiration Date (as defined) for the Exchange Offer. In the event the
Company terminates the Exchange Offer and does not accept for exchange any
Existing Notes with respect to the Exchange Offer, the Company will promptly
return such Existing Notes to the holders thereof. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivery of a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Existing Notes where such Existing Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the
Existing Notes. If a market for the New Notes should develop, such New Notes
could trade at a discount from their principal amount. The Company currently
does not intend to list the New Notes on any securities exchange or to seek
approval for quotation through any automated quotation system, and no active
public market for the New Notes is currently anticipated. There can be no
assurance that an active public market for the New Notes will develop.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange pursuant to the Exchange Offer.
------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR A DISCUSSION OF CERTAIN
FACTORS THAT HOLDERS OF EXISTING NOTES SHOULD CONSIDER IN CONNECTION WITH THE
EXCHANGE OFFER.
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.
------------------------
The date of this Prospectus is , 1997.
<PAGE> 5
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Exchange Offer
Registration Statement," which term shall encompass all amendments, exhibits,
annexes and schedules thereto) pursuant to the Securities Act, and the rules and
regulations promulgated thereunder, covering the New Notes being offered hereby.
This Prospectus does not contain all the information set forth in the Exchange
Offer Registration Statement. For further information with respect to the
Company and the Exchange Offer, reference is made to the Exchange Offer
Registration Statement. Statements made in this Prospectus as to the contents of
any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Exchange Offer Registration Statement, reference is made to
the exhibit for a more complete description of the document or matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. The Exchange Offer Registration Statement, including the exhibits
thereto, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the Commission at Seven World Trade
Center, Suite 1300, New York, New York 10048 and at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of such Web site is:
http://www.sec.gov.
As a result of the Exchange Offer, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will be required to file
periodic reports and other information with the Commission. In the event the
Company ceases to be subject to the informational requirements of the Exchange
Act, the Company will be required under the Indenture, for so long as any of the
Notes remain outstanding, to furnish to the holders of the Notes and file with
the Commission (unless the Commission will not accept such a filing) (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports.
This Prospectus includes forward-looking statements which involve risks and
uncertainties as to future events. Actual events or results may differ
materially from those discussed in the forward-looking statements as a result of
various factors, including, without limitation, those set forth under "Risk
Factors".
i
<PAGE> 6
SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the more detailed information and the Company's historical
consolidated financial statements and "Unaudited Pro Forma Consolidated
Financial Information," and the respective notes thereto, included elsewhere in
this Prospectus. Unless otherwise indicated, industry and market data used
throughout this Prospectus are based on Company estimates which, while believed
by the Company to be reliable, have not been verified by independent sources.
Unless otherwise indicated or the context otherwise requires, references to
"IKS" or the "Company" are to International Knife & Saw, Inc. and its
consolidated subsidiaries.
THE COMPANY
The Company is a global leader in the manufacturing, servicing and
marketing of industrial and commercial machine knives and saws, operating in an
estimated worldwide market of $1.0 billion. The Company's products, which are
consumed in the normal course of machine operation and need resharpening or
replacement many times a year, are mounted in industrial machines and are used
in virtually every facet of cutting, slitting, chipping and forming of
materials. The Company serves the following major market sectors: (i) Wood (42%
of 1995 net sales); (ii) Paper & Packaging (38%); (iii) Metal (14%); and (iv)
Plastic & Recycling (6%). The Company believes that it has a leading worldwide
market share in each of these market sectors and that it is the only company
that serves all four such sectors.
The Company believes that it has the most extensive product offering in the
industry, selling over 10,000 knife and saw products to a wide range of
end-users, from large industrial and consumer product manufacturers to small
family-owned print shops. The breadth of the Company's product line is enhanced
by the Company's strategic relationships with over 50 finished goods suppliers,
offering IKS the flexibility to manufacture or source many of its products. IKS
products are used for diverse applications in numerous markets, including the
use of circular slitter knives to cut copy paper, long veneer slicer knives to
slice thin veneer used in the manufacture of quality furniture and circular
metal slitter knives to cut wide coils of steel into narrow strips. Reflecting
the Company's broad product range and numerous applications, the Company sells
to over 5,000 customers with no customer accounting for more than 3% of the
Company's net sales.
IKS is the only industrial knife and saw manufacturer with operations in
North America, Europe, Asia and Latin America and products sold in more than 75
countries. The Company utilizes its salesforce, the largest direct salesforce in
the industry, to focus its efforts on aftermarket sales to end-users, which
accounted for 89% of the Company's 1995 net sales. The Company also sells to
end-users through Company-owned and independent resharpening service centers,
which resharpen both IKS and competitors' knives and saws and also act as
distributors of IKS products, as well as through distributors and agents. The
Company's remaining sales are to over 300 original equipment manufacturers
("OEMs") of industrial cutting equipment, and the Company believes it is the
leading supplier of knife and saw products to OEMs.
The Company's sales are principally in North America and Europe,
representing 73% and 26% of 1995 net sales, respectively, and the Company
believes that significant opportunities exist to expand its share of these two
major markets. The Company has also recently expanded its operations into the
emerging markets of Asia and Latin America (with sales growing from 1% of fiscal
1995 net sales to 6.8% of net sales for the nine month period ended September
30, 1996). The Company plans to continue its international growth, entering new
geographic markets while broadening existing ones. Since 1991, the Company has
expanded its domestic and international operations through internal growth, the
development of strategic alliances and the acquisition of knife and saw
manufacturers and service centers. In addition, to maintain its position as a
low cost producer, the Company takes advantage of economies of scale in both
manufacturing and purchasing and has improved operating efficiencies. As a
result of these actions, during the four
1
<PAGE> 7
year period ended December 31, 1995, the Company achieved a net sales compound
annual growth rate ("CAGR") of 8.1%, with 1995 net sales of $107 million, and a
pro forma EBITDA (as defined herein) CAGR of 12.2%, with 1995 pro forma EBITDA
of $15.3 million. For the nine month period ended September 30, 1996, the
Company's net sales increased 12.6% over the comparable 1995 period to $89.3
million, and pro forma EBITDA increased 23.8% over the comparable 1995 period to
$12.8 million.
The Company believes that it can enhance its leading market position
through the continued implementation of its business strategy. Key elements of
this strategy include (i) maximizing stable, high margin end-user sales; (ii)
increasing its global manufacturing, sourcing and marketing capabilities through
strategic alliances; (iii) growing its resharpening service center operations,
which increases direct access to end-users and enables the Company to capture
both resharpening and additional replacement business; (iv) expanding and
improving its product offering; (v) maintaining its focus on cost improvement
opportunities; and (vi) continuing to evaluate acquisitions in the highly
fragmented knife and saw industry.
IKS traces it origins to 1814, when Klingelnberg Soehne was founded in
Germany as a textile and hardware trading house. Klingelnberg Soehne began
manufacturing industrial knives and saws in the early 1900s and by 1940 was
serving a variety of product segments. Klingelnberg Soehne expanded its sales
into the North American market during the 1960s and subsequently established
manufacturing and resharpening operations which were complemented by several
strategic acquisitions. The Company was incorporated in 1979, and by 1991 it had
acquired the European and North American operations of Klingelnberg Soehne.
Since 1991, the Company has expanded its resharpening operations by acquiring
and opening 13 service centers, and has recently commenced operations in Asia
and Latin America. The principal executive offices of IKS are located at 1299
Cox Avenue in Erlanger, Kentucky and its telephone number is (606) 371-0333.
THE TRANSACTIONS
The Existing Notes were issued on November 6, 1996 concurrently with the
consummation of a recapitalization (the "Recapitalization") of The Klingelnberg
Corporation, a Delaware corporation ("IKS Holdings"). Prior to the
Recapitalization, all of the issued and outstanding capital stock of IKS
Holdings was held by members of the Klingelnberg family and the Company's issued
and outstanding capital stock was held approximately 97% by IKS Holdings and
approximately 3% by John E. Halloran, Edward J. Brent, Thomas Meyer and Hans
Berg, each of whom was an executive officer of the Company (the "Existing
Management Investors").
The Recapitalization involved the following transactions: (i) the Existing
Management Investors exchanged their holdings of capital stock issued by the
Company for capital stock of IKS Holdings, and the Company became a wholly owned
subsidiary of IKS Holdings; (ii) IKS Holdings amended its charter to change its
corporate name to "IKS Corporation" and to authorize three classes of capital
stock, consisting of preferred stock (the "Holdings Preferred Stock"), voting
common stock (the "Holdings Class A Stock") and non-voting common stock (the
"Holdings Class B Stock" and, together with the Holdings Class A Stock, the
"Holdings Common Stock"); (iii) the issued and outstanding capital stock of IKS
Holdings was exchanged for a recapitalization distribution (the
"Recapitalization Distribution") which consisted of (a) approximately $86.6
million in cash and (b) Junior Subordinated Debentures of IKS Holdings (the
"Holdings Debentures"), Holdings Preferred Stock and Holdings Class A Stock with
an aggregate value of approximately $9.4 million issued to Arndt Klingelnberg,
Diether Klingelnberg and John E. Halloran; (iv) John E. Halloran and Thomas
Meyer, together with certain other key employees of the Company who were not
Existing Management Investors (the "New Management Investors" and, together with
the Existing Management Investors, the "Management Investors"), purchased
Holdings Debentures, Holdings Preferred Stock and Holdings Class A Stock from
IKS Holdings for approximately $1.3 million in cash; and (v) Citicorp Venture
Capital Ltd. ("CVC") purchased Holdings Debentures, Holdings
2
<PAGE> 8
Preferred Stock and Holdings Common Stock from IKS Holdings for $14.3 million in
cash. See "The Transactions," "Stock Ownership" and "Description of Certain
Indebtedness -- Holdings Debentures."
In connection with the Recapitalization, the Company repaid approximately
$5.2 million of its existing indebtedness and entered into a new $20.0 million
revolving credit facility (the "Senior Credit Facility"). In addition, a German
subsidiary of the Company repaid approximately $6.2 million of existing
indebtedness under its term loan and entered into a new $5.0 million revolving
credit facility (the "New German Credit Facility"). For information regarding
the Senior Credit Facility and the indebtedness of such subsidiary, see
"Description of Certain Indebtedness -- Senior Credit Facility" and
"-- Subsidiary Indebtedness."
The foregoing transactions, together with the issuance of the Existing
Notes, the application of the proceeds therefrom and the payment of related
transaction fees and expenses, are collectively referred to herein as the
"Transactions".
In anticipation of the Recapitalization, on July 25, 1996 the Company
acquired certain real property which had previously been under capital lease to
the Company for approximately $5.6 million (the "Realty Acquisition"). For
additional information concerning the Realty Acquisition, see "Certain
Relationships and Related Transactions."
3
<PAGE> 9
THE EXCHANGE OFFER
Securities Offered......... Up to $90,000,000 aggregate principal amount of
11 3/8% Senior Subordinated Notes due 2006. The
terms of the New Notes and Existing Notes are
identical in all material respects, except for
certain transfer restrictions and registration
rights relating to the Existing Notes.
The Exchange Offer......... The New Notes are being offered in exchange for a
like principal amount of Existing Notes. Existing
Notes may be exchanged only in integral multiples
of $1,000. The issuance of the New Notes is
intended to satisfy obligations of the Company
contained in the Registration Rights Agreement.
Expiration Date; Withdrawal
of Tender................ The Exchange Offer will expire at 5:00 p.m. New
York City time, on , 1997, or such
later date and time to which it may be extended by
the Company. The tender of Existing Notes pursuant
to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date. Any Existing Notes
not accepted for exchange for any reason will be
returned without expense to the tendering holder
thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
Certain Conditions to the
Exchange Offer........... The Company's obligation to accept for exchange, or
to issue New Notes in exchange for, any Existing
Notes is subject to certain customary conditions
relating to compliance with any applicable law, any
applicable interpretation by the staff of the
Commission or any order of any governmental agency
or court of competent jurisdiction, which may be
waived by the Company in its reasonable discretion.
The Company currently expects that each of the
conditions will be satisfied and that no waivers
will be necessary. See "The Exchange
Offer -- Certain Conditions to the Exchange Offer."
Procedures for Tendering
Old Notes................ Each holder of Existing Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with such Existing Notes and any other required
documentation, to the Exchange Agent (as defined)
at the address set forth herein. See "The Exchange
Offer -- Procedures for Tendering Existing Notes."
Use of Proceeds............ The Company will not receive any proceeds from the
Exchange Offer.
Exchange Agent............. United States Trust Company of New York (the
"Exchange Agent") is serving as the Exchange Agent
in connection with the Exchange Offer.
Federal Income Tax
Consequences............. The exchange of Notes pursuant to the Exchange
Offer should not be a taxable event for federal
income tax purposes. See "Certain Federal Income
Tax Considerations."
4
<PAGE> 10
CONSEQUENCES OF EXCHANGING EXISTING NOTES PURSUANT TO THE EXCHANGE OFFER
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company is of the view that
holders of Existing Notes (other than any holder who is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) who exchange
their Existing Notes for New Notes pursuant to the Exchange Offer generally may
offer such New Notes for resale, resell such New Notes and otherwise transfer
such New Notes without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided such New Notes are acquired in the
ordinary course of the holders' business and such holders have no arrangement
with any person to participate in a distribution of such New Notes. Each
broker-dealer that receives New Notes for its own account in exchange for
Existing Notes must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution." In addition, to
comply with the securities laws of certain jurisdictions, if applicable, the New
Notes may not be offered or sold unless they have been registered or qualified
for sale in such jurisdictions or in compliance with an available exemption from
registration or qualification. The Company has agreed, pursuant to the
Registration Rights Agreement and subject to certain specified limitations
therein, to register or qualify the New Notes for offer or sale under the
Securities or blue sky laws of such jurisdictions as any holder of the Notes
reasonably requests in writing. If a holder of Existing Notes does not exchange
such Existing Notes for New Notes pursuant to the Exchange Offer, such Existing
Notes will continue to be subject to the restrictions on transfer contained in
the legend thereon. In general, the Existing Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. Holders of Existing Notes do not have any appraisal or
dissenters' rights under the Delaware General Corporation Law in connection with
the Exchange Offer. See "The Exchange Offer -- Consequences of Failure to
Exchange; Resales of New Notes."
The Existing Notes are currently eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market.
Following commencement of the Exchange Offer but prior to its consummation, the
Existing Notes may continue to be traded in the PORTAL market. Following
consummation of the Exchange Offer, the New Notes will not be eligible for
PORTAL trading.
THE NEW NOTES
The terms of the New Notes are identical in all material respects to the
Existing Notes, except for certain transfer restrictions and registration rights
relating to the Existing Notes.
Notes Offered.............. $90,000,000 aggregate principal amount of 11 3/8%
Senior Subordinated Notes due 2006.
Maturity................... November 15, 2006.
Interest Payment Dates..... May 15 and November 15 of each year, commencing May
15, 1997.
Ranking.................... The New Notes will be general unsecured obligations
of the Company. The New Notes will be subordinated
in right of payment to all existing and future
Senior Debt (as defined) of the Company and will
rank pari passu in right of payment with all other
existing and future senior subordinated
indebtedness of the Company. In addition, the New
Notes will be effectively subordinated to all
existing and future indebtedness and other
obligations of the Company's subsidiaries. As of
September 30, 1996, after giving pro forma effect
to the Transactions, the Company would have had no
Senior Debt outstanding, exclusive of unused
commitments of $20.0 million, and the Company's
subsidiaries
5
<PAGE> 11
would have had approximately $5.5 million of
indebtedness outstanding (excluding China joint
venture indebtedness of approximately $3.8 million,
which is non-recourse to the Company, and excluding
unused commitments of $5.0 million). The indenture
(the "Indenture") governing the New Notes permit
the Company and its subsidiaries to incur
additional indebtedness, subject to certain
limitations. See "Risk Factors -- Ranking of the
Notes; Subsidiary International Operations" and
"Description of the Notes -- Subordination."
Optional Redemption........ The New Notes (and any outstanding Existing Notes)
will be redeemable in cash at the option of the
Company, in whole or in part, at any time or from
time to time on or after November 15, 2001, at the
redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date of
redemption. In addition, the Company may also
redeem Notes in cash at its option at any time
prior to November 15, 1999 at 111 3/8% of the
principal amount thereof, plus accrued and unpaid
interest, if any, to the date of redemption, with
the net proceeds of one or more Public Equity
Offerings; provided, however, that at least $60.0
million aggregate principal amount of the Notes
must remain outstanding after any such redemption.
See "Description of the Notes -- Optional
Redemption."
Change of Control.......... Upon a Change of Control, the Company will be
required to offer to repurchase the Notes at a
purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase. See "Description
of the Notes -- Change of Control."
Certain Covenants.......... The Indenture contains certain covenants with
respect to the Company and its Restricted
Subsidiaries (as defined), which restrict, among
other things, (a) the incurrence of additional
indebtedness, (b) the payment of dividends and
other restricted payments, (c) the creation of
certain liens, (d) the sale of
assets, (e) certain payment restrictions affecting
subsidiaries, (f) transactions with affiliates and
(g) the issuance of capital stock by subsidiaries.
The Indenture also restricts the Company's ability
to consolidate or merge with or into, or to
transfer all or substantially all of its assets to,
another person. These restrictions and requirements
are subject to a number of important qualifications
and exceptions. See "Description of the Notes --
Certain Covenants."
RISK FACTORS
Holders of Existing Notes should carefully consider all of the information
set forth in this Prospectus and, in particular, should evaluate the specific
factors under "Risk Factors" beginning on page 9 in connection with the Exchange
Offer.
6
<PAGE> 12
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table contains summary historical and pro forma financial data
of the Company for each of the three years in the period ended December 31, 1995
and the nine month periods ended September 30, 1995 and 1996. The summary
historical financial data for each of the three years in the period ended
December 31, 1995 were derived from the audited consolidated financial
statements of the Company included elsewhere in this Prospectus. The summary
historical financial data as of September 30, 1996 and for the nine month
periods ended September 30, 1995 and 1996 were derived from the unaudited
consolidated financial statements of the Company included elsewhere in this
Prospectus. In the opinion of management, such unaudited consolidated financial
statements include all adjustments necessary for a fair presentation of the
financial condition and results of operations of the Company for such periods.
The summary pro forma financial data for the year ended December 31, 1995, for
the nine month period ended September 30, 1995, and as of and for the nine month
period ended September 30, 1996 were derived from the "Unaudited Pro Forma
Consolidated Financial Information" included elsewhere in this Prospectus. The
summary pro forma financial data for the two year period ended December 31, 1994
were derived from historical financial data, adjusted for the private company
expenses referred to in Note 4 below. The pro forma financial data is presented
for informational purposes only and does not purport to represent what the
Company's financial position or results of operations would actually have been
if the Transactions and the Realty Acquisition had occurred on the assumed dates
or to project the Company's financial position or results of operations at any
future date or for any future periods. The information contained in this table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Unaudited Pro Forma
Consolidated Financial Information" and the Company's historical consolidated
financial statements, including the notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------- ---------------------
1993 1994 1995 1995 1996
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales......................... $84,964 $92,447 $107,030 $79,238 $89,256
Gross profit...................... 24,573 30,174 30,973 23,191 26,508
Operating income.................. 7,226 11,113 10,021 6,708 8,901
Net income........................ 3,194 5,182 5,248 3,477 4,852
OTHER DATA:
EBITDA(1)......................... $10,077 $14,491 $ 14,811 $ 9,872 $12,573
Depreciation and
amortization(2)................. 2,813 3,359 3,570 2,445 3,007
Capital expenditures(3)........... 9,112 3,383 4,663 3,421 7,312
Gross margin...................... 28.9% 32.6% 28.9% 29.3% 29.7%
EBITDA margin..................... 11.9% 15.7% 13.8% 12.5% 14.1%
EBITDA including LIFO charges and
credits......................... 10,381 15,043 14,180 9,153 11,908
PRO FORMA DATA:
EBITDA(1)(4)...................... $10,320 $14,938 $ 15,348 $10,283 $12,783
Interest expense.................. 10,946 8,328 8,609
EBITDA margin..................... 12.1% 16.2% 14.3% 13.0% 14.3%
Ratio of EBITDA to interest
expense(5)...................... 1.5x 1.5x
Ratio of net debt to EBITDA(6).... 5.9x 5.2x
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
1996
-------------------
PRO
ACTUAL FORMA
------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................... $19,827 $ 46,288
Total assets............................................................. 93,411 98,932
Debt (including notes payable and current portion of long-term
debt)(7)............................................................... 17,803 95,492
Shareholders' equity..................................................... 41,792 (19,234)
</TABLE>
(footnotes on following page)
7
<PAGE> 13
- ---------------
(1) EBITDA is defined as operating income plus depreciation and amortization
adjusted to exclude (i) LIFO charges (credits) of ($304), ($552) and $631
for the years ended December 31, 1993, 1994 and 1995, respectively, and $719
and $665 for the nine month periods ended September 30, 1995 and 1996,
respectively, and (ii) other unusual and one time expenses, as follows:
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------
1993 1994 1995 1995 1996
----- ----- ---- -------- ----
<S> <C> <C> <C> <C> <C>
Asia start-up costs.................................. $ -- $ 225 $419 $ 72 $ --
European facility relocation costs................... 342 246 -- -- --
European sales agency termination costs.............. -- 100 -- -- --
Indonesia management reorganization.................. -- -- 110 -- --
Environmental costs.................................. -- -- 60 -- --
----- ----- ---- ---- ----
$ 342 $ 571 $589 $ 72 $ --
===== ===== ===== ==== =====
</TABLE>
EBITDA is a widely accepted financial indicator of a company's ability to
service debt. However, EBITDA should not be construed as an alternative to
operating income, net income or cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) and
should not be construed as an indication of the Company's operating
performance or as a measure of liquidity. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(2) Depreciation and amortization as presented will not agree to the
consolidated statement of cash flows because of amortization reported below
the operating income line. Pro forma depreciation and amortization consists
of depreciation and amortization as described in the preceding sentence as
adjusted to reflect the elimination of the related party capital leases in
connection with the Realty Acquisition.
(3) 1993 includes $4,336 of capital expenditures related to the relocation of
the Company's German manufacturing facilities. The nine month period ended
September 30, 1996 includes $1,205 of capital expenditures related to the
consolidation of the Company's west coast operations and the expansion of
the Cincinnati facility, $1,801 of capital expenditures related to the
expansion of the China joint venture operations, and $5,581 related to the
Realty Acquisition.
(4) Pro Forma EBITDA includes adjustments for certain private company expenses
incurred by the Company, a family-owned business, which will be eliminated
following consummation of the Transactions ("Private Company Expenses"). See
"Unaudited Pro Forma Consolidated Financial Information" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(5) For purposes of the computation, amortization of debt issuance costs of $500
for the year ended December 31, 1995 and $375 for the nine month period
ended September 30, 1996 have been excluded from interest expense. In
addition, for the nine month period ended September 30, 1996, the effects of
the China joint ventures have been excluded from the computation.
(6) For purposes of the computation, net debt is equal to notes payable plus
total long-term debt (including the current portion but excluding China
joint venture indebtedness of $3,801 as of September 30, 1996 which is
non-recourse to the Company) less cash and cash equivalents, and EBITDA for
all interim periods presented has been annualized.
(7) For purposes of this presentation, debt excludes China joint venture
indebtedness of $3,801 which is non-recourse to the Company.
8
<PAGE> 14
RISK FACTORS
Holders of Existing Notes should carefully consider the specific factors
set forth below as well as the other information included in this Prospectus in
connection with the Exchange Offer. The risk factors set forth below are
generally applicable to the Existing Notes as well as the New Notes.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
The Company is highly leveraged. At September 30, 1996, on a pro forma
basis after giving effect to the Transactions, the Company's total debt and
stockholders' deficit would have been $95.5 million (excluding China joint
venture indebtedness of approximately $3.8 million, which is non-recourse to the
Company) and $19.2 million, respectively. The Company would also have had
borrowing availability under the Senior Credit Facility and the New German
Credit Facility of $25.0 million, subject to the borrowing conditions contained
therein. For the year ended December 31, 1995 and the nine month period ended
September 30, 1996, the ratio of earnings to fixed charges would have been 1.1
to 1.0 and 1.1 to 1.0, respectively, after giving pro forma effect to the
Transactions and the Realty Acquisition as if they had occurred on January 1,
1995. The Company's ability to make scheduled payments of the principal of or
interest on, or to refinance, its indebtedness (including the Notes) and to make
scheduled payments under its operating leases depends on its future performance,
which is subject to economic, financial, competitive and other factors beyond
its control.
The Company's high level of debt and debt service requirements will have
several important effects on its future operations, including the following: (i)
the Company will have significant cash requirements to service debt, reducing
funds available for operations and future business opportunities and increasing
the Company's vulnerability to adverse general economic and industry conditions
and competition; (ii) the Company's leveraged position will increase its
vulnerability to competitive pressures; (iii) the financial covenants and other
restrictions contained in agreements relating to the Company's indebtedness and
in the Indenture will require the Company to meet certain financial tests and
will restrict its ability to borrow additional funds, to dispose of assets or to
pay cash dividends on, or repurchase, preferred or common stock and may
adversely affect the Company's ability to respond to competitive pressures; and
(iv) funds available for working capital, capital expenditures, acquisitions and
general corporate purposes will be limited. Any default under the documents
governing indebtedness of the Company could have a significant adverse effect on
the market value of the Notes.
Based upon the current level of operations, the Company believes that its
cash flow from operations, together with borrowings under the Senior Credit
Facility and its other sources of liquidity, will be adequate to meet its
anticipated requirements for working capital, capital expenditures, lease
payments, interest payments and scheduled principal payments. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." There can be no assurance, however, that the
Company's business will continue to generate cash flow at or above current
levels. If the Company is unable to generate sufficient cash flow from
operations in the future to service its debt and make necessary capital or other
expenditures, or if its future cash flows are insufficient to amortize all
required principal payments out of internally generated funds, the Company may
be required to refinance all or a portion of its existing debt, sell assets or
obtain additional financing. There can be no assurance that any such refinancing
or asset sales would be possible or that any additional financing could be
obtained.
RANKING OF THE NOTES; SUBSIDIARY INTERNATIONAL OPERATIONS
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the New Notes, like the Existing Notes, will be
subordinated to the prior payment in full of all existing and future Senior
Debt, including indebtedness under the Senior Credit Facility. As of September
30, 1996, on a pro forma basis after giving effect to the Transactions, the
Company
9
<PAGE> 15
would not have had any Senior Debt outstanding, exclusive of unused commitments
of $20.0 million which may be borrowed by the Company under the Senior Credit
Facility. In the event of the bankruptcy, liquidation, dissolution,
reorganization or other winding up of the Company, the assets of the Company
will be available to pay obligations on the Notes only after all Senior Debt has
been paid in full, and there may not be sufficient assets remaining to pay
amounts due on any or all of the Notes. In addition, under certain
circumstances, the Company may not pay principal of, premium, if any, or
interest on, or any other amounts owing in respect of, the Notes, or purchase,
redeem or otherwise retire the Notes, if a payment default or a non-payment
default exists with respect to certain Senior Debt and, in the case of a
non-payment default, a payment blockage notice has been received by the Trustee
(as defined). See "Description of the Notes -- Subordination."
Although the Company's U.S. operations are owned directly, its foreign
operations are conducted through subsidiaries. Such subsidiaries have not
guaranteed or otherwise become obligated with respect to the Notes. The Notes
will therefore be effectively subordinated to all existing and future
liabilities, including indebtedness, of the Company's subsidiaries. As of
September 30, 1996, on a pro forma basis after giving effect to the
Transactions, the Company's subsidiaries would have had indebtedness of
approximately $5.5 million (excluding China joint venture indebtedness of
approximately $3.8 million, which is non-recourse to the Company, and excluding
unused commitments of $5.0 million) and other liabilities of approximately $7.9
million reflected on the Company's consolidated balance sheet. Claims of
creditors of the Company's subsidiaries, including trade creditors, will
generally have priority as to the assets of such subsidiaries over the claims of
the Company and the holders of the Company's indebtedness, including the Notes.
See "Description of the Notes -- Subordination."
RESTRICTIVE LOAN COVENANTS
The Indenture contains, and other debt instruments of the Company may in
the future contain, a number of significant covenants that, among other things,
restrict the ability of the Company to dispose of assets, incur additional
indebtedness, repay other indebtedness or amend other debt instruments, pay
dividends, create liens on assets, enter into investments or acquisitions,
engage in mergers or consolidations, make capital expenditures or engage in
certain transactions with subsidiaries and affiliates, and otherwise restrict
certain corporate activities.
The Company's ability to comply with the covenants contained in the
Indenture and other debt instruments of the Company may be affected by events
beyond its control, including prevailing economic, financial and industry
conditions. The breach of any of such covenants or restrictions could result in
a default under the Indenture and/or such other debt instruments, which would
permit the holders of the Notes or such lenders, as the case may be, to declare
all amounts borrowed thereunder to be due and payable, together with accrued and
unpaid interest, and the commitments of the senior lenders to make further
extensions of credit under such other debt instruments could be terminated. If
the Company were unable to repay its indebtedness to its senior lenders, such
lenders could proceed against the collateral securing such indebtedness, which
collateral consists of accounts receivable and inventory of the Company.
DEPENDENCE ON KEY INDIVIDUALS
The success of the Company is largely dependent on the experience and
knowledge of a few key executive officers. The loss of the services of one or
more of these individuals and the Company's inability to attract and retain
other key members of the Company's management could have a material adverse
effect upon the Company.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company operates manufacturing, sales and service facilities in eight
foreign countries and sells its products in more than 75 foreign countries,
which accounted for approximately 41% of the
10
<PAGE> 16
Company's 1995 net sales (including approximately 11% of 1995 net sales in
Canada). As a result, the Company is subject to risks associated with operating
in foreign countries, including fluctuations in currency exchange rates,
imposition of limitations on conversion of foreign currencies into dollars or
remittance of dividends and other payments by foreign subsidiaries, imposition
or increase of withholding and other taxes on remittances and other payments by
foreign subsidiaries, hyperinflation in certain foreign countries and imposition
or increase of investment and other restrictions by foreign governments.
Fluctuations in currency exchange rates have had an impact on the Company's
operations in the past, and historically the Company has not hedged its foreign
currency risks. No assurance can be given that the risks associated with
operating in foreign countries will not have a material adverse effect on the
Company in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
DEPENDENCE ON TOOL STEEL
The principal raw material used by the Company is tool steel. Although the
Company maintains inventories of tool steel in excess of normal business
practice, any major disruption in the supply of tool steel could have a material
adverse effect on the Company's business and financial condition.
The steel industry is highly cyclical in nature and steel prices are
influenced by numerous factors beyond the control of the Company, including
general economic conditions, labor costs, molybdenum and chrome costs,
competition, import duties, tariffs and currency exchange rates. This volatility
can significantly affect the Company's raw material costs. Competitive
conditions determine how much of steel price increases can be passed on to the
Company's customers. In 1995, the Company's ability to pass steel price
increases on to its customers on a timely basis was limited. If the Company is
unable to pass some or all of future steel price increases to its customers, the
Company could be materially and adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Business -- Raw Materials".
COMPETITION
The industrial knife and saw market is highly fragmented with numerous
participants. Although there is no one company which competes with the Company
in all four of the market sectors which the Company serves and there is no one
company which is dominant in any of such market sectors, there can be no
assurance that the Company's products will be able to compete successfully with
those of its competitors. See "Business -- Competition."
FRAUDULENT CONVEYANCE CONSIDERATIONS
A portion of the proceeds from the sale of the Existing Notes was used by
the Company to pay a dividend to IKS Holdings to finance, in part, the cash
portion of the Recapitalization Distribution. See "The Transactions." If a court
in a lawsuit on behalf of any unpaid creditor of the Company or a representative
of the Company's creditors were to find that, at the time the Company issued the
Existing Notes, the Company (x) intended to hinder, delay or defraud any
existing or future creditor or contemplated insolvency with a design to prefer
one or more creditors to the exclusion in whole or in part of others or (y) did
not receive fair consideration in good faith or reasonably equivalent value for
issuing the Existing Notes and the Company (i) was insolvent, (ii) was rendered
insolvent by reason of the incurrence of indebtedness represented by the
Existing Notes or such dividend, (iii) was engaged or about to engage in a
business or transaction for which its remaining assets constituted unreasonably
small capital to carry on its business, or (iv) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they matured,
such court could void the Notes and void such transactions. Alternatively, in
such event, claims of the holders of Notes could be subordinated to claims of
other creditors of the Company. The Company may be viewed as having been
insolvent at the time of or as a result of the Transactions if the fair value of
its assets did not exceed its probable liabilities at the time of, or following,
the Transactions.
11
<PAGE> 17
Based upon financial and other information available to it, management of
the Company believes that the Existing Notes were incurred for proper purposes
and in good faith. The Company believes that it (i) was solvent immediately
prior to and following the issuance of the Existing Notes and the consummation
of the other Transactions because the Company believes that the fair value of
the Company's assets exceeded its probable liabilities, (ii) had sufficient
capital for carrying on its business, and (iii) was able to pay its debts as
they matured. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources." There can be no
assurance, however, that a court would concur with such beliefs and positions.
In rendering their opinions in connection with the offer and sale of the
Existing Notes, counsel for the Company and counsel for the Initial Purchasers
did not express any opinion as to the applicability of Federal or state
fraudulent conveyance laws.
OWNERSHIP OF IKS HOLDINGS AND THE COMPANY
CVC, Arndt Klingelnberg, Diether Klingelnberg and the Management Investors
own all of the outstanding voting stock of IKS Holdings, which owns 100% of the
outstanding capital stock of the Company. By virtue of such stock ownership,
such persons have the power to direct the affairs of the Company and are able to
determine the outcome of all matters required to be submitted to stockholders
for approval, including the election of a majority of the Company's directors
and amendment of the Company's Certificate of Incorporation. See "The
Transactions" and "Stock Ownership."
PURCHASE OF NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control, the Company is required to offer to repurchase
all outstanding Notes at 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of repurchase. The source of funds for any
such repurchase will be the Company's available cash or cash generated from
operating or other sources, including borrowings, sales of assets, sales of
equity or funds provided by a new controlling person. A Change of Control will
likely trigger an event of default under other debt instruments of the Company
which would permit the acceleration of the debt under such debt instruments.
However, there can be no assurance that sufficient funds will be available at
the time of any Change of Control to make any required repurchases of Notes
tendered and to repay indebtedness under such debt instruments. See "Description
of the Notes -- Change of Control."
ABSENCE OF A PUBLIC MARKET
The Existing Notes currently are eligible for trading in the PORTAL Market.
The New Notes are new securities for which there is currently no established
market. The Company does not intend to list the New Notes on any national
securities exchange or to seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. The Initial
Purchasers have advised the Company that they currently intend to make a market
in the New Notes but that they are not obligated to do so and any such market
making may be discontinued at any time. There can be no assurance as to the
development of any market or the liquidity of any market that may develop for
the New Notes. If an active public market does not develop, the market, price
and liquidity of the New Notes may be adversely affected. Future trading prices
of the New Notes will depend on prevailing interest rates, the market for
similar securities and other factors, including general economic conditions and
the financial condition and performance of the Company. Holders of the New Notes
should be aware that they may be required to bear the financial risks of their
investment for an indefinite period of time. See "Description of the Notes."
12
<PAGE> 18
THE TRANSACTIONS
The Existing Notes were issued on November 6, 1996 concurrently with the
consummation of the Recapitalization of IKS Holdings. Prior to the
Recapitalization, all of the issued and outstanding capital stock of IKS
Holdings was held by members of the Klingelnberg family and the Company's issued
and outstanding capital stock was held approximately 97% by IKS Holdings and
approximately 3% by the Existing Management Investors.
The Recapitalization was effected pursuant to an Agreement and Plan of
Recapitalization dated September 17, 1996 (the "Recapitalization Agreement")
among IKS Holdings, the stockholders of IKS Holdings, the Existing Management
Investors and CVC, and involved the following transactions: (i) the Existing
Management Investors exchanged their holdings of capital stock issued by the
Company for capital stock of IKS Holdings, and the Company became a wholly owned
subsidiary of IKS Holdings; (ii) IKS Holdings amended its charter to change its
corporate name to "IKS Corporation" and to authorize three classes of capital
stock, consisting of Holdings Preferred Stock, Holdings Class A Stock and
Holdings Class B Stock; (iii) the issued and outstanding capital stock of IKS
Holdings was exchanged for the Recapitalization Distribution which, subject to
adjustment as described below, consisted of (a) approximately $86.6 million in
cash and (b) Holdings Debentures, Holdings Preferred Stock and Holdings Class A
Stock with an aggregate value of approximately $9.4 million issued to Arndt
Klingelnberg, Diether Klingelnberg and John E. Halloran (the "Rollover
Investment"); (iv) John E. Halloran, Thomas Meyer and the New Management
Investors purchased Holdings Debentures, Holdings Preferred Stock and Holdings
Class A Stock from IKS Holdings for approximately $1.3 million in cash; and (v)
CVC purchased Holdings Debentures, Holdings Preferred Stock and Holdings Common
Stock from IKS Holdings for $14.3 million in cash. The aggregate investment of
$15.6 million made in IKS Holdings by John E. Halloran, Thomas Meyer, the New
Management Investors and CVC in connection with the Recapitalization is referred
to herein as the "Recapitalization Investment."
The gross proceeds to the Company from the sale of the Existing Notes,
together with the Recapitalization Investment, were used to (i) finance the cash
portion of the Recapitalization Distribution (approximately $86.6 million), (ii)
repay approximately $11.4 million of outstanding indebtedness of the Company and
(iii) pay approximately $5.0 million of fees and expenses related to the
Transactions.
As a result of the Recapitalization, the Holdings Debentures, Holdings
Preferred Stock and Holdings Common Stock is held as follows: (i) CVC holds
approximately $2.8 million of the Holdings Debentures, 91.0% of the Holdings
Preferred Stock, 49.0% of the Holdings Class A Stock and 100% of the Holdings
Class B Stock; (ii) Arndt and Diether Klingelnberg hold an aggregate of
approximately $8.2 million of the Holdings Debentures and 40.4% of the Holdings
Class A Stock; and (iii) John E. Halloran, Thomas Meyer and the other Management
Investors hold an aggregate of approximately $1.1 million of the Holdings
Debentures, 9.0% of the Holdings Preferred Stock and 10.6% of the Holdings Class
A Stock. In addition, certain members of management of the Company are expected
to participate in an Employee Stock Purchase Plan pursuant to which management
will be offered the opportunity to acquire Holdings Class A Stock which would
equal in the aggregate up to an additional 10.0% of the Holdings Class A Stock
outstanding. See "Stock Ownership" and "Description of Certain
Indebtedness -- Holdings Debentures."
In connection with the Recapitalization, the Company entered into the
Senior Credit Facility and a German subsidiary of the Company entered into the
New German Credit Facility. For information regarding the Senior Credit Facility
and the indebtedness of such subsidiary, see "Description of Certain
Indebtedness -- Senior Credit Facility" and "-- Subsidiary Indebtedness."
The Recapitalization Agreement provides that the aggregate value of the
Recapitalization Distribution was to equal $110.0 million less the Consolidated
Net Debt (as defined in the Recapitalization Agreement) of IKS Holdings. Based
on an estimate that IKS Holdings had approximately $14.0 million of Consolidated
Net Debt immediately prior to the Recapitalization, the
13
<PAGE> 19
Recapitalization Distribution consisted of an aggregate of approximately $86.6
million in cash, $8.6 million of Holdings Debentures, Holdings Preferred Stock
having a value of approximately $441,000 and Holdings Class A Stock having a
value of approximately $377,000. In the event that IKS Holdings' actual
Consolidated Net Debt as of the opening of business on the closing date of the
Recapitalization is determined to be less than or greater than $14.0 million,
the cash portion of the Recapitalization Distribution, as well as the Holdings
Debentures, Holdings Preferred Stock and Holdings Class A Stock distributed to
John E. Halloran as part of the Recapitalization Distribution, will be adjusted
accordingly. A portion of the Recapitalization Distribution consisting of
approximately $4.9 million in cash and securities with an aggregate value of
approximately $52,000 consisting of Holdings Preferred Stock and Holdings Class
A Stock was deposited in escrow to secure the payment of any amounts owed as a
result of any post-closing adjustment to the Recapitalization Distribution as
well as certain indemnification obligations under the Recapitalization
Agreement.
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The
gross proceeds to the Company from the sale of the Existing Notes, together with
the Recapitalization Investment, were used to (i) finance the cash portion of
the Recapitalization Distribution (approximately $86.6 million), (ii) repay
approximately $11.4 million of outstanding indebtedness of the Company and (iii)
pay approximately $5.0 million of fees and expenses related to the Transactions.
14
<PAGE> 20
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at September 30, 1996 after giving effect to the Transactions. This
table should be read in conjunction with the Company's historical consolidated
financial statements and "Unaudited Pro Forma Financial Information," and the
respective notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
----------------------
PRO
ACTUAL FORMA
------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt (including current portion)(1):
Term loan................................................. $ 5,000 $ --
Notes payable(2).......................................... 12,803 5,492
New German Credit Facility(3)............................. -- --
Senior Credit Facility(4)................................. -- --
11 3/8% Senior Subordinated Notes due 2006................ -- 90,000
------- --------
Total long-term debt.............................. 17,803 95,492
Minority interest........................................... 2,178 2,178
Total stockholders' equity.................................. 41,792 (19,234)
------- --------
Total capitalization........................................ $61,773 $ 78,436
======= ========
</TABLE>
- ---------------
(1) For purposes of this presentation, debt excludes China joint venture
indebtedness of $3,801 which is non-recourse to the Company.
(2) Notes payable under the existing credit facilities in Deutsche Marks with
maturities through 2003 and bearing interest at rates of 3.0% to 7.75%.
(3) Borrowings of up to $5.0 million under the New German Credit Facility are
available to the Company's German subsidiary for working capital and general
corporate purposes at alternative rates, at the option of the Company's
German subsidiary, including Euro-LIBOR plus 0.5% (currently approximately
3.6%). The Company did not draw upon the New German Credit Facility in
connection with the Transactions. See "Description of Certain
Indebtedness -- Subsidiary Indebtedness."
(4) Borrowings of up to $20.0 million under the Senior Credit Facility are
available to the Company for working capital and general corporate purposes
at LIBOR plus 1.25% (currently approximately 6.7%). The Company did not draw
upon the Senior Credit Facility in connection with the Transactions. See
"Description of Certain Indebtedness -- Senior Credit Facility."
15
<PAGE> 21
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information (the
"Unaudited Pro Forma Financial Information") has been derived by the application
of pro forma adjustments to the Company's consolidated historical financial
statements included elsewhere herein. The Unaudited Pro Forma Financial
Information gives effect to the Transactions as if such events and transactions
had occurred on September 30, 1996 for purposes of the unaudited pro forma
consolidated balance sheet and gives effect to the Transactions and the Realty
Acquisition as if such events and transactions had occurred on January 1, 1995
for purposes of the unaudited pro forma consolidated statements of operations.
The pro forma adjustments are described in the accompanying notes and are based
upon available information and certain assumptions that management believes are
reasonable. The Unaudited Pro Forma Financial Information is presented for
informational purposes only and does not purport to represent what the Company's
financial position or results of operations would actually have been if the
aforementioned events or transactions had occurred on the dates specified or to
project the Company's financial position or results of operations at any future
date or for any future periods. The Unaudited Pro Forma Financial Information
should be read in conjunction with the Company's consolidated historical
financial statements, and the notes thereto, included elsewhere herein.
The pro forma adjustments were applied to the respective historical
financial statements to reflect and account for the Recapitalization as a
recapitalization. Accordingly, the historical basis of the Company's assets and
liabilities have not been affected by the Recapitalization.
16
<PAGE> 22
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
------------------------------------------
HISTORICAL PRO FORMA PRO FORMA
IKS ADJUSTMENTS IKS
---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents...................................................... $ 6,544 $ 521(a) $ 7,065
Accounts receivable, net....................................................... 20,647 -- 20,647
Other receivables.............................................................. 906 -- 906
Inventories.................................................................... 30,554 -- 30,554
Prepaid expenses, deferred taxes and sundry.................................... 1,854 500(b) 2,354
------- ------- --------
Total current assets....................................................... 60,505 1,021 61,526
Other assets................................................................... 4,008 4,500(b) 8,508
Property, plant and equipment
Cost......................................................................... 54,467 -- 54,467
Less accumulated depreciation and amortization............................... 25,569 -- 25,569
------- ------- --------
Property, plant and equipment, net............................................. 28,898 28,898
------- ------- --------
Total assets.......................................................... $ 93,411 $ 5,521 $ 98,932
======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable.................................................................. $ 8,935 (7,311)(c) $ 1,624
Current portion of long-term debt.............................................. 5,588 (5,000)(c) 588
Accounts and drafts payable.................................................... 6,552 -- 6,552
Accrued and sundry liabilities................................................. 6,474 -- 6,474
Due to parent.................................................................. 11,142 (11,142)(d) --
------- ------- --------
Total current liabilities.................................................. 38,691 (23,453) 15,238
Long-term debt, less current portion........................................... 3,280 90,000(e) 93,280
Joint venture indebtedness..................................................... 3,801 -- 3,801
Deferred taxes................................................................. 1,842 -- 1,842
Other liabilities.............................................................. 1,827 -- 1,827
Minority interest.............................................................. 2,178 -- 2,178
------- ------- --------
Total liabilities.......................................................... 51,619 66,547 118,166
Shareholders' equity........................................................... 41,792 (61,026)(f) (19,234 )
------- ------- --------
Total liabilities and shareholders' equity............................ $ 93,411 $ 5,521 $ 98,932
======= ======= ========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C>
(a) Adjustments to cash include:
(i) Adjustment to record the issuance of the Notes, net of underwriter discounts................. $ 87,300
(ii) Adjustment to record the cash distributed to the parent company in connection with the
Recapitalization ............................................................................ (61,026)
(iii) Adjustment to record the payment of "Due to parent" using proceeds from the issuance
of the Notes................................................................................. (11,142)
(iv) Adjustment to record the retirement of debt using proceeds from the issuance of the Notes.... (12,311)
(v) Transaction fees and expenses................................................................ (2,300)
--------
$ 521
========
(b) Adjustment to record debt issuance costs related to the Notes.
(c) Adjustment to record the retirement of the current portion of long-term debt using proceeds from the issuance of
the Notes.
(d) Adjustment to record the repayment of indebtedness owed to IKS Holdings in connection with the Recapitalization.
(e) Adjustments to long-term debt to record the issuance of the Notes.
(f) Adjustment to record the cash distributed to IKS Holdings in connection with the Recapitalization.
</TABLE>
17
<PAGE> 23
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
IKS ADJUSTMENTS IKS
---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales.............................................. $ 107,030 $ -- $ 107,030
Cost of sales.......................................... 76,057 (197)(a) 75,860
-------- ------- --------
Gross profit......................................... 30,973 197 31,170
Selling, general and administrative expenses........... 20,363 (541)(b) 19,822
Other.................................................. 589 -- 589
-------- ------- --------
Operating income....................................... 10,021 738 10,759
Other expenses (income):
Interest income...................................... (411) 23(c) (388)
Interest expense..................................... 1,827 9,119(d) 10,946
Sundry, net.......................................... (249) 46(e) (203)
Minority interest.................................... -- -- --
-------- ------- --------
1,167 9,188 10,355
Income before income taxes............................. 8,854 (8,450) 404
Provision (benefit) for income taxes................... 3,606 (3,127)(f) 479
-------- ------- --------
Net income (loss)...................................... $ 5,248 $(5,323) $ (75)
======== ======= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of
Operations.
18
<PAGE> 24
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
IKS ADJUSTMENTS IKS
---------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales............................................ $ 79,238 $ -- $79,238
Cost of sales........................................ 56,047 (141)(a) 55,906
------- ------- -------
Gross profit....................................... 23,191 141 23,332
Selling, general and administrative expenses......... 16,411 (412)(b) 15,999
Other................................................ 72 -- 72
------- ------- -------
Operating income..................................... 6,708 553 7,261
Other expense (income):
Interest income.................................... (219) 17(c) (202)
Interest expense................................... 1,378 6,950(d) 8,328
Sundry, net........................................ (543) 34(e) (509)
Minority interest.................................. -- -- --
------- ------- -------
616 7,001 7,617
Income before income taxes........................... 6,092 (6,448) (356)
Provision (benefit) for income taxes................. 2,615 (2,386)(f) 229
------- ------- -------
Net income (loss).................................... $ 3,477 $ (4,062) $ (585)
======= ======= =======
</TABLE>
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
IKS ADJUSTMENTS IKS
---------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales............................................ $ 89,256 $ -- $89,256
Cost of sales........................................ 62,748 (105)(a) 62,643
------- ------- -------
Gross profit....................................... 26,508 105 26,613
Selling, general and administrative expenses......... 17,607 (202)(b) 17,405
Other................................................ -- -- --
------- ------- -------
Operating income..................................... 8,901 307 9,208
Other expense (income):
Interest income.................................... (242) 17(c) (225)
Interest expense................................... 1,907 6,702(d) 8,609
Sundry, net........................................ 225 23(e) 248
Minority interest.................................. (191) -- (191)
------- ------- -------
1,699 6,742 8,441
Income before income taxes........................... 7,202 (6,435) 767
Provision (benefit) for income taxes................. 2,350 (2,008) (f) 342
------- ------- -------
Net income (loss).................................... $ 4,852 $ (4,427) $ 425
======= ======= =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of
Operations.
19
<PAGE> 25
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTH PERIOD
ENDED SEPTEMBER 30,
YEAR ENDED ----------------------
DECEMBER 31, 1995 1995 1996
----------------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
(a) Adjustments to cost of sales include:
(i) Elimination of executive salaries and
expenses not replaced................... $ 36 $ 27 $ 27
(ii) Elimination of interest and
amortization in connection with the
Realty Acquisition..................... 161 114 78
---- ---- ----
$ 197 $ 141 $ 105
==== ==== ====
(b) Adjustments to selling, general, and
administrative expenses include:
(i) Elimination of executive salaries and
expenses not replaced................... $ 501 $ 384 $ 183
(ii) Elimination of amortization in
connection with the Realty
Acquisition............................ 40 28 19
---- ---- ----
$ 541 $ 412 $ 202
==== ==== ====
</TABLE>
(c) Adjustment to reduce interest income for the year on cash used as
consideration for the Realty Acquisition and to reflect interest income on
cash balances.
(d) Adjustments to interest expense include:
<TABLE>
<CAPTION>
NINE MONTH PERIOD
ENDED SEPTEMBER 30,
YEAR ENDED ----------------------
DECEMBER 31, 1995 1995 1996
----------------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
(i) Interest expense on the Notes at
11 3/8%................................. $10,238 $7,678 $ 7,678
(ii) Estimated amortization of debt issuance
costs of the Notes..................... 500 375 375
(iii) Estimated reduction of interest expense
on debt retired with proceeds from
issuance of the Notes.................. (1,168) (787) (1,166)
(iv) Elimination of interest in connection
with the Realty Acquisition............. (451) (316) (185)
------- ------ -------
$ 9,119 $6,950 $ 6,702
======= ====== ========
</TABLE>
(e) Adjustment to eliminate amortization in connection with the Realty
Acquisition.
(f) Adjustment to decrease the provision for income taxes as a result of the
above adjustments (a) through (e) at an effective U.S. income tax rate of
37.0% for the year ended December 31, 1995 and for the nine month period
ended September 30, 1995, and 31.2% for the nine month period ended
September 30, 1996.
20
<PAGE> 26
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table contains selected historical financial data of the
Company as of and for each of the five years in the period ended December 31,
1995 and as of and for the nine month periods ended September 30, 1995 and 1996
and selected pro forma financial data of the Company for the year ended December
31, 1995 and for the nine month periods ended September 30, 1995 and 1996. The
selected historical financial data as of and for each of the two years in the
period ended December 31, 1992 were derived from the audited consolidated
financial statements of the Company. The selected historical financial data as
of and for each of the three years in the period ended December 31, 1995 were
derived from the audited consolidated financial statements of the Company
included elsewhere in this Prospectus. The selected historical financial data as
of September 30, 1995 and 1996 and for the nine month periods ended September
30, 1995 and 1996 were derived from the unaudited consolidated financial
statements of the Company included elsewhere in this Prospectus. In the opinion
of management, such unaudited consolidated financial statements include all
adjustments necessary for a fair presentation of the financial condition and
results of operations of the Company for such periods. The selected pro forma
financial data for the year ended December 31, 1995, the nine month period ended
September 30, 1995 and the nine month period ended September 30, 1996 were
derived from the "Unaudited Pro Forma Consolidated Financial Information"
included elsewhere in this Prospectus. The information contained in this table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Unaudited Pro Forma
Consolidated Financial Information" and the Company's historical consolidated
financial statements, including the notes thereto, included elsewhere in this
Prospectus.
21
<PAGE> 27
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTH PERIOD ENDED SEPTEMBER 30,
YEAR ENDED DECEMBER 31,
----------------------------------------------------------- -------------------------------------
PRO PRO PRO
FORMA FORMA FORMA
1991 1992 1993 1994 1995 1995 1995 1996 1995 1996
------- ------- ------- ------- -------- -------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.............. $78,318 $81,973 $84,964 $92,447 $107,030 $107,030 $79,238 $89,256 $79,238 $89,256
Cost of sales.......... 55,955 57,554 60,391 62,273 76,057 75,860 56,047 62,748 55,906 62,643
------- ------- ------- ------- -------- -------- ------- ------- ------- -------
Gross profit......... 22,363 24,419 24,573 30,174 30,973 31,170 23,191 26,508 23,332 26,613
Selling, general and
administrative
expenses............. 16,409 17,835 17,005 18,490 20,363 19,822 16,411 17,607 15,999 17,405
Other.................. -- -- 342 571 589 589 72 72
------- ------- ------- ------- -------- -------- ------- ------- ------- -------
Operating income..... 5,954 6,584 7,226 11,113 10,021 10,759 6,708 8,901 7,261 9,208
Interest expense,
net.................. 1,790 1,852 1,904 1,727 1,416 10,558 1,159 1,665 8,126 8,384
Other expense (income),
net.................. (89) (1,887) 177 541 (249) (203) (543) 34 (543) 26
------- ------- ------- ------- -------- -------- ------- ------- ------- -------
Income (loss) before
income taxes......... 4,253 6,619 5,145 8,845 8,854 404 6,092 7,202 (322) 798
Provision for income
taxes................ 1,459 2,445 1,951 3,663 3,606 479 2,615 2,350 242 352
------- ------- ------- ------- -------- -------- ------- ------- ------- -------
Net income (loss)...... $ 2,794 $ 4,174 $ 3,194 $ 5,182 $ 5,248 $ (75) $ 3,477 $ 4,852 $ (564) $ 446
======= ======= ======= ======= ======== ======== ======= ======= ======= =======
OTHER DATA:
EBITDA(1).............. $ 9,523 $10,030 $10,077 $14,491 $ 14,811 $ 15,348 $ 9,944 $12,573 $10,355 $12,783
Depreciation and
amortization(2)...... 3,346 3,297 2,813 3,359 3,570 3,369 2,445 3,007 2,303 2,910
Capital
expenditures(3)...... 3,143 2,943 9,112 3,383 4,663 4,663 2,781 7,312 2,781 7,312
Gross margin........... 28.6% 29.8% 28.9% 32.6% 28.9% 29.1% 29.3% 29.7% 29.4% 29.8%
EBITDA margin.......... 12.2% 12.2% 11.9% 15.7% 13.8% 14.3% 12.5% 14.1% 13.0% 14.3%
Ratio of EBITDA
to interest
expense(4)........... 4.9x 5.0x 4.6x 7.6x 8.1x 1.5x 7.2x 6.6x 1.2x 1.5x
Ratio of net debt to
EBITDA (5)........... 1.5x 1.3x 1.4x 0.7x 0.9x 5.9x 1.0x 0.7x 6.6x 5.2x
Ratio of earnings to
fixed charges(6)..... 3.1x 4.1x 3.3x 5.5x 5.6x 1.1x 5.2x 4.5x 1.0x 1.1x
EBITDA including
LIFO charges and
credits.............. $ 9,300 $ 9,881 $10,381 $15,043 $ 14,180 $ 14,717 $ 9,225 $11,908 $ 9,636 $12,118
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
AT DECEMBER 31,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................... $ 8,976 $19,215 $16,268 $30,687 $32,564 $32,749 $19,827
Total assets...................................... 58,311 64,583 71,194 72,641 85,697 83,002 93,411
Debt(7)........................................... 16,982 16,135 19,598 17,055 23,716 22,328 17,803
Shareholders' equity.............................. 21,873 25,103 28,062 34,734 38,029 37,517 41,792
</TABLE>
(footnotes on following page)
22
<PAGE> 28
- ---------------
(1) EBITDA is defined as operating income plus depreciation and amortization
adjusted to exclude (i) LIFO charges (credits) of $223, $149, ($304),
($552), and $631 for the years ended December 31, 1991, 1992, 1993, 1994 and
1995, respectively, and $719 and $665 for the nine month periods ended
September 30, 1995 and 1996, respectively, and (ii) other unusual and one
time expenses, as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTH PERIOD
DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------- -------------------
1993 1994 1995 1995 1996
---- ---- ---- -------- ----
<S> <C> <C> <C> <C> <C>
Asia start-up costs......................... $ -- $225 $419 $ 72 $ --
European facility relocation costs.......... 342 246 -- -- --
European sales agency termination costs..... -- 100 -- -- --
Indonesia management reorganization......... -- -- 110 -- --
Environmental costs......................... -- -- 60 -- --
---- ---- ---- ---- ----
$342 $571 $589 $ 72 $ --
==== ==== ==== ==== ====
</TABLE>
EBITDA is a widely accepted financial indicator of a company's ability to
service debt. However, EBITDA should not be construed as an alternative to
operating income, net income or cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) and
should not be construed as an indication of the Company's operating
performance or as a measure of liquidity. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(2) Depreciation and amortization as presented will not agree to the
consolidated statement of cash flows because of amortization reported below
the operating income line. Pro forma depreciation and amortization consists
of depreciation and amortization as described in the preceding sentence as
adjusted to reflect the elimination of the related party capital leases in
connection with the Realty Acquisition.
(3) 1993 includes $4,336 of capital expenditures related to the relocation of
the Company's German manufacturing facilities. The nine month period ended
September 30, 1996 includes $1,205 of capital expenditures related to the
consolidation of the Company's west coast operations and the expansion of
the Cincinnati facility, $1,801 of capital expenditures related to the
expansion of the China joint venture operations, and $5,581 related to the
Realty Acquisition.
(4) For purposes of the computation of the pro forma 1995 and 1996 information,
amortization of debt issuance costs of $500 for the year ended December 31,
1995 and $375 for the nine months ended September 30, 1995 and 1996 have
been excluded from interest expense. In addition, for the nine month period
ended September 30, 1996, the effects of the China joint ventures have been
excluded from the computation.
(5) For purposes of the computation, net debt is equal to notes payable plus
total long-term debt (including current portion but excluding China joint
venture indebtedness of $3,801 as of September 30, 1996 which is
non-recourse to the Company and excluding capital lease obligations) less
cash and cash equivalents, and EBITDA for all interim periods presented has
been annualized.
(6) For purposes of the computation, the ratio of earnings to fixed charges has
been calculated by dividing (i) earnings before income taxes and fixed
charges by (ii) fixed charges. Fixed charges are equal to interest expense
plus one-third of rental expense (the portion deemed representative of the
interest factor).
(7) Debt includes notes payable and current portion of long-term debt and
excludes capital lease obligations. For purposes of this presentation, China
joint venture indebtedness of $3,801 which is non-recourse to the Company is
excluded at September 30, 1996.
23
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes and the other financial
information included in this Prospectus.
GENERAL
The Company is a global leader in the manufacturing, servicing and
marketing of industrial and commercial machine knives and saws. Together with
its predecessor, the Company has been manufacturing knives and saws for nearly
100 years, beginning in Europe and expanding its presence to the United States
in the 1960s. The Company operates on an international basis with facilities in
North America, Europe, Asia and Latin America and products sold in over 75
countries. The Company offers a broad range of products, used for various
applications in numerous markets.
The Company's sales are principally in North America, which represented 73%
of its 1995 net sales. The Company's North American operations have been
profitable since its existence. Factors that have contributed to the North
American profitability include its significant sales in all four market sectors
supported by strong resharpening service center activities, regular introduction
of new products, continued upgrading of cutting tool technology, an ability to
control production costs, diversified sales network and a broad product
offering.
The Company's European operations accounted for 26% of 1995 net sales.
During the first nine months of 1996, the Company's European operations
generated operating income of $949,000, compared to an operating loss of
$642,000 during the same period of 1995. The significant improvement was due to
the Company beginning to benefit from the restructuring of its European
operations to reduce operating costs and redirect its sales efforts in order to
improve its competitive position. The restructuring occurred between 1993 and
1995 and included the hiring of a new European Managing Director, relocating the
Company's two German manufacturing facilities to improve operating efficiencies,
coordinating raw material purchases with North America, restructuring its
salesforce to focus on product sectors and expanding its finished goods supplier
network. The restructuring of the European operations resulted in expenses of
$342,000 and $346,000 in 1993 and 1994, respectively. An increase in raw
material prices in 1995 adversely affected European gross margin for that year.
The remaining 1% of the Company's 1995 net sales are spread throughout
other foreign markets worldwide. Historically, the Company had focused its sales
efforts in North America and Europe, only recently establishing itself in other
areas of the world and has increased sales in these other markets in the first
nine months of 1996 to 6.8% of net sales. During 1994 and 1995, the Company
entered into joint ventures to establish itself in emerging markets. These
ventures, including the China joint ventures, incurred start-up expenses of
$225,000 and $529,000 in 1994 and 1995, respectively, and the Company believes
that no significant start-up expenses remain for these ventures. Its 51% owned
China joint ventures began operating in December of 1995 and contributed $4.4
million to the Company's net sales for the first nine months of 1996.
The Company's operating results are subject to fluctuations in foreign
currency exchange rates as well as the currency translation of its foreign
operations into U.S. dollars. The Company manufactures products in the U.S.,
Germany, Canada and China and exports products to more than 75 countries. The
Company's foreign sales, the majority of which occur in European countries, are
subject to exchange rate volatility. In addition, the Company consolidates
German, Canadian and China operations and changes in exchange rates relative to
the U.S. dollar have impacted financial results. As a result, a decline in the
value of the dollar relative to these other currencies can have a favorable
effect on the profitability of the Company and an increase in the value of the
dollar relative to these other currencies can have a negative effect on the
profitability of the Company. The Company has not historically hedged its
foreign currency risk.
24
<PAGE> 30
In 1995, the entire knife industry experienced a highly unusual and
unexpected increase in raw material costs, which contributed to the Company's
gross margin decline from 1994 levels. This raw material price increase was due
to a reduction in tool steel production as a major German steel mill closed
operations and a Latin American and European supplier consolidated.
Additionally, as IKS sells primarily to end-users which require prompt and
timely delivery, the Company was forced to purchase expensive substitutes. Due
to the sudden nature of the price increase, the Company was not able to pass
along this increase to its customers on a timely basis. The Company is taking
measures to prevent such a reoccurrence including negotiating a 90-day fixed
price term into most of its sales contracts as opposed to the previous one-year
term, increasing prices on a more regular basis and expanding the number of its
steel suppliers.
Prior to the consummation of the Transactions, the Company was a
family-owned business and incurred Private Company Expenses. These Private
Company Expenses included executive overlaps, premium salaries and expenses and
other marketing arrangements. Private Company Expenses totaled $243,000,
$447,000, $537,000, $411,000 and $210,000 during the three years ended December
31, 1993, 1994 and 1995 and the nine month periods ended September 30, 1995 and
1996, respectively. Private Company Expenses have been eliminated in connection
with the consummation of the Transactions.
RESULTS OF OPERATIONS
The following table sets forth the items in the Company's consolidated
statements of income as percentages of its net sales for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
---------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................... (71.1)% (67.4)% (71.1)% 70.7% 70.3%
----- ----- ----- ----- -----
Gross profit............. 28.9% 32.6% 28.9% 29.3% 29.7%
Selling, general and administrative
expenses......................... (20.0)% (20.0)% (19.0)% (20.8)% 19.7%
Other.............................. (0.4)% (0.6)% (0.6)%
----- ----- ----- ----- -----
Operating income......... 8.5% 12.0% 9.4% 8.5% 10.0%
Interest expense, net.............. (2.2)% (1.9)% (1.3)% (1.5)% (1.9)%
Other expense (income), net........ 0.2% 0.6% (0.2)% (0.7)% %
----- ----- ----- ----- -----
Income before income
taxes.................. 6.1% 9.6% 8.3% 7.7% 8.1%
Provision for income taxes......... (2.3)% (4.0)% (3.4)% (3.3)% (2.7)%
----- ----- ----- ----- -----
Net income............... 3.8% 5.6% 4.9% 4.4% 5.4%
===== ===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30,1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
Net Sales: Net sales increased 12.6% to $89.3 million for the first nine
months of 1996 from $79.2 million for the same period in 1995, as the Company
experienced sales improvements in all three of its major geographical marketing
areas. Net sales for North America grew 6.7% to $62.4 million during the first
nine month period of 1996 from $58.5 million in the comparable 1995 period. The
growth in North America is due to the addition of new products, the increase in
product sales by its service centers and the acquisition of a service center in
July, 1995. Net sales for Europe grew 5.2% to $20.8 million from $19.7 million
primarily due to improvements in the German economy and the implementation of
many of the Company's North American programs in Europe. Net sales in the
Company's other foreign markets increased to $6.1 million from $1.0 million as
the majority of these operations were not in operation during the first nine
months of 1995. Contributing significantly were
25
<PAGE> 31
the Company's new China joint ventures, which had net sales of $4.3 million for
the nine month period ended September 30, 1996.
Gross Profit: Gross profit increased 14.3% to $26.5 million for the first
nine months of 1996, up from $23.2 million for the same period of 1995. Gross
margin increased slightly to 29.7% in the first nine months of 1996 compared to
29.3% for the comparable 1995 period. Gross profit in North America increased to
$19.5 million from $18.5 million, although gross margin declined to 31.3% from
31.7%. The gross margin decline was a result of the increase in raw material
pricing in the second half of 1995 which continued to affect the Company in the
first nine months of 1996. A substantial portion of the raw material price
increase has since been passed on to the Company's customers. In addition, gross
margin was affected by the incurrence of costs for new products to be introduced
in the second half of 1996. Gross profit in Europe increased 25.7% to $5.7
million, up from $4.5 million, and gross margin increased to 27.2% up from
22.8%. The improvement in gross margin was due to new sourcing arrangements at
attractive margins.
Selling, General and Administrative Expenses: Selling, general and
administrative ("SG&A") expenses were $17.6 million for the first nine months of
1996 as compared to $16.5 million in the comparable 1995 period and decreased to
19.7% of sales from 20.8% of sales in the comparable 1995 period, primarily as a
result of partially consolidating certain administrative functions and an
overall increase in sales without adding additional sales expense.
Operating Income: Operating income increased 32.7% to $8.9 million in the
first nine months of 1996 from $6.7 million for the same period of 1995.
Operating income as a percentage of net sales increased to 10.0% during the
first half of 1996 up from 8.5% for the comparable 1995 period. Operating income
in North America increased 6.7% to $8.1 million from $7.6 million. This was a
result of the increase in net sales being offset by the increase in raw material
costs, which have since been substantially passed on to the Company's customers,
and the cost of three new product lines to be introduced in the second half of
1996. Operating income in Europe increased to $870,000 from a loss of $642,000
due to the Company beginning to benefit from the restructuring of its European
operations.
Interest Expense, net: Net interest expense increased to $1.7 million for
the first nine months of 1996 from $1.2 million for the same period of 1995 due
to an increase in borrowings primarily related to the Company's investment in
the China joint ventures as well as the borrowings of the China joint ventures
which is non-recourse to the Company. A slight rise in interest rates also
contributed to the increased interest expense.
Income Taxes: Although pre-tax income was up in the first nine months of
1996, the provision for income taxes decreased to $2.4 million down from $2.6
million for the same period of 1995. The Company's effective tax rate decreased
to 32.6% for the first nine months of 1996 from 42.9% for the 1995 period. The
Company's 1996 effective tax rate was favorably affected by increased profits in
the Company's European operations for which no tax provision was recorded
because of the availability of a net operating loss carry forward.
Net Income: Net income increased to $4.9 million for the first nine months
of 1996 from $3.5 million for the same period of 1995, as a result of the
factors discussed above.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Sales: Net sales increased 15.8% to $107.0 million in 1995 from $92.4
million in 1994. The increase is attributable to volume increases from all
geographical markets served by the Company. In North America, net sales grew
8.2% to $78.5 million from $72.5 million in 1994, primarily a result of: (i)
continued effects of a new North American sales strategy, implemented in 1994,
organized by geographic teams, (ii) increased prices, (iii) introduction of new
products, including wide band saws, (iv) and an increase in the Company's wood
cutting product lines, driven by service center acquisitions in 1994 and 1995.
Net sales in Europe increased 36.6% to $27.2 million in 1995 from
26
<PAGE> 32
$19.9 million in 1994 as volume increased and US$/DM exchange rates improved,
slightly offset by price discounting.
Gross Profit: Gross profit increased to $31.0 million in 1995 from $30.2
million in 1994, although gross margin declined to 28.9% in 1995 compared to
32.6% in 1994. Gross margin in North America was 31.6% in 1995, down from 32.9%
in 1994 with the decline attributable to the unexpected loss of a finished goods
supplier and a significant increase in the Company's overall raw material costs.
Gross margin was down significantly in Europe to 21.8% in 1995 from 31.7% in
1994. This decline was due to price discounting of certain product lines to
increase market share in Europe, currency differentials negatively affecting
exports from Germany, an increase in labor rates affecting a portion of the
Company's German operations and the increased raw material costs discussed
above.
Selling, General and Administrative Expenses: SG&A expense as a percentage
of net sales decreased to 19.0% in 1995 down from 20.0% in 1994, largely as a
result of the Company's strategy of controlling SG&A expenses in a period of
sales growth. SG&A expense increased to $20.4 million in 1995 from $18.5 million
in 1994 primarily as a result of the sales increase.
Other Expense: The Company incurred an increase of $304,000 in start-up
costs relating to its Asian operations, primarily relating to the joint ventures
in China and the opening of a sales office in Singapore. Offsetting this
increase was a $346,000 decrease in expenses relating to the restructuring of
the Company's European operations, including the moving of facilities within
Germany and the restructuring of its sales and distribution network, which was
substantially completed by the end of 1994.
Operating Income: Operating income decreased 9.8% to $10.0 million in 1995
from $11.1 million in 1994. Operating income decreased to 9.4% of net sales in
1995 from 12.0% of net sales in 1994 largely due to a drop in the gross margin
as described above. Excluding one-time start-up costs of the Company's Asian
operations and the 1994 restructuring costs of its German operations, the
Company's operating income would have been $10.6 million in 1995 and $11.7
million in 1994 and operating margins would have been 9.9% in 1995 and 12.6% in
1994.
Interest Expense, net: Net interest expense decreased to $1.4 million in
1995 from $1.7 million in 1994 primarily due to higher amounts of interest
bearing funds coupled with higher interest rates on those funds.
Income Taxes: The provision for income taxes was stable at $3.6 million in
1995 and $3.7 million in 1994. The Company's effective tax rate remained
relatively stable at 40.7% of income in 1995 as compared to 41.4% of income in
1994.
Net Income: Net income remained stable at $5.2 million in 1995, as a
result of the factors discussed above.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net Sales: Net sales increased 8.8% to $92.4 million in 1994 from $85.0
million in 1993. Net sales in North America grew 11.9% to $72.5 million in 1994
from $64.8 million in 1993, as a result of a service center acquisition,
continued success in gaining market share of wood, plastic and metal products in
North America and the addition of a large customer in Canada. Net sales in
Europe declined 1.3% to $19.9 million from $20.2 million due to a sluggish
European economy partially offset by price increases.
Gross Profit: Gross profit increased 22.8% to $30.2 million in 1994 from
$24.6 million in 1993. Gross margin was 32.6% in 1994 compared to 28.9% in 1993,
up substantially as a result of the implementation of cost cutting efforts
throughout the Company and the increased sales volume. In North America gross
margin improved to 32.9% in 1994, up from 31.8% in 1993 substantially due to the
Company implementing a program designed to reduce operating costs, which
included
27
<PAGE> 33
improvements in manufacturing efficiency. Further improving North American gross
margin were price increases in Canada. In Europe, gross margin increased to
31.7% in 1994 from 19.5% in 1993 due to increasing prices and improved product
mix. In addition, 1993 European gross profit was negatively affected by
significant productivity losses during the relocation of a major facility in
connection with the Company's European restructuring.
Selling, General and Administrative Expenses: SG&A expenses increased to
$18.5 million in 1994 from $17.0 million in 1993, remaining stable at 20.0% of
net sales. The increase in SG&A is primarily a result of a significant increase
in Private Company Expenses, somewhat offset by the overall sales volume
increase. In North America, SG&A expenses decreased to 18.6% of net sales in
1994 from 19.6% of net sales in 1993, as the Company controlled expenses as
sales grew and consolidated administrative functions of the Canadian operations
which outweighed the increase in Private Company Expenses in North America. In
Europe, SG&A expenses increased to 26.3% of net sales in 1994 from 21.2% of net
sales in 1993 primarily due to an increase in Private Company Expenses.
Excluding Private Company Expenses in 1994, the Company's SG&A expenses were
$18.0 million or 19.5% of net sales in 1994, and remained relatively stable at
19.7% of net sales in 1993.
Other Expense: The Company incurred charges relating to the restructuring
of its European operations in both 1994 and 1993 of $346,000 and $342,000,
respectively. The Company also incurred start-up expenses of approximately
$225,000 in 1994, primarily related to the China joint ventures and expansion in
Asia.
Operating Income: Operating income increased 53.8% to $11.1 million in
1994 from $7.2 million in 1993, and as a percentage of net sales, operating
income increased to 12.0% in 1994 up from 8.5% in 1993. The improvement in
operating income was primarily due to the higher sales volume and gross margin
improvement in North America more than offsetting the higher Private Company
Expenses, as discussed above. Excluding Private Company Expenses in 1994, the
restructuring of its European operations in 1994 and 1993 and the start-up
expenses in Asia in 1994, the Company's operating income would have been $12.1
million or 13.1% of net sales in 1994, up from $7.8 million or 9.2% of net sales
in 1993.
Interest Expense, net: Net interest expense decreased to $1.7 million in
1994 from $1.9 million in 1993 primarily due to reduced borrowings.
Income Taxes: The provision for income taxes was $3.7 million in 1994
compared to $2.0 million in 1993. Income tax expense, as a percentage of income
before taxes, was 41.4% in 1994 and 37.9% in 1993.
Net Income: Net income increased 62.2% to $5.2 million in 1994 as compared
to $3.2 million in 1993, as a result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund working capital
needs, to meet required debt payments, and to complete planned maintenance and
expansion expenditures. The Company anticipates that its operating cash flow,
together with available borrowings under the Senior Credit Facility and the New
German Credit Facility will be sufficient to meet its working capital
requirements, capital expenditure requirements and interest service requirements
on its debt obligations. As of September 30, 1996, on a pro forma basis after
giving effect to the Transactions, the Company's total debt and stockholders'
deficit would have been $95.5 million (excluding China joint venture
indebtedness of approximately $3.8 million, which is non-recourse to the
Company) and $19.2 million, respectively. The Company would also have had
borrowing availability of $25.0 million for working capital and capital
expenditure requirements under the Senior Credit Facility and the New German
Credit Facility.
28
<PAGE> 34
Net cash flow from operations aggregated $4.2 million for the nine month
period ended September 30, 1996 as compared to $436,600 for the same period in
the prior year. The increase was primarily attributable to a $1.4 million
increase in net income and a $2.4 million reduction in working capital needs.
Net cash flow from operating activities totaled $3.0 million for the year
ended December 31, 1995 as compared to $6.9 million for the prior year. The
decrease in operating cash flow in 1995 compared to 1994 was primarily
attributable to a $4.6 million increase in working capital needs.
The Company currently expects that its annual capital expenditures will be
approximately $4.0 million to $5.0 million for the foreseeable future, including
maintenance capital expenditures of approximately $2.5 million each year.
However, the Company's capital expenditures will be affected by, and may be
greater than currently anticipated depending upon, the size and nature of new
business opportunities.
Cash used in investing activities for the nine month period ended September
30, 1996 was $7.2 million as compared to $367,000 for the same period in the
prior year. Major investment projects in the first nine months of 1996 included
$5.6 million for the Realty Acquisition, $974,000 for the construction of a
facility in Oregon and $231,000 for the expansion of the Kentucky facility to
accommodate a heat treatment furnace. Cash used in investing activities in the
year ended December 31, 1995 was $3.8 million, compared with $2.3 million in
1994 and $13.3 million in 1993. Investing activities in 1995 included the
acquisition of two service centers. In 1995, cash used in investing activities
was offset by a $2.3 million decrease in notes and other receivables. Major
investment projects for 1993 and 1994 included $4.3 million and $283,000
relating to the acquisition and relocation of facilities in Germany as part of
the Company's European restructuring.
Cash used by financing activities for the nine month period ended September
30, 1996 was $690,000 as compared to $2.3 million cash provided for the same
period in the prior year. The decrease in cash provided by financing activities
primarily represents an increase of $7.9 million in amounts due to parent and
affiliates, which amounts were repaid in connection with the Transactions, and a
decrease in notes payable and long term debt of $10.9 million. The Company paid
dividends of $1.2 million in each of the nine month periods ended September 30,
1995 and 1996.
Cash provided by financing activities for the years ended December 31,
1995, 1994, and 1993 totalled $4.5 million, $764,000 and $4.6 million,
respectively, and consisted primarily of long-term borrowings and amounts due to
parent and affiliates, offset by dividends paid in 1995 of $2.4 million. The
Company's ability to pay dividends is restricted under the terms of the
Indenture following consummation of the Transactions.
Concurrent with the Transactions the Company entered into the $20.0 million
Senior Credit Facility and its German subsidiary entered into the $5.0 million
New German Credit Facility. The Senior Credit Facility bears interest at LIBOR
plus 1.25% (currently approximately 6.7%) and the New German Credit Facility
bears interest at alternative rates, at the option of the Company's German
subsidiary, including Euro-LIBOR plus 0.5% (currently approximately 3.6%). The
Company did not draw upon these facilities in connection with the Transactions.
The Notes impose, and other debt instruments of the Company may impose, various
restrictions and covenants on the Company which could potentially limit the
Company's ability to respond to market conditions, to provide for unanticipated
capital investments or to take advantage of business opportunities.
29
<PAGE> 35
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING EXISTING NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Existing Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on , 1997; provided, however, that if the Company
has extended the period of time for which the Exchange Offer is open, the term
"Expiration Date" means the latest time and date to which the Exchange Offer is
extended.
As of the date of this Prospectus, $90.0 million aggregate principal amount
of the Existing Notes are outstanding. This Prospectus, together with the Letter
of Transmittal, is first being sent on or about , 1997 to all
holders of Existing Notes known to the Company. The Company's obligation to
accept Existing Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth under "-- Certain Conditions to the Exchange
Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for any exchange of any Existing Notes, by giving
notice of such extension to the holders thereof. During any such extension, all
Existing Notes previously tendered will remain subject to the Exchange Offer and
may be accepted for exchange by the Company. Any Existing Notes not accepted for
exchange for any reason will be returned without expense to the tendering holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Existing Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified below under "-- Certain Conditions to the Exchange
Offer." The Company will give notice of any extension, amendment, non-acceptance
or termination to the holders of the Existing Notes as promptly as practicable,
such notice in the case of any extension to be issued no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date.
Holders of Existing Notes do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law in connection with the Exchange
Offer.
PROCEDURES FOR TENDERING EXISTING NOTES
The tender to the Company of Existing Notes by a holder thereof as set
forth below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Existing Notes for exchange pursuant to the Exchange Offer must transmit a
properly completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to United States Trust Company
of New York at one of the addresses set forth below under "Exchange Agent" on or
prior to the Expiration Date. In addition, either (i) certificates for such
Existing Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Existing Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or the holder must comply with the guaranteed delivery
procedure described below. THE METHOD OF DELIVERY OF EXISTING NOTES, LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME
30
<PAGE> 36
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR
EXISTING NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Existing Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the
Existing Notes who has not completed the box entitled "Special Issuance
Instruction" or "Special Delivery Instruction" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution (as defined below). In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantees must be by a firm
which is a member of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc. or by a commercial bank or
trust company having an office or correspondent in the United States
(collectively, "Eligible Institutions"). If Existing Notes are registered in the
name of a person other than a signer of the Letter of Transmittal, the Existing
Notes surrendered for exchange must be endorsed by, or be accompanied by a
written instrument or instruments of transfer or exchange, in satisfactory form
as determined by the Company in its sole discretion, duly executed by, the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Existing Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Existing Notes not properly tendered or to not accept
any particular Existing Notes which acceptance might, in the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right to waive any defects or irregularities or conditions of the Exchange Offer
as to any particular Existing Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Existing Notes in the Exchange Offer). The interpretation of the terms
and conditions of the Exchange Offer as to any particular Existing Notes either
before or after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
Existing Notes for exchange must be cured within such reasonable period of time
as the Company shall determine. Neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Existing Notes for exchange, nor
shall any of them incur any liability for failure to give such notification.
If the Letter of Transmittal or any Existing Notes or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each broker-dealer holder will represent to the Company that,
among other things, the New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the holder and any
beneficial holder, that neither the holder nor any such beneficial holder has an
arrangement or understanding with any person to participate in the distribution
of such New Notes and that neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company. If
the holder is not a broker-dealer, the holder must represent that it is not
engaged in nor does it intend to engage in a distribution of the New Notes.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
For each Existing Note accepted for exchange, the holder of such Existing
Note will receive a New Note having a principal amount equal to that of the
surrendered Existing Note. For purposes of the Exchange Offer, the Company shall
be deemed to have accepted properly tendered Existing
31
<PAGE> 37
Notes for exchange when, as and if the Company has given oral and written notice
thereof to the Exchange Agent.
In all cases, issuance of New Notes for Existing Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Existing Notes or a
timely Book-Entry Confirmation of such Existing Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility, a properly completed and duly
executed Letter of Transmittal and all other required documents. If any tendered
Existing Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Existing Notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted or
non-exchanged Existing Notes will be returned without expense to the tendering
holder thereof (or, in the case of Existing Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
non-exchanged Existing Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration of
the Exchange Offer.
BOOK-ENTRY TRANSFER
Any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Existing Notes by causing the
Book-Entry Transfer Facility to transfer such Existing Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Existing Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof
with any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Existing Notes desires to tender such
Existing Notes and the Existing Notes are not immediately available, or time
will not permit such holder's Existing Notes or other required documents to
reach the Exchange Agent before the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) prior
to the Expiration Date, the Exchange Agent received from such Eligible
Institution a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form
provided by the Company (by telegram, telex, facsimile transmission, mail or
hand delivery), setting forth the name and address of the holder of Existing
Notes and the amount of Existing Notes tendered, stating that the tender is
being made thereby and guaranteeing that within five New York Stock Exchange
("NYSE") trading days after the date of execution of the Notice of Guaranteed
Delivery, the certificates for all physically tendered Existing Notes, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be, and any
other documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent and (iii) the certificates for all
physically tendered Existing Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Existing Notes may be withdrawn at any time prior to the
Expiration Date. For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at one of the addresses set
forth below under "Exchange Agent." Any such notice of withdrawal must specify
the name of the person having tendered the Existing Notes to be withdrawn,
identify the
32
<PAGE> 38
Existing Notes to be withdrawn (including the principal amount of such Existing
Notes), and (where certificates for Existing Notes have been transmitted)
specify the name in which such Existing Notes are registered, if different from
that of the withdrawing holder. If certificates for Existing Notes have been
delivered or otherwise identified to the Exchange Agent then, prior to the
release of such certificates, the withdrawing holder must also submit the serial
numbers of the particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution unless such
holder is an Eligible Institution. If Existing Notes have been tendered pursuant
to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Existing Notes and otherwise
comply with the procedures of such facility. All questions as to the validity,
form and eligibility (including time of receipt) of such notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Existing Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Existing Notes
which have been tendered for exchange but which are not exchanged for any reason
will be returned to the holder thereof without cost to such holder (or, in the
case of Existing Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Existing Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Existing Notes) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Existing Notes may be retendered by following
one of the procedures described under "-- Procedures for Tendering Existing
Notes" above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Existing Notes and may terminate or amend the Exchange Offer if at any
time before the acceptance of such Existing Notes for exchange or the exchange
of New Notes for such Existing Notes, the Company determines that the Exchange
Offer violates applicable law, any applicable interpretation of the staff of the
Commission or any order of any governmental agency or court of competent
jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Existing Notes
tendered, and no New Notes will be issued in exchange for any such Existing
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). In any such event the Company is
required to use every reasonable effort to obtain the withdrawal of any stop
order at the earliest possible time.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional
33
<PAGE> 39
copies of this Prospectus or of the Letter of Transmittal and requests for
Notices of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
<TABLE>
<S> <C> <C>
By Hand: By Registered or Certified Mail: By Overnight Courier:
United States Trust Company United States Trust Company of United States Trust Company
of New York New York of New York
111 Broadway P.O. Box 844 770 Broadway
Lower Level Cooper Station New York, New York 10003
Corporate Trust Window New York, New York Attn: Corporate Trust
New York, New York 10006 10276-0844
By Facsimile:
United States Trust Company of
New York
(212) 420-6152
Attn: Corporate Trust
Confirm by Telephone:
(800) 548-6565
</TABLE>
Delivery other than as set forth above will not constitute a valid
delivery.
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Existing
Notes, which is the principal amount as reflected in the Company's accounting
records on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized. The debt issuance costs will be capitalized for
accounting purposes.
TRANSFER TAXES
Holders who tender their Existing Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct the Company to register New Notes in the name of, or request that
Existing Notes not tendered or not accepted in the Exchange Offer be returned
to, a person other than the registered tendering holder will be responsible for
the payment of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of Existing Notes who do not exchange their Existing Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of, the Securities Act and applicable state securities laws.
Existing Notes not exchanged pursuant to the
34
<PAGE> 40
Exchange Offer will continue to accrue interest at 11 3/8% per annum and will
otherwise remain outstanding in accordance with their terms. Holders of Existing
Notes do not have any appraisal or dissenters' rights under the Delaware General
Corporation Law in connection with the Exchange Offer. In general, the Existing
Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Existing Notes under the
Securities Act. However, (i) if the Initial Purchasers so request with respect
to Existing Notes not eligible to be exchanged for New Notes in the Exchange
Offer and held by them following consummation of the Exchange Offer or (ii) if
any holder of Existing Notes is not eligible to participate in the Exchange
Offer or, in the case of any holder of Existing Notes that participates in the
Exchange Offer, does not receive freely tradable New Notes in exchange for
Existing Notes, the Company is obligated to file a registration statement on the
appropriate form under the Securities Act relating to the Existing Notes held by
such persons.
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company is of the view that New
Notes issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases Notes from the Company
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes. If any
holder has any arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such holder (i)
could not rely on the applicable interpretations of the staff of the Commission
and (ii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction. A
broker-dealer who holds Existing Notes that were acquired for its own account as
a result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of New Notes. Each such broker-dealer that receives
New Notes for its own account in exchange for Existing Notes, where such
Existing Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the New Notes for offer or
sale under the securities or blue sky laws of such jurisdictions as any holder
of the Notes reasonably requests in writing.
35
<PAGE> 41
BUSINESS
The Company is a global leader in the manufacturing, servicing and
marketing of industrial and commercial machine knives and saws, operating in an
estimated worldwide market of $1.0 billion. The Company's products, which are
consumed in the normal course of machine operation and need resharpening or
replacement many times a year, are mounted in industrial machines and are used
in virtually every facet of cutting, slitting, chipping and forming of
materials. The Company serves the following major market sectors: (i) Wood (42%
of 1995 net sales); (ii) Paper & Packaging (38%); (iii) Metal (14%); and (iv)
Plastic & Recycling (6%). The Company believes that it has a leading worldwide
market share in each of these market sectors and that there is no other company
that serves all four such sectors.
The Company believes that it has the most extensive product offering in the
industry, selling over 10,000 knife and saw products to a wide range of
end-users, from large industrial and consumer product manufacturers to small
family-owned print shops. The breadth of the Company's product line is enhanced
by the Company's strategic relationships with over 50 finished goods suppliers,
offering IKS the flexibility to manufacture or source many of its products. IKS'
products are used for diverse applications in numerous markets, including the
use of circular slitter knives to cut copy paper, long veneer slicer knives to
slice thin veneer used in the manufacture of quality furniture and circular
metal slitter knives to cut wide coils of steel into narrow strips. Reflecting
the Company's broad product range and numerous applications, the Company sells
to over 5,000 customers with no customer accounting for more than 3% of the
Company's net sales.
IKS is the only industrial knife and saw manufacturer with operations in
North America, Europe, Asia and Latin America and products sold in more than 75
countries. The Company utilizes its salesforce, the largest direct salesforce in
the industry, to focus its efforts on aftermarket sales to end-users, which
accounted for 89% of the Company's 1995 net sales. The Company also sells to
end-users through Company-owned and independent resharpening service centers,
which resharpen both IKS and competitors' knives and saws and also act as
distributors of IKS products, as well as through distributors and agents. The
Company's remaining sales are to over 300 OEMs of industrial cutting equipment,
and the Company believes it is the leading supplier of knife and saw products to
OEMs.
The Company's sales are principally to customers in North America and
Europe, representing 73% and 26% of 1995 net sales, respectively. The Company
believes that there are significant opportunities to expand its share of these
two major markets through the introduction of new products, increased
participation in existing markets and the extension of its existing marketing,
sales and distribution capabilities. In addition, the Company is planning to
strategically expand its existing resharpening service center base, which allows
IKS to capture both resharpening and additional replacement business. The
Company has also recently expanded its operations into the emerging markets of
Latin America and Asia (with sales increasing from 1% of fiscal 1995 net sales
to 6.8% of net sales for the nine month period ended September 30, 1996) and
plans to continue its international growth, entering new geographic markets
while broadening existing ones.
Since 1991, the Company has expanded its domestic and international
operations through internal growth, the development of strategic alliances and
the acquisition of knife and saw manufacturers and service centers. In addition,
to maintain its position as a low cost producer, the Company takes advantage of
economies of scale in both manufacturing and purchasing and has improved
operating efficiencies. As a result of these actions, during the four year
period ended December 31, 1995 the Company achieved a net sales CAGR of 8.1%,
with 1995 net sales of $107 million, and a pro forma EBITDA (as defined herein)
CAGR of 12.2%, with 1995 pro forma EBITDA of $15.3 million. For the nine month
period ended September 30, 1996, the Company's net sales increased 12.6% over
the comparable 1995 period to $89.3 million, and pro forma EBITDA increased
23.8% over the comparable 1995 period to $12.8 million.
36
<PAGE> 42
BUSINESS STRATEGY
The Company's business objectives include maximizing its end-user sales and
increasing its leading position in the worldwide market for industrial knives
and saws by continuing to expand its strategic alliances, service center
operations and broad product offering and focusing on its low cost position and
strategic acquisitions.
Maximize End-User Sales. The Company is focused on maximizing its
aftermarket sales to end-users, which typically offer a stable revenue base and
high margins because replacement knives and saws are required by end-users in
their normal operation. As sharp cutting edges are necessary for proper machine
operation, knife and saw resharpening and replacement cannot be postponed.
Moreover, the increased efficiency of an improved cutting edge offsets the cost
of knife and saw resharpening and replacement.
An integral component of the Company's successful sales strategy is its
knowledgeable worldwide salesforce of 103 people and 17 product managers, the
largest direct salesforce concentrated on industrial knives and saws. The
Company's salesforce develops close working relationships with end-users,
continually providing customers with direct technical support, offering advice
about the types of knives and saws, materials and specifications which would be
appropriate for their specific machines. As a result of these relationships, the
Company also receives from its customers specific application criteria which
enable the Company to improve product quality.
The Company's distributor network, which includes distributors, agents and
Company-owned and independent resharpening centers, complements its sales force
by providing the opportunity to access niche markets and expand its sales reach.
In addition, the Company believes that placing its knives and saws in the
original industrial cutting equipment of over 300 OEMs leads to a competitive
advantage in capturing the resultant end-user replacement sales.
Continued Development of Strategic Alliances. The Company continually
explores opportunities to expand its manufacturing, marketing and distribution
capabilities through strategic alliances. The Company's strategic alliances
include over 50 business relationships with suppliers of finished industrial
knives and saws throughout the world, four joint ventures and several strategic
relationships with independent resharpening centers. These alliances allow the
Company to expand its international presence, further diversify its customer
base in all industries, extend its product offerings and provide an alternative
low-cost source of products for resale.
The Company's relationships with finished goods suppliers allow it the
flexibility to manufacture or source a product based on cost and delivery time,
the quality of product needed, the region to be supplied and the material to be
used. The Company purchases finished goods from these suppliers and then resells
these products at attractive margins often using the Company's trademarks and
tradenames. The more significant of these relationships provide IKS with the
exclusive or semi-exclusive rights to market certain of its partners' products
within the Company's markets.
The Company seeks to enter into joint venture arrangements in foreign
markets where local market expertise is typically needed. The Company has
recently expanded its international presence through joint ventures in Asia and
Latin America. These include controlling interests in two manufacturing
facilities with the leading producer of paper cutting machinery in China, an
interest in a distributor and service center in Chile and a distributor in the
Philippines. The China joint ventures not only export product, but also provide
a distribution network for the Company to import its products from North America
and Europe into the rapidly developing Chinese market.
Expand Service Center Operations. A key component of the Company's
strategy is to expand its service center operations to maximize both
resharpening and replacement sales through additional direct access to
end-users. Industrial knives and saws generally need resharpening at least once
per week and as often as 50 times over the life of a product. Accordingly,
resharpening revenues can be significantly in excess of the cost of the product.
For example, circular slitter knives used to cut paper have a sale price of
approximately $17 per knife but can be resharpened more
37
<PAGE> 43
than 30 times over the life of the product generating resharpening revenues of
over $130 per knife. In addition to capturing resharpening revenues, directly
servicing the end-users of both its own and its competitors' products through
service centers creates closer customer relationships which better position the
Company's products to be the first choice of the end-user when a replacement is
needed.
As resharpening service centers also act as distributors, selling
replacements for worn knives and saws, the Company's strategy is to expand
Company-owned service center operations to geographically complement its
existing service centers and strategic resharpening partners that are currently
distributors of IKS products. Since 1991, the Company has acquired or opened 13
service centers and resharpening revenues from Company-owned service centers
have grown to $6.8 million in 1995. Independent service centers are typically
distributors for numerous knife and saw manufacturers. By acquiring these
centers, the Company can replace competitors' products with IKS products, and
add IKS products that the service center did not previously offer.
The Company believes that the number of service center users will continue
to increase as a result of an emerging trend toward outsourcing resharpening
operations. This outsourcing trend results from end-users implementing overhead
reductions and requiring expertise in resharpening knives and saws that are
increasingly more sophisticated in materials and design.
Continued Expansion of Broad Product Offering and End Markets Served. With
over 10,000 industrial knife and saw products, the Company believes that it
sells the most extensive variety of industrial knives and saws in the world. The
Company strives, through both new product development and acquisitions, to
further expand its product applications and the variety of industries it serves.
As a result of the Company's broad product range and the numerous applications
for its products, no customer accounts for more than 3% of the Company's net
sales.
The Company also develops specialized products to meet the unique needs of
its individual customers and continually introduces new products as customer
needs change and market expansion opportunities arise. The Company believes it
will benefit as certain customers demand more sophisticated knives made of
higher grade materials and designs, as many of its smaller competitors will lack
sufficient capital and technical expertise to meet these demands. The Company's
recent product introductions include corrugated box knives for the packaging
industry, diamond core saws for the concrete cutting industry and Stellite(TM)
tipped band saws for cutting logs.
Low Cost Structure. The Company continues to focus on being a low cost
producer of industrial knives and saws. The Company benefits from economies of
scale in both manufacturing and purchasing, such as buying steel direct from the
mills instead of from distributors, which many of the Company's smaller
competitors cannot achieve. The Company's global operations allow it to
manufacture each of its products or perform certain manufacturing processes at
the most cost efficient location given the timing constraints of purchase
orders. In addition, the Company is able to augment its own manufacturing
operations by sourcing low cost, privately labeled products through its
strategic alliances and relationships with finished goods suppliers.
Focusing on cost reductions, the Company recently restructured a portion of
its European operations by relocating certain facilities, coordinating raw
material purchases with the North American operations, reorganizing its sales
efforts and expanding its strategic sourcing alliances. This restructuring has
led to an improvement in the Company's European gross and operating margins from
19.5% and (3.4)%, respectively, in 1993 to 23.4% and 3.3%, respectively, for the
nine month period ended September 30, 1996. The Company believes there is still
substantial opportunity for margin improvement in its European operations and is
currently evaluating additional cost saving options.
Continued Acquisitions. The highly fragmented knife and saw industry
includes many potential acquisition candidates, both domestic and worldwide.
Since 1991, IKS has completed six acquisitions, which include both manufacturers
of knives and saws as well as service center
38
<PAGE> 44
operations, and the Company believes that a variety of acquisition opportunities
continue to exist. The Company is presently evaluating potential acquisition
opportunities and as part of its strategy will continue to do so in the future.
There can be no assurance that the Company will consummate any such acquisitions
or, if consummated, the timing thereof.
PRODUCTS AND MARKETS
The Company manufactures and sells its products in four major market
sectors including (i) Wood (42% of 1995 net sales); (ii) Paper & Packaging
(38%); (iii) Metal (14%); and (iv) Plastic & Recycling (6%). IKS offers an
extensive variety of knives and saws which are mounted in industrial machines
and are sold across a wide customer base and over numerous industries throughout
the world. The Company's knives and saws are consumed in the normal course of
machine operation and need resharpening or replacement many times per year.
Wood
IKS believes it is the largest manufacturer of industrial wood knives and
saws with 1995 net sales of approximately $45 million. Industrial wood knives
and saws are utilized in applications by companies such as Weyerhauser Co. and
Louisiana Pacific Corp. for sawing and chipping of lumber into specific
dimensional sizes for use in the housing industry; by companies such as Georgia
Pacific Corp. and Boise Cascade Corp. for peeling large diameter logs into
veneer for use in the production of plywood, panelling and furniture; and by
companies such as Scott Paper Co., Inc. and International Paper Co., Inc. for
the production of wood chips used in their pulp mills to produce fine paper,
newsprint and craft paper. In addition, the Company's knives are used to cut
wood into chips, used for fuel by wood and coal burning power plants as well as
generating power and steam for large paper and pulp mills worldwide. The Company
manufactures products for many aspects of wood converting in a price range from
$10 to $2,000, with an average price of approximately $30.
Industrial wood cutting knives and saws are consumed in the normal course
of operation and due to their rough service applications generally need
resharpening as often as every six to eight hours and 50 times over the life of
the product. Wood circular and band saws are generally resharpened and
retensioned every two weeks and replaced after two years.
As wood becomes more expensive, the industry is increasingly cognizant of
the need for more effective tree utilization and reducing material lost to
inefficient sawing. Two examples demonstrating solutions to these concerns are
the introduction of Stellite(TM) tipped band saws which minimize the kerf (the
amount of wood lost to saw dust in the cut) while providing a longer lasting saw
blade and the increased use of waferizer and flaker knives. Whereas in the past,
band saws were only resharpened a limited number of times, the use of
Stellite(TM) tips greatly extends the life of the product, and increases the
number of times the band saw can be resharpened. Since the Company is one of a
select few manufacturers producing such saws, the Company believes that it is
well positioned to benefit as demand for this product increases over time. In
addition, the industry is trending toward engineered and composite materials
made from specially sized wood chips leading to increased sales of waferizer and
flaker knives, and wear parts. In the past, plywood was typically used in favor
of engineered and composite materials. However, plywood requires the use of
large diameter logs as raw material, leaving considerable waste on the forest
floor, whereas wafer board and oriented strand board use tighter tolerance
waferizer and flaker knives to reduce smaller, less expensive raw material logs
into specifically sized and shaped wood chips. The chips are then assembled with
synthetic binders into boards, sheets and specialty profiles, having properties
superior to plywood or solid wood predecessors. The Company believes that it is
the leading North American manufacturer of these specialty knives and has the
ability to grow with this rapidly increasing market.
The Company is also a leader in the manufacture of long wood-peeling and
slicing veneer knives. Veneer knives are among the more difficult industrial
knives to manufacture due to their
39
<PAGE> 45
length (up to six meters) and quality requirements. IKS is one of only a limited
number of manufacturers which can produce such a knife. As the market demands
higher quality veneer knives, the Company believes that its expertise in the
design and manufacture of such knives gives it a competitive advantage.
The market for wood cutting knives and saws is growing in Asia and other
underdeveloped regions as many of the nations in these regions begin to export
products further along the production cycle. As the Company expands in these
regions, it believes that it will benefit from the increased exportation of
finished products. The Company is also using its service center operations to
increase its sales, as more wood cutting operations are outsourcing their knife
and saw servicing needs.
Paper & Packaging
The Company believes it is the largest manufacturer of industrial paper &
packaging knives with 1995 net sales of approximately $41 million. Among the
Company's four major markets, the paper & packaging knife market is the largest
and most diverse, with the widest variety of cutting methods. These knives are
used in applications by companies such as Kimberly-Clark Corp. and Proctor &
Gamble Co. for cutting and perforating tissue paper and paper towels and the
production of disposable diapers; by companies such as Frito-Lay, Inc. and M&M
Mars, Inc. which utilize Zig Zag knives to cut the top and bottom of snack food,
salt and pepper and candy packages sold by convenience stores and fast food
chains; and by companies such as Quebecor Corp., Champion International Corp.
and RR Donnelly & Sons Co., Inc. for cutting and trimming paper in the
production of copy paper, books and business forms. As a result of their many
uses, paper & packaging knives represent the largest category of the Company's
approximately 10,000 products with more than 2,500 paper & packaging knife
products relating to every aspect of paper & packaging manufacturing and
converting. The Company's paper & packaging products range in price from $50 to
$1,000, with an average price of approximately $200.
Paper knives are made from a wide range of steel grades, from inlaid carbon
steels to carbide. Recent trends in the paper industry, including an increase in
the use of recycled fiber and a change in paper chemistry to more abrasive
alkaline additives, have required upgrades by paper producers to higher quality,
more expensive knife materials and designs which are better suited for more
sophisticated and diverse cutting applications. As a result, the market for
industrial paper knives is experiencing price and margin expansion as higher-end
knives are increasing in demand. The Company has developed an expertise in the
manufacture of these more sophisticated cutting tools which allow the paper
converter to run longer and produce better quality cuts. The Company believes
that few of its competitors have the expertise to manufacture machine knives out
of the more expensive materials, which gives IKS a competitive edge and
positions it to offer the most complete package of new knife products and
services in the world paper market.
Industrial paper knives are generally consumed rapidly in the normal course
of operation and can need resharpening as often as once per week and 50 times
over the life of the product. The Company has a strong presence in the knife
servicing market in North America, capitalizing on the preference of users of
paper knives to outsource their knife servicing needs rather than resharpen
their knives themselves. Customers often find that the performance of these
tools can be better maintained if the sharpening is outsourced to professional
service shops having more specialized equipment and technically trained
personnel. The Company believes that it has the largest network of
Company-owned, strategically located service shops equipped with the IKS
Hyperhone system, which system maintains new knife performance throughout the
life of a tool and is not available at most other independent or in-house
grinding shops. The Company is continuously expanding its paper knife servicing
business by educating paper mills on the benefits of outsourcing their knife
resharpening needs to the Company's service centers.
40
<PAGE> 46
The Company believes that the market for paper & packaging knives is strong
worldwide and is growing in Europe, Asia and Latin America. The Company believes
this market is growing most quickly in Asia as countries in that region move
from exporting raw lumber to exporting paper pulp and, in some cases, finished
paper products. The Company's expansion into Asia through its China joint
ventures has been based, in part, on its desire to increase its presence in the
paper knife market. The Company should also benefit in Asia and Latin America as
consumer markets in those regions emerge and the use of packaged consumer
products rapidly increases. The Company feels that, through its continued
emphasis on providing specialized technical assistance, it will continue to grow
in these markets.
Metal
The Company believes it is the second largest manufacturer of metal knives
with 1995 net sales of approximately $15 million. The Company's metal knives are
used by steel processing facilities such as Heyco Corp., Edgecomb Metals Co. and
Allegheny Ludlum Corp. and metal products manufacturers such as Deere & Co.
Inc., Caterpillar, Inc. and Steelcase Corp.; in the cutting, shearing and
chopping of steel being produced in steel mills used by companies such as
Bethlehem Steel Corp., Rouge Steel Co. and USX Corp.; and in cutting metal
sheets and slitting strips from rolls of sheet steel processed by companies such
as California Steel Corp. and Joseph T. Ryerson & Son, Inc. The Company
manufactures knives for many aspects of metal converting ranging in price from
$4 to $9,000, with an average price of approximately $75.
Steel circular slitter knives are highly accurate, requiring tolerances of
up to 40 millionths of an inch for a high degree of precision and customization.
There is a trend toward increased tensile strengths of metals and maximizing the
efficiency of metal slitting machines. This trend requires tool technology that
extends the normal resharpening cycle. The Company is a leader in this field,
utilizing fine-grained raw materials and triple-tempered vacuum heat treatment
procedures to produce finely lapped surfaces which enable this degree of
precision.
In setting up their steel slitting lines, the Company's customers order
knives specifically designed for the particular demands and characteristics of
each production line. IKS offers expert technical and computer software
assistance to companies setting up such a line. The Company has developed a
proprietary software package, Slitter Assembly Program (SLAP), which assists
customers in choosing and setting up metal slitting knives. The IKS (SLAP)
technology makes use of custom computer software to guide the personnel setting
up the arbor in the selection of the individual slitter knife and spacer
combination to an exact thickness, assuring that, as the arbor is loaded, the
accumulated error is maintained near zero. The accuracy of this knife clearance
directly affects the cut edge quality of the steel strip. By offering this
technology, as well as personal technical assistance, the Company is an integral
part of the steel slitting knife purchasing process, which the Company believes
increases the likelihood that a customer will choose an IKS product.
Another method the Company utilizes to maintain its position with its
customers of steel slitting knives is its focus on metal knife resharpening
centers. Metal knives are consumable and generally need resharpening as often as
once per week and as often as 100 times over the life of a product. Although
most users of metal knives have expertise in metalworking and typically
resharpen their own knives, there is a trend among steel mills in the United
States to outsource their resharpening requirements due to the increasing
sophistication and tolerance required of metal knives. IKS is capitalizing on
this opportunity. The market for industrial metal knives is dependent upon the
steel usage by numerous industries including the automotive industry and metal
and consumer products manufacturers, such as aluminum can and appliance
manufacturers.
Plastic & Recycling
The Company believes it is the largest manufacturer of industrial plastic &
recycling knives with 1995 net sales of approximately $6 million. Industrial
plastic granulator knives are used for the
41
<PAGE> 47
manufacture of plastic, typically by companies such as Mobil Chemical Corp. and
I.C.I. Americas, Inc. where pelletizing knives are used to cut plastic into
small, precise pieces for processing; by companies such as E.I. DuPont de
Nemours & Co. for cutting artificial fibers; by companies such as Wellman Inc.
for recycling plastic containers; and by companies such as Waste Recovery Corp
for the environmental recycling of styrofoam, rubber and glass. The Company
manufactures knives for all of these uses, as well as related knives used to cut
computer tape, foil and film by companies such as Alcoa Aluminum Co. of America,
Inc. and Eastman Kodak Co. and household products produced by Hasbro Corp. and
Rubbermaid Inc. The Company sells products in this sector in a price range from
$1 to $250, with an average price of approximately $50.
IKS is North America's largest manufacturer of plastic granulator knives
and is also a leader in the manufacture of such knives in Europe. Although the
current market for plastic granulator knives is relatively small, the Company
believes it will grow rapidly as the machinery that uses plastic cutting knives
is adapted for an increasing number of cutting and recycling-related
applications. The market for industrial plastic granulator knives is currently
strong in Europe as a result of government mandated recycling programs and is
also growing in North America due to the increased focus on the environment and
recycling. There is a growing emphasis on recycling with respect to reclaiming
the reusable value of material in plastic, rubber, glass and metal products, as
well as with respect to easing the disposal of urban waste, medical waste,
aluminum cans and soda bottles in accordance with environmental regulations.
The Company is also is a leader in the development and production of knives
used in the size reduction and recycling of automobile tires and glass. The
Company believes the use of tire granulating knives will continue to increase as
new uses are developed for the reprocessed material. The Company believes that
the recycling of copper and aluminum cable and wires will also increase as fiber
optic and satellite communication technologies become more widespread. The
Company manufactures the knives which are used in the granulator systems used in
recycling these materials and is thus well positioned to benefit as demand for
these products increases.
Industrial plastic granulator knives are consumed in the normal course of
machine operation and need resharpening as often as once per month and as many a
15 times over the life of a product. Most users of industrial plastic granulator
knives do not service their own knives and the servicing of such knives is also
an important area for the potential expansion of the Company's customer base.
MARKETING AND DISTRIBUTION
The Company is the only industrial knife and saw manufacturer with
operations in North America, Europe, Asia and Latin America and products sold in
more than 75 countries. Historically, the Company's sales have been principally
in North America and Europe. However the Company has recently expanded
operations into the emerging markets of Asia and Latin America, and plans to
continue its international growth, entering new geographic markets while
broadening existing ones.
The Company has a salesforce of 103 people, the largest direct salesforce
focused on industrial knives and saws. Complementing the Company's knowledgeable
worldwide salesforce, the Company has 17 product managers who are experts in
their respective fields and are responsible for product coordination among the
Company's salespeople, customers and manufacturing operations. The Company
concentrates its sales efforts on end-users, which represent 89% of 1995 net
sales, through its direct sales force, distributors, agents and Company-owned
and independent resharpening service centers. The remaining 11% of the Company's
net sales are to OEM manufacturers of cutting machines through its direct sales
force.
In order to better serve its customers, the Company strategically places
its inventory around the world to best suit geographical and customer needs.
This results in the Company being able to ship
42
<PAGE> 48
most products to the end-users more rapidly than many of its competitors and as
a result the Company is often able to command a premium price for its products.
End-users -- Direct Salesforce and Company-Owned Service Centers.
Approximately 65% of the Company's 1995 net sales are direct to end-users
through the Company's salesforce and Company-owned service centers, representing
approximately 5,000 customer accounts. The Company believes that it has been
successful in selling to end-users because of its large and knowledgeable
salesforce, broad product offering, customer service, the strategic placement of
its inventory and its relationships with OEMs. The Company's salesforce develops
close working relationships with end-users, continually providing customers with
direct technical support, offering advice about the types of knives, materials
and specifications which would be appropriate for their specific machines.
The Company is afforded additional direct access to end-users by providing
resharpening services to end-users of both its own and its competitors' products
through its 14 service centers, ten in the United States, three in Canada, and
one in Chile. This enables the Company to create even closer customer
relationships which better position it to be the first choice of the end-user
when a replacement is needed. Since industrial knives and saws are consumable,
and generally need resharpening at least once per week and as often as 50 times
over the life of a product, resharpening revenues can be significantly in excess
of the cost of the product.
The resharpening service centers also act as distributors as they sell
replacement knives and saws. By owning and operating these service centers, the
Company can replace competitors' products with IKS products, including IKS
products that the service center may not have previously sold. The Company
believes that the number of service center users will continue to increase as a
result of an emerging trend toward outsourcing resharpening operations. This
outsourcing trend results from end-users implementing overhead reductions and
requiring expertise in resharpening blades that are increasingly more
sophisticated in materials and design. Such sales are typically high margin
sales since end-users will pay a higher price for the Company's technical
support resulting in greater satisfaction. In 1995, the Company had
approximately $6.8 million in net sales from its resharpening operations.
End-users -- Distributors and Independent Service Centers. The Company
sells approximately 24% of its net sales to end-users through distributors and
independent resharpening service centers. The Company's long term relationships
with these distributors, agents and independent resharpening service centers
complements its salesforce by providing the opportunity to access additional
niche markets. The Company will continue to utilize its distribution network to
expand its sales reach and carry the IKS products in their inventory, ready to
be sold to end-users.
OEMs. Approximately 11% of IKS' 1995 net sales were directly to a variety
of OEM manufacturers. The Company believes it is the leading supplier to the OEM
market, placing the original knife or saw in the OEM machine, and has a close
relationship with many of the major cutting machine manufacturers worldwide. The
Company has developed and maintains these close relationships by providing
advice to OEM manufacturers about the types of knives, materials and
specifications which would be appropriate for their particular machines. In
supplying over 300 OEMs, the Company's market managers have an enhanced ability
to identify the needs of its customers and to coordinate the Company's technical
capabilities with those needs. As a result, the Company believes that it has
greater opportunities to place its products into OEM machines and by doing so
provides itself with a competitive advantage in capturing the resultant end-user
replacement sales.
STRATEGIC ALLIANCES
The Company's strategic alliances include over 50 business relationships
with suppliers of finished industrial knives and saws throughout the world, four
joint ventures and several strategic relationships with independent resharpening
centers. These alliances enable the Company to
43
<PAGE> 49
expand its international presence, increase its product offerings and align
itself with local entrepreneurs in international markets where local market
expertise is needed while broadening its customer base with limited additional
investment.
Finished Goods Suppliers. The Company's relationships with suppliers of
finished goods are typically with small manufacturers throughout the world. The
Company's relationships with finished goods suppliers allow it the flexibility
to manufacture or source a product based upon cost and delivery time, the
quality of product needed, the region to be supplied and the material to be
used. The more significant of these relationships provide the Company with the
exclusive or semi-exclusive rights to market certain of its partners' products
within the Company's markets and allow the Company to purchase finished goods
for a relatively low cost and then resell these products at attractive margins
often using the Company's trademarks and tradenames. The Company generally has
at least two suppliers for most of the products it sources. In addition, the
loss of any particular supplier would not have a material effect upon the
Company, since the Company is able to manufacture substantially all of the
products it sources.
Joint Ventures. The Company recently expanded its international presence
through joint ventures in Asia and Latin America. These include two joint
ventures which commenced operations in September, 1995 with the leading
industrial paper cutting machinery manufacturer in China. The Company has a 51%
interest in both ventures, which had total net sales of $4.4 million for the
nine month period ended September 30, 1996. The Company's partner in the China
joint ventures is Shanghai Printing and Packaging Machinery General Corporation,
which currently has approximately an 80% share of the paper knife machine market
in China, manufacturing cutting equipment which consumes the Company's paper
knives. These joint ventures sell products domestically within China and IKS
exclusively exports these products to the rest of the world, providing the
Company with a relatively low cost source of supply for resale to its customers.
These joint ventures will also provide a distribution network for the Company to
import its products from North America and Europe into the rapidly developing
market in China as the economy expands and demands a greater variety of cutting
tool products. The Company's other joint venture interests are a 42.5% interest
in a distributor and service center in Chile which had net sales of
approximately $1.0 million in 1995 and $763,000 for the nine month period ended
September 30, 1996 and a 30% interest in a distributor in the Philippines which
had net sales of approximately $730,000 in 1995 and $801,000 for the nine month
period ended September 30, 1996.
RAW MATERIALS
The Company has numerous suppliers of raw materials, including over 20 raw
material suppliers of steel. IKS's steel purchase volume is typically large
enough to allow the Company to purchase steel directly from steel mills, which
results in reduced raw material costs. The Company believes that its
relationships with all of its steel vendors are good. The Company is not
dependent on any one of its suppliers for all of its raw materials.
In 1995, the Company experienced an unexpected increase in the price of
tool steel because of an unusual general market price increase which affected
the knife industry worldwide. This price escalation is attributable to a major
reduction in specialty tool steel production resulting from the closing of a
major German steel mill and the consolidation of steel producers in Latin
America and Europe coupled with a strong demand for raw materials in North
America and Europe. The resultant shortage in tool steel caused deliveries from
suppliers to be extended from nine months to fourteen months. As the Company
sells primarily to end-users which requires prompt and timely delivery, the
Company was forced to purchase expensive substitutes. Due to the unexpected
nature of the price increase, the Company was not able to pass along this
increase to its customers on a timely basis. The Company has taken measures to
prevent such a reoccurrence by negotiating a 90-day fixed price term into most
of its sales contracts as opposed to the previous one year term, increasing
prices on a more regular basis and expanding the number of its steel suppliers.
44
<PAGE> 50
COMPETITION
The industrial knife and saw market is highly fragmented with numerous
participants. The Company competes principally on the basis of price, service,
delivery, quality and technical expertise. The Company's competitors vary in
each of the market sectors that the Company serves. There is no one company
which competes with the Company in all four of the market sectors which the
Company serves and there is no one company which is dominant in any of such
market sectors. The Company believes that the reputation it has established over
its long history for quality products, sales and service network and its
in-depth product knowledge provide it with a competitive advantage in all the
market sectors it serves.
TRADEMARKS AND TRADENAMES
The Company markets its products under certain trademarks, including
"IKS(TM)," "IKS Klingelnberg," "Chromavan," "Chromalit," "Compaflex,"
"Compalloy," "Durapid," "Duritan," "Dynabloc(TM)," "Dynapren," "Dynatherm,"
"Klirit," "KSFmicroplan," "Novacrom(TM)," "Novador," "QCP," "Quality Cut Knife
Maintenance Program and Design," "Slap," "Stop," "Surekut(TM)," "Tecalloy(TM),"
"Tecnolite(TM)," "Ultrid," and "Workalit." In addition, the Company uses the
following tradenames: American Custom Metals; Ban-Carb; Canadian Knife & Saw;
Durakut; Econokut; Hannaco; Hyperhone; IKS de Mexico; IKS Shanghai; Kodiak; SPS;
Tuff-Tip; and Ultrakut.
LITIGATION
The Company is from time to time involved in legal proceedings arising in
the ordinary course of business. The Company believes there is no outstanding
litigation which could have a material impact on its operations.
PROPERTIES
The Company is headquartered in Erlanger, Kentucky, located a few miles
south of Cincinnati, Ohio. The Company currently owns or leases 20 facilities in
North America, Europe and Asia, which are used for manufacturing, distribution,
sales, warehousing and service center activity.
45
<PAGE> 51
The following table sets forth the location, square footage and principal
functions of each of the Company's facilities.
<TABLE>
<CAPTION>
LOCATION APPROX. SQ. FT. USE
- -------------------------------- --------------- ---------------------------------------
<S> <C> <C>
North American Facilities
Florence, SC.................. 106,600 Manufacturing/Service
Center/Distribution/Sales
Erlanger, KY (corporate 99,700 Manufacturing/Service
headquarters).............. Center/Distribution/Sales
Camden, AL.................... 44,700 Manufacturing/Service
Center/Distribution/Sales
McMinnville, OR............... 34,000 Manufacturing/Service
Center/Distribution/Sales
Granby, Quebec*............... 20,000 Manufacturing/Service
Center/Distribution/Sales
Langley, British Columbia..... 19,200 Manufacturing/Service
Center/Distribution/Sales
Gary, IN*..................... 18,500 Service Center/Distribution/Sales
Bangor, ME.................... 12,400 Service Center/Distribution/Sales
Mississauga, Ontario*......... 11,800 Service Center/Distribution/Sales
West Monroe, LA............... 7,500 Service Center/Distribution/Sales
Chesterfield, VA 7,400 Service Center/Distribution/Sales
(Richmond)*................
Langley, British Columbia*.... 5,000 Service Center
Kent, WA*..................... 4,000 Service Center/Sales
Mexico City, Mexico*.......... 3,500 Distribution/Sales
Statesboro, GA*............... 2,700 Service Center
European Facilities
Bergisch Born, Germany........ 56,000 Manufacturing/Distribution/Sales
Geringswalde, Germany......... 30,700 Manufacturing
Asian Facilities
Jakarta, Indonesia*........... 2,700 Distribution/Sales
Singapore*.................... 1,000 Distribution/Sales
Joint Venture Facilities
Shanghai, China** (51%)....... 32,000 Manufacturing/Distribution/Sales
Concepcion, Chile* (42.5%).... 3,500 Service Center/Distribution/Sales
Manila, Philippines (30%)..... 2,500 Distribution/Sales
</TABLE>
- ---------------
* Leased.
** Facility owned, land leased.
The Company believes that its facilities are suitable for its operations
and provide sufficient capacity to meet the Company's requirements for the
foreseeable future.
The Company places a strong emphasis on producing high quality products.
The Company's European facility located in Bergisch Born, Germany has been
awarded ISO 9001 certification, indicating that the Company has achieved and
sustained a high degree of quality and consistency with respect to its products.
The Company is currently working toward receiving ISO 9002 certification for its
facility in Erlanger, Kentucky. The Company believes that ISO certification is
an increasingly important selling feature both domestically and internationally,
as it provides evidence to purchasers that the specified product quality has
been achieved and is being sustained.
46
<PAGE> 52
ENVIRONMENTAL AND REGULATORY MATTERS
As with most industrial companies, the Company's facilities and operations
are required to comply with and are subject to a wide variety of federal, state,
local and foreign environmental and worker health and safety laws, regulations
and ordinances, including those related to air emissions, wastewater discharges
and chemical and hazardous waste management and disposal ("Environmental Laws").
Certain of these Environmental Laws hold owners or operators of land or
businesses liable for their own and for previous owners' or operators' releases
of hazardous or toxic substances, materials or wastes, pollutants or
contaminants, including petroleum and petroleum products. Compliance with
Environmental Laws also may require the acquisition of permits or other
authorizations for certain activities and compliance with various standards or
procedural requirements. The nature of the Company's operations, the long
history of industrial uses at some of its current or former facilities, and the
operations of predecessor owners or operators of certain of the businesses
expose the Company to risk of liabilities or claims with respect to
environmental and worker health and safety matters. There can be no assurance
that material costs or liabilities will not be incurred in connection with such
liabilities or claims.
In connection with the Recapitalization, the Company obtained an indemnity
for fines and penalties for violations of Environmental Laws and for losses
suffered by the Company with respect to certain environmental conditions
occurring prior to the Recapitalization. The environmental indemnities are
subject to certain time limitations depending on the nature of the environmental
claim, a $15.0 million cap and, except for fines and penalties for violations of
Environmental Laws, a $2.5 million deductible. Based on the Company's experience
to date and the indemnities obtained in connection with the Recapitalization,
the Company believes that the future cost of compliance with existing
Environmental Laws (or liability for known environmental liabilities or claims)
should not have a material adverse effect on the Company's business, financial
condition or results of operations. However, future events, such as changes in
existing laws and regulations or their interpretation, may give rise to
additional compliance costs or liabilities that could have a material adverse
effect on the Company's business, financial condition or results of operations.
Compliance with more stringent laws or regulations, as well as more vigorous
enforcement policies of regulatory agencies or stricter or different
interpretations of existing laws, may require additional expenditures by the
Company that may be material.
EMPLOYEES
At September 30, 1996, the Company had 1,178 full-time employees. Of such
employees, 661 were located in North America, 180 were located in Europe and 337
were located in Asia. The Company considers its relations with its employees to
be good.
The Company's employees are primarily non-union. The Company's Bergisch
Born, Germany facility and China facilities (operated in connection with its
joint venture arrangements) are the only facilities which employ union workers.
The Company estimates that 48 of its 180 German employees are union members. The
majority of the 324 employees at the facilities of the two China joint ventures
are part of a governmental bargaining unit. The Company considers its relations
with the unions to be good.
47
<PAGE> 53
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
persons who are members of the Board of Directors, executive officers or key
employees of the Company. Directors serve for a term of one year or until their
successors are elected and qualified; officers serve at the discretion of the
Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
John E. Halloran........................... 51 President, Chief Executive Officer and
Director
Thomas W. G. Meyer......................... 40 Executive Vice President -- Europe and Asia
William M. Schult.......................... 35 Vice President -- Finance, Chief Financial
Officer and Secretary
Jeffrey Hansel............................. 41 Vice President -- Sales and Marketing,
North America
James A. Rich.............................. 48 Vice President -- Management Information
Systems, North America
William R. Underhill....................... 47 Vice President -- Operations
W. Raymond Connell......................... 56 Vice President -- Service and Sales
Director, North America
Klaus Schmidt.............................. 53 Vice President, German subsidiary
Heinrich Ankermann......................... 55 Vice President, German subsidiary
Heinz Gamerschlag.......................... 45 Controller, German subsidiary
Manfred Herrmann........................... 52 Plant Manager, German subsidiary
Bernhard Keil.............................. 44 Logistics and Procurement Manager, German
subsidiary
Thomas Huhn................................ 32 Market Manager, German subsidiary
Ronald G. Weaver........................... 58 Deputy General Manager, China joint
ventures
Diether Klingelnberg....................... 52 Director
Michael A. Delaney......................... 42 Director
James A. Urry.............................. 42 Director
</TABLE>
- ---------------
John E. Halloran, President, Chief Executive Officer and Director. Mr.
Halloran has been President and Chief Executive Officer since May 1996 and had
served as Executive Vice President since joining the Company in 1992. Mr.
Halloran served as Executive Vice President of Operations at Simonds Industries
from 1989 to 1992 and as President of Michigan Knife Company from the time it
was founded by Mr. Halloran in 1974 until it was acquired by Simonds Industries
in 1989.
Thomas W. G. Meyer, Executive Vice President -- Europe and Asia. Mr. Meyer
has served as Executive Vice President since he joined the Company in 1993.
Prior thereto, Mr. Meyer worked in the textile industry for ten years, including
service as the head of marketing for Barmag AG from 1988 until 1991 and as a
director of A. Monforts GmbH & Co., from 1991 until 1992.
William M. Schult, Vice President -- Finance, Chief Financial Officer and
Secretary. Mr. Schult joined the Company as Vice President -- Finance in July
1996. Prior to joining the Company, he served as Controller of IKS Holdings
since 1995 and in several capacities at Siemens Corporation from 1987 until
1995, most recently as Controller of the Pelton & Crane division. Prior to that,
Mr. Schult held various accounting and auditing positions with the Allen Group,
Salomon Brothers and Coopers & Lybrand.
48
<PAGE> 54
Jeffrey Hansel, Vice President -- Sales and Marketing, North America. Mr.
Hansel joined the Company in 1985 as a paper knife market manager. Mr. Hansel
became Vice President -- Sales and Marketing in 1991. Prior to joining the
Company, from 1981 to 1985 Mr. Hansel was President of General Metals
Technologies Corp., a subsidiary of C.B. Manufacturing with which he was
employed from 1979 to 1981 as a sales manager.
James A. Rich, Vice President -- Management Information Systems, North
America. Mr. Rich joined the Company in 1988. Prior to joining the Company, Mr.
Rich had 12 years of experience in public accounting, including five years as an
independent consultant and two years with Deloitte & Touche LLP.
William R. Underhill, Vice President -- Operations. Mr. Underhill joined
the Company in 1977 as Product Manager. Mr. Underhill served in various
capacities, including purchasing agent and sales manager, from 1977 to 1990, and
became Vice President -- Operations in 1996.
W. Raymond Connell, Vice President, Service and Sales Director, North
America. Mr. Connell joined the Company in 1991 as Vice President -- Service
and Sales Director. From 1990 to 1991, Mr. Connell was the owner of Connell
Distribution and prior to that was the part owner of Austin Saw and Knife, which
the Company acquired in 1991. Between 1974 and 1990, Mr. Connell was the
Company's sales manager.
Klaus Schmidt, Vice President, German subsidiary. Mr. Schmidt joined the
Company in 1979, as a sales representative, and is currently responsible for
sales and marketing for the Company's European operations. Prior to joining the
Company, Mr. Schmidt worked for Klingelnberg Soehne in various sales positions
beginning in 1960.
Heinrich Ankermann, Vice President, German subsidiary. Mr. Ankermann
joined the Company in 1976 as a Plant Manager and was promoted in 1991 to Vice
President of the Company's German subsidiary. Prior to joining the Company, Mr.
Ankermann worked at Neuenkamp, where he was responsible for production.
Heinz Gamerschlag, Controller, German subsidiary. Mr. Gamerschlag joined
the Company in 1981 as a Controller and has continued to serve in such position
for the Company's German subsidiary.
Manfred Herrmann, Plant Manager, German subsidiary. Mr. Herrmann joined
the Company in 1991 and currently serves as the Plant Manager of the
Geringswalde, Germany facility. From 1981 to 1991, he worked as director of
production at Vereinigte Werkzeugfabrik, a manufacturer of metal slitter knives
and machine arbors which was acquired by IKS.
Bernhard Keil, Logistics and Procurement Manager, German subsidiary. Mr.
Keil joined the Company in 1981 as a salesman and was promoted to Logistics and
Procurement Manager for the Company's German subsidiary in 1993. Prior to
joining the Company, he was a salesman for The Klingelnberg Corporation.
Thomas Huhn, Market Manager, German subsidiary. Mr. Huhn joined the
Company in 1994 as a Market Manager for the Company's German subsidiary. From
1984 to 1994, Mr. Huhn worked for Fassbender & Co., a paper knife manufacturer,
in various capacities including purchasing manager.
Ronald G. Weaver, Deputy General Manager, China joint ventures. Mr. Weaver
joined the Company in October 1995 as Deputy General Manager in charge of China
operations. Prior to joining the Company, Mr. Weaver worked for Thermcraft
during 1995 and was Director of Operations of the Turbine Support Division of
Chromally Gas Turbine Corporation from 1991 until 1994.
Diether Klingelnberg, Director. Mr. Klingelnberg served as Chief Executive
Officer of the Company until March 1996. In addition, he served as Chairman of
the Board and Chief Executive Officer of IKS Holdings from its formation until
consummation of the Transactions. Mr. Klingelnberg
49
<PAGE> 55
has been Managing Partner of Klingelnberg Soehne since 1969 and is a director of
Eummoco Hasenklever GmbH, Honsel AG and the Alfred H. Schutte Company.
Michael A. Delaney, Director. Mr. Delaney has been a Vice President of CVC
since 1989. From 1986 through 1989, he was Vice President of Citicorp Mergers
and Acquisitions. Mr. Delaney is a director of Aetna Industries, Inc.,
AmeriSource Health Corporation, Cort Business Services Corporation, Delco Remy
International, Inc., Enterprise Media Inc., FF Holdings Corporation, GVC
Holdings, JAC Holdings, Palomar Technologies, Inc., SC Processing, Inc., Sybron
Chemicals, Inc. and Triumph Holdings, Inc.
James A. Urry, Director. Mr. Urry has been with Citibank, N.A. since 1981,
serving as a Vice President since 1986. He has been a Vice President of CVC
since 1989. He is a director of AmeriSource Health Corporation, Cort Business
Services Corporation, FF Holdings Corporation, Hancor Holding Corporation and
York International Corporation.
In addition, CVC has the contractual right to designate an independent
director to the Company's Board of Directors, subject to the right of the
holders of a majority of the outstanding shares of Holdings Class A Stock to
veto the election of such director. See "Stock Ownership -- Stockholders'
Agreement."
DIRECTOR COMPENSATION AND ARRANGEMENTS
It is not currently anticipated that directors of the Company will receive
compensation for their services as directors. Members of the Board of Directors
are elected pursuant to certain voting agreements among IKS Holdings and its
stockholders. See "Stock Ownership -- Stockholders' Agreement."
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation received by the five most highly compensated officers of the
Company for services rendered in 1995. In May 1996, John E. Halloran succeeded
Diether Klingelnberg as President and Chief Executive Officer of the Company.
Upon consummation of the Transactions, Edward Brent retired as Chief Financial
Officer of the Company and was succeeded in such capacity by William M. Schult.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------- ALL OTHER
SALARY BONUS OTHER COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($) ($)
- ----------------------------------------- -------- -------- -------- ------------
<S> <C> <C> <C> <C>
Diether Klingelnberg..................... $220,000 $219,967(1) $417,596(2) $ 11,642(3)
President and Chief Executive Officer
John E. Halloran......................... 160,000 77,634 25,903(4) 11,642(3)
Executive Vice President
Thomas Meyer............................. 195,531 107,080 34,814(5) --
Executive Vice President -- Europe
and Asia
Edward Brent............................. 160,000 83,977(1) 37,723(6) 20,304(7)
Chief Financial Officer and Treasurer
William R. Underhill..................... 96,500 30,826 --(8) 9,806(9)
Vice President -- Operations
</TABLE>
- ---------------
(1) Bonuses were paid by IKS Holdings.
(2) Includes $393,206 in stock dividends resulting from the dissolution of a
limited partnership owned by IKS with the balance attributable to rent for
a corporate apartment and country club dues.
(3) Includes $3,000 in Company 401(k) contributions, $8,181 in Company Profit
Sharing Plan contributions and $461 in group term life insurance premiums.
(footnotes continued on following page)
50
<PAGE> 56
(4) Includes $25,000 in stock dividends with the balance attributable to use of
a Company-owned automobile.
(5) Includes $25,000 in stock dividends and $9,814 attributable to the use of a
Company-owned automobile.
(6) Includes $25,000 in stock dividends with the balance attributable to
dividends resulting from the dissolution of a limited partnership owned by
IKS, the use of a Company-owned automobile and country club dues.
(7) Includes $3,000 in Company 401(k) contributions, $8,181 in Company Profit
Sharing Plan contributions, $1,123 in group term life insurance premiums
and $8,000 as a directors fee which was paid by IKS Holdings.
(8) The Company provides the use of a Company-owned automobile. The aggregate
cost of such benefit was not in excess of the lesser of $50,000 or 10% of
the named executive's cash compensation.
(9) Includes $2,587 in Company 401(k) contributions, $7,055 in Company Profit
Sharing Plan contributions and $164 in group term life insurance.
EMPLOYMENT ARRANGEMENTS AND DEFERRED COMPENSATION AGREEMENTS
John E. Halloran has been employed by the Company pursuant to an Employment
Agreement dated June 1, 1992. This agreement is terminable by either party upon
90 days prior written notice and currently provides for a base salary of
$200,000 per year plus 0.8% of the Company's net profits (before taxes and
certain other adjustments). In addition, the Agreement provides for the receipt
by Mr. Halloran of standard Company benefits. Upon Mr. Halloran's election as
President of the Company in May 1996, the Company and Mr. Halloran conducted
discussions concerning the amendment of the terms of the agreement. Concurrent
with the consummation of the Transactions, such contract was terminated in favor
of Mr. Halloran's continued employment at will.
Thomas Meyer was hired by IKS Klingelnberg GmbH as its Chief Executive
Officer pursuant to an Employment Agreement effective January 1, 1993 which,
following an automatic extension thereof, expires on December 31, 2000. As
compensation, Mr. Meyer receives an annual salary of 280,000 DM. In addition, he
receives an annual profit sharing bonus equal to 3.0% of the income before taxes
of IKS Klingelnberg GmbH plus 0.65% of the Company's income before taxes. He is
also eligible for certain incentive bonuses based on sales, and receives certain
fringe benefits including an automobile and insurance coverage. Following any
termination of Mr. Meyer's employment, Mr. Meyer will be subject to a
non-competition covenant for up to two years, in exchange for payment in each
year of an amount equal to one-half of Mr. Meyer's most recently agreed upon
annual compensation.
The Company has entered into deferred compensation and supplemental
retirement agreements with Edward J. Brent and Diether Klingelnberg dated
November 23, 1981. The agreements provide for a supplemental retirement benefit
payable at age 65 equal to $250,000 payable in monthly installments over a
period of ten years with any remaining payments to become immediately due and
payable upon the death of the employee. Mr. Brent becomes fully vested and may
take early retirement without a reduction in benefits at age 62. Mr.
Klingelnberg may take early retirement without a reduction in benefits at age
60. In addition, Mr. Klingelnberg is entitled to a reduced benefit of $12,500
per year (beginning at age 60) if his employment is terminated by the Company
prior to his reaching age 60. In both cases, if the employee dies while employed
by the Company, his designated beneficiary will be entitled to a death benefit
of $25,000 per year for ten years. In lieu of the benefits described above the
Company may at its sole discretion accelerate the payment of benefits to an
employee or the employee's beneficiary, if applicable. All benefits under the
agreements are forfeited if it is determined that (i) the employee engaged in
activity adversely affecting the interests of the Company, or (ii) the employee
rendered services to any competitor of the Company.
51
<PAGE> 57
Upon consummation of the Transactions, Diether Klingelnberg waived the
benefits provided to him under his deferred compensation and supplemental
retirement agreement in exchange for an assignment of a life insurance policy
maintained by the Company insuring his life. Such policy had a cash surrender
value of approximately $70,000. In addition, Mr. Brent retired as Chief
Financial Officer of the Company upon consummation of the Transactions, and the
Company retained Mr. Brent as a part-time employee through September 1997 and
agreed to pay him a salary of $5,000 per month in connection with services
rendered in such capacity.
401(k) RETIREMENT PLAN
IKS Holdings maintains a defined contribution 401(k) retirement plan. All
of the Company's non-unionized employees are eligible to participate after
completing one year of service and attaining age 20 1/2. Subject to certain
statutory limitations, employees may contribute up to 15 percent of their
compensation to the plan on a pre-tax basis. The Company may make discretionary
matching contributions equal to a percentage of the employees' pre-tax
contributions. However, in determining the amount of matching contributions,
only employee pre-tax contributions up to four percent of compensation are taken
into account. For allocation purposes, the compensation of any employee in
excess of $150,000 is disregarded. Employees are fully vested in their benefits
under the plan after two years of service.
PROFIT SHARING PLAN
The Company maintains a tax-qualified profit sharing plan. All of the
Company's domestic non-unionized employees are eligible to participate after
attaining age 20 1/2. The plan is completely funded by Company discretionary
contributions. Company contributions are allocated to the accounts of the
eligible employees in the same ratio that each eligible employee's compensation
for the year bears to the total compensation of all eligible employees for the
year. For allocation purposes, the compensation of any employee in excess of
$150,000 is disregarded. Employees are fully vested in their benefits under the
plan after five years of service. An employee may not receive a distribution of
his benefits under the plan until following his termination of employment.
52
<PAGE> 58
STOCK OWNERSHIP
All of the outstanding capital stock of the Company is currently owned by
IKS Holdings. The following table sets forth certain information with respect to
the beneficial ownership of the Holdings Preferred Stock and Holdings Common
Stock by (i) each person or entity who owns five percent or more thereof, (ii)
each director of the Company who is a stockholder, (iii) the Chief Executive
Officer of the Company and the other executive officers named in the "Summary
Compensation Table" above who are stockholders, and (iv) the directors and
officers of the Company as a group. Unless otherwise specified, all shares are
directly held.
<TABLE>
<CAPTION>
NUMBER AND PERCENT OF SHARES
----------------------------------------------------------------
HOLDINGS PREFERRED HOLDINGS CLASS A HOLDINGS CLASS B
STOCK STOCK(1) STOCK(2)
------------------ ------------------ ------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
- ---------------------------------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Citicorp Venture Capital Ltd...... 10,920 91.0% 41,315 49.0% 15,685 100.0%
399 Park Avenue
New York, New York 10043
Arndt Klingelnberg................ -- -- 17,000 20.2% -- --
IKS Corporation
1299 Cox Avenue
Erlanger, KY 41018
Diether Klingelnberg.............. -- -- 17,000 20.2% -- --
IKS Corporation
1299 Cox Avenue
Erlanger, KY 41018
John E. Halloran(3)(4)............ 600 5.0% 5,000 5.9% -- --
IKS Corporation
1299 Cox Avenue
Erlanger, KY 41018
Thomas Meyer(4)................... 240 2.0% 2,000 2.4% -- --
William R. Underhill.............. 24 0.2% 200 0.2% -- --
All directors and officers
as a group (14 persons)(3)(4)... 1,080 9.0% 26,000 30.8%
</TABLE>
- ---------------
(1) Does not include shares of Holdings Class A Stock issuable upon conversion
of Holdings Class B Stock. See "-- Holdings Common Stock."
(2) Does not include shares of Holdings Class B Stock issuable upon conversion
of Holdings Class A Stock. See "-- Holdings Common Stock."
(3) The Holdings Preferred Stock and Holdings Class A Stock distributed to John
E. Halloran as part of the Recapitalization Distribution is subject to
post-closing adjustments, if any, to the Recapitalization Distribution
pursuant to the provisions of the Recapitalization Agreement. See "The
Transactions."
(4) Certain members of management of the Company are expected to participate in
an Employee Stock Purchase Plan pursuant to which management will be offered
the opportunity to acquire Holdings Class A Stock which would equal in the
aggregate up to an additional 10.0% of the Holdings Class A Stock
outstanding. See "-- Employee Stock Purchase Plan." The table does not
include shares or options that may be acquired by such individuals pursuant
to such Plan.
53
<PAGE> 59
HOLDINGS PREFERRED STOCK
The IKS Holdings Certificate of Incorporation provides that IKS Holdings
may issue 12,000,000 shares of Holdings Preferred Stock, all of which are
designated as Series A Cumulative Compounding Preferred Stock. Holdings
Preferred Stock has a stated value of $1,000 per share and is entitled to annual
dividends when, as and if declared, which dividends will be cumulative, whether
or not earned or declared, and will accrue at a rate of 12.0%, compounding. The
vote of a majority of the outstanding shares of the Holdings Preferred Stock,
voting as a separate class, is required to (i) create, authorize or issue any
other class or series of stock entitled to a preference prior to the Holdings
Preferred Stock upon any dividend or distribution or any liquidation,
distribution of assets, dissolution or winding up of IKS Holdings, or increase
the authorized amount of any such other class or series, or (ii) amend IKS
Holdings' Certificate of Incorporation if such amendment would adversely affect
the relative rights and preferences of the holders of the Holdings Preferred
Stock. Except as described in the immediately preceding sentence or as otherwise
required by law, the Holdings Preferred Stock is not entitled to vote. IKS
Holdings may not pay any dividend upon (except for a dividend payable in Junior
Stock, as defined below), or redeem or otherwise acquire shares of, capital
stock junior to the Holdings Preferred Stock (including the Holdings Common
Stock) ("Junior Stock") unless all cumulative dividends on the Holdings
Preferred Stock have been paid in full. Upon a liquidation, dissolution or
winding up of IKS Holdings, holders of Holdings Preferred Stock are entitled to
receive out of the legally available assets of IKS Holdings, before any amount
shall be paid to holders of Junior Stock, an amount equal to $1,000 per share of
Holdings Preferred Stock, plus all accrued and unpaid dividends to the date of
final distribution. If such available assets are insufficient to pay the holders
of the outstanding shares of Holdings Preferred Stock in full, such assets, or
the proceeds thereof, will be distributed ratably among such holders. The
Holdings Preferred Stock is not mandatorily redeemable prior to the maturity of
the Notes. IKS Holdings may optionally redeem, in whole or in part, the Holdings
Preferred Stock at any time at a price per share of $1,000, plus accrued and
unpaid dividends to the date of redemption.
HOLDINGS COMMON STOCK
The Certificate of Incorporation of IKS Holdings provides that IKS Holdings
may issue 400,000 shares of Holdings Common Stock, divided into two classes
consisting of 200,000 shares of Holdings Class A Stock and 200,000 shares of
Holdings Class B Stock. The holders of Holdings Class A Stock are entitled to
one vote for each share held of record on all matters submitted to a vote of the
stockholders. Except as required by law, the holders of Holdings Class B Stock
have no voting rights. Under the Certificate of Incorporation of IKS Holdings, a
holder of either class of Holdings Common Stock may convert any or all of his
shares into an equal number of shares of the other class of Holdings Common
Stock; provided that in the case of a conversion from Holdings Class B Stock,
which is nonvoting, into Holdings Class A Stock, which is voting, the holder of
shares to be converted would be permitted under applicable law to hold the total
number of shares of Holdings Class A Stock which would be held after giving
effect to the conversion.
STOCKHOLDERS' AGREEMENT
In connection with the Recapitalization, the stockholders of IKS Holdings
entered into a Securities Purchase and Holders Agreement (the "Stockholders'
Agreement") containing certain agreements among such stockholders with respect
to the capital stock and corporate governance of IKS Holdings and the Company.
The following is a summary description of the principal terms of the
Stockholders' Agreement and is subject to and qualified in its entirety by
reference to the definitive Stockholders' Agreement, copies of which are
available upon request to the Company.
Pursuant to the Stockholders' Agreement, the Board of Directors of IKS
Holdings and the Company is composed at all times of five directors as follows:
John E. Halloran (so long as he continues to serve as President of the Company);
one individual designated by Diether Klingelnberg; two individuals designated by
CVC; and one independent director who shall be
54
<PAGE> 60
designated by CVC, subject to the right of holders of the majority of the
outstanding shares of Holdings Class A Stock to veto the election of any such
independent director.
The Stockholders' Agreement contains certain provisions which, with certain
exceptions, restrict the ability of the stockholders from transferring any
Holdings Common Stock, Holdings Preferred Stock or Holdings Debentures except
pursuant to the terms of the Stockholders' Agreement. If holders of more than
50% of the Holdings Common Stock approve the sale of the Company (an "Approved
Sale"), each stockholder has agreed to consent to such sale and, if such sale
includes the sale of stock, each stockholder has agreed to sell all of such
stockholder's Holdings Common Stock on the terms and conditions approved by
holders of a majority of the Holdings Common Stock then outstanding. In the
event IKS Holdings proposes to issue and sell (other than in a public offering
pursuant to a registration statement) any shares of Holdings Common Stock or any
securities containing options or rights to acquire any shares of Holdings Common
Stock or any securities convertible into Holdings Common Stock to CVC or its
affiliates, IKS Holdings must first offer to each of the other shareholders a
pro rata portion of such shares. Such preemptive rights are not applicable to
the issuance of shares of Holdings Common Stock upon the conversion of shares of
one class of Holdings Common Stock into shares of the other class.
The Stockholders' Agreement also provides for certain additional
restrictions on transfer of shares acquired by members of management pursuant to
an Employee Stock Purchase Plan (the "Plan") ("Incentive Shares"), including the
right of IKS Holdings to repurchase Incentive Shares held by a member of
management (a "Participant") upon termination of such Participant's employment
prior to 2001, at a formula price, and the grant of a right of first refusal in
favor of IKS Holdings in the event a Participant elects to transfer such
Incentive Shares of Holdings Common Stock.
REGISTRATION RIGHTS AGREEMENT
In connection with their entry into the Stockholders' Agreement, IKS
Holdings, CVC and certain other stockholders of IKS Holdings entered into a
Registration Rights Agreement (the "Holdings Registration Rights Agreement").
Pursuant to the Holdings Registration Rights Agreement, upon the written request
of CVC, IKS Holdings has agreed to prepare and file a registration statement
with the Commission concerning the distribution of all or part of the shares
held by CVC and use its best efforts to cause such registration statement to
become effective. If at any time IKS Holdings files a registration statement for
the Holdings Common Stock pursuant to a request by CVC or otherwise (other than
a registration statement on Form S-8, Form S-4 or any similar form, a
registration statement filed in connection with a share exchange or an offering
solely to IKS Holdings' employees or existing stockholders, or a registration
statement registering a unit offering) (a "Qualifying Offering"), IKS Holdings
will use its best efforts to allow the other parties to the Holdings
Registration Rights Agreement to have their shares of Holdings Common Stock (or
a portion of their shares under certain circumstances) included in such offering
of Holdings Common Stock if the registration form proposed to be used may be
used to register such shares. Registration expenses of the selling stockholders
(other than underwriting fees, brokerage fees and transfer taxes applicable to
the shares sold by such stockholders or the fees and expenses of any accountants
or other representatives retained by a selling stockholder) are to be paid by
IKS Holdings.
EMPLOYEE STOCK PURCHASE PLAN
It is currently contemplated that IKS Holdings will adopt the Plan,
pursuant to which Participants will be offered the opportunity to purchase
Holdings Class A Stock. The Participants will be given the opportunity to
acquire or be granted options to acquire an aggregate of up to 10% of the
Holdings Class A Stock outstanding on a fully-diluted basis.
55
<PAGE> 61
In addition, upon the Participants' purchase of Holdings Class A Stock or
the acquisition of options to purchase such stock, the Participants will become
subject to the terms and conditions of the Stockholders' Agreement. See
"-- Stockholders' Agreement." In addition to the restrictions set forth above,
the Stockholders' Agreement also provides the following restrictions with
respect to the Participants: (i) the Incentive Shares acquired by a Participant
will be subject to repurchase by IKS Holdings or its designee if such
Participant's employment with the Company is terminated within five years after
the closing of the management offering at formula prices which will vary based
upon the time and circumstance of such termination, (ii) IKS Holdings will
receive a right of first refusal through the fifth anniversary of the closing of
the management offering on all common stock acquired by a Participant pursuant
to the Plan and (iii) if holders of a majority of Holdings Class A Stock approve
a sale of IKS Holdings, Participants will consent to such sale.
OTHER
In connection with the Recapitalization, Arndt Klingelnberg, Diether
Klingelnberg and CVC entered into an agreement pursuant to which their ownership
percentages of the Holdings Preferred Stock and the Holdings Debentures may be
adjusted. Upon the occurrence of certain events, their respective ownership
percentages of Holdings Preferred Stock and Holdings Debentures will be adjusted
so that they will be pro rata with their respective ownership percentages of
Holdings Common Stock.
56
<PAGE> 62
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 25, 1996, in connection with the Realty Acquisition, the Company
purchased all of the general and limited partnership interests of a limited
partnership controlled by members of the Klingelnberg family for an aggregate of
approximately $5.6 million. As a result of such transaction, the Company became
the sole remaining partner of the limited partnership and the limited
partnership was dissolved. In winding up the affairs of the limited partnership,
the Company conveyed, for no consideration, all of the property owned by the
limited partnership to itself individually. Such property consisted primarily of
real property located in the states of Alabama, Kentucky, Louisiana, Maine and
South Carolina which had previously been under capital lease to the Company.
Prior to the Realty Acquisition, the Company leased such property from the
limited partnership. Such lease payments aggregated approximately $662,000 for
the year ended December 31, 1995.
From time to time the Company or its affiliates have made loans to certain
of the Company's officers and directors. Diether Klingelnberg, President and
Chief Executive Officer during 1995, has been indebted to the Company or an
affiliate of the Company in the amount of $100,000 since July 1981. Such
indebtedness is evidenced by a promissory note bearing interest at a rate of
5.05% per annum. On April 11, 1996, the Company also advanced to Mr.
Klingelnberg an additional $50,000 at a quarterly interest rate of 5.33%. In
April and June, 1996, the Company also paid a total of $48,500 of taxes on
behalf of Mr. Klingelnberg, with such amount to be repaid at a quarterly
interest rate of approximately 5.5%. On September 1, 1996, Mr. Klingelnberg paid
in full all amounts due and owing to the Company. In addition, on March 1, 1996,
the Company loaned to Edward Brent, the former Chief Financial Officer of the
Company, $135,000 in aggregate principal amount evidenced by a three year
promissory note bearing interest at a rate of 5.05% per annum. The loan was
repaid in full upon consummation of the Transactions.
In connection with the Recapitalization, IKS Holdings entered into a letter
agreement with Mr. Halloran pursuant to which the Company agreed to loan to Mr.
Halloran an amount equal to the income taxes which were incurred by him in
respect of the securities received by him as a part of the Recapitalization
Distribution. The loan is secured by a pledge of the securities and the recourse
to the Company for repayment of the loan is limited to the securities. The loan
bears interest at the "applicable federal rate" under the Internal Revenue Code
of 1986, as amended, and the Company will make payments to Mr. Halloran in
amounts sufficient to permit him to pay such interest payments.
The Company previously borrowed certain funds from IKS Holdings from time
to time on a demand basis. Immediately prior to the consummation of the
Transactions, the Company was indebted to IKS Holdings in the amount of
approximately $11.0 million, which amount bore interest at a rate of 6.9% per
annum, adjusted from time to time to reflect market conditions. Such loan was
repaid in connection with the Transactions. See "The Transactions" and "Use of
Proceeds."
57
<PAGE> 63
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain indebtedness of the Company, a
subsidiary of the Company and IKS Holdings. To the extent such summary contains
descriptions of the Senior Credit Facility and other loan documents, such
descriptions do not purport to be complete and are qualified in their entirety
by reference to such documents, which are available upon request from the
Company.
SENIOR CREDIT FACILITY
In connection with the Transactions, Deutsche Bank (the "Bank") provided a
revolving credit facility (the "Senior Credit Facility") to the Company for up
to $20.0 million of revolving loans. Borrowings under the Senior Credit Facility
are available for working capital and general corporate purposes, including
letters of credit. The Senior Credit Facility is secured by first priority liens
on all accounts receivable and inventory of the Company and, in the event
certain financial ratios are not met, certain designated fixed assets. The
Company did not draw upon the Senior Credit Facility in connection with the
Transactions.
The Senior Credit Facility expires on December 31, 2000, unless extended.
The interest rate per annum applicable to the Senior Credit Facility is LIBOR
plus 1.25%. The Senior Credit Facility permits the Company to prepay loans and
to permanently reduce revolving credit commitments or letters of credit, in
whole or in part, at any time in certain minimum amounts. The Company is
required to pay certain fees in connection with the Senior Credit Facility,
including a commitment fee of 0.25% on the undrawn portion of the revolving
credit commitments.
The Senior Credit Facility contains certain other terms and conditions,
covenants and events of default.
SUBSIDIARY INDEBTEDNESS
The following discussion assumes a conversion rate from deutsche marks to
dollars of 1.5.
The Bank and a Bank sponsored government program ("KfW") have made
available to the Company's wholly owned subsidiary, IKS Klingelnberg GmbH
("GmbH"), a term loan (the "Existing German Credit Facility"), of which $5.5
million was outstanding upon consummation of the Transactions. The Existing
German Credit Facility is comprised of four separate commitments with maturities
through 2003 at variable rates of interest from 3.9% to 6.25%. The Existing
German Credit Facility is secured by, among other things, liens on the real
property of GmbH and its subsidiary. The Existing German Credit Facility also
contains certain other terms and conditions, covenants and events of default.
In connection with the Transactions, the Bank and KfW provided a new credit
facility to GmbH (the "New German Credit Facility" and, together with the
Existing German Credit Facility, the "German Subsidiary Facilities") which
consists of a $5.0 million senior secured revolving credit facility which may be
used for working capital purposes. The New German Credit Facility bears interest
at the option of GmbH at a per annum rate equal to, either Euro-LIBOR (presently
3.1%) plus 0.50% per annum, the "Bill Credit Rate" (presently 2.5%) plus 0.50%
per annum or the "Regular Overdraft Rate" (presently 6.5%) and has a final
maturity date of December 31, 2000, unless extended. The obligations of the
Company under the New German Credit Facility are secured by a first priority
lien on the real property owned by the Company in Bergisch Born, Germany. The
New German Credit Facility contains certain other terms and conditions,
covenants and events of default, including the maintenance of a minimum equity
of 30% of total German asset value and the maintenance of positive cash flow.
HOLDINGS DEBENTURES
In connection with the Recapitalization, IKS Holdings issued an aggregate
of $12.0 million original principal amount of Holdings Debentures, designated as
Junior Subordinated Notes. The
58
<PAGE> 64
Holdings Debentures bear interest at a rate of 12.0% per annum and all interest
due on the Holdings Debentures prior to their maturity shall be paid by adding
such interest to the then outstanding principal amount of such notes. Such
amount shall accrue interest as a portion of the principal amount of the
Holdings Debentures from the applicable interest payment date. The Holdings
Debentures contain certain covenants by IKS Holdings in favor of the holders of
the Holdings Debentures (the "Holdings Debenture Holders") including, but not
limited to: (i) restrictions on the payment by IKS Holdings of dividends and the
purchase, redemption or prepayment by IKS Holdings and its subsidiaries of its
capital stock or indebtedness which is, by its terms or by operation of law,
junior in right of payment to the Holdings Debentures, and (ii) restrictions on
subsidiaries entering into agreements restricting their ability to pay dividends
or make certain other distributions to IKS Holdings or any subsidiary of IKS
Holdings. The Holdings Debentures are subordinated to IKS Holdings' obligations
(including guarantees, if any, from time to time) under the Senior Credit
Facility, the Notes and any other indebtedness of IKS Holdings, other than
indebtedness which by its terms is pari passu or junior in right of payment to
the Holdings Debentures (the "Holdings Senior Debt"). Until such Holdings Senior
Debt is paid in full, IKS Holdings may not make any payment of principal or
interest to the Holdings Debenture Holders: (i) following the maturity of any
Holdings Senior Debt (either by lapse, acceleration or otherwise), (ii)
following a payment default on Holdings Senior Debt or (iii) following a
nonpayment default on Holdings Senior Debt (until such non-payment default shall
have been cured or waived). Except for certain events of bankruptcy, the consent
of Holdings Debenture Holders holding a majority in principal amount of the
Holdings Debentures is required to accelerate the payment of principal upon an
event of default. If any Holdings Senior Debt is outstanding at the time of an
acceleration of the Holdings Debentures, the Holdings Debentures will become due
and payable upon the earlier of acceleration of such Holdings Senior Debt and
thirty days following notice of acceleration of the Holdings Debentures being
given to the agent for Holdings Senior Debt holders. An event of default under
the Holdings Debentures will include, among other things, a "change in control",
provided that the holders of the Holdings Debentures may not accelerate or
exercise any other remedy with respect to the Holdings Debentures in the event
of a change in control so long as any amounts remain outstanding under the
Senior Credit Facility or the Notes.
59
<PAGE> 65
DESCRIPTION OF THE NOTES
GENERAL
The Existing Notes were issued under the Indenture, dated as of November 6,
1996, by and between the Company and United States Trust Company of New York, as
trustee (the "Trustee"). The terms of the Indenture apply to the Existing Notes
and to the New Notes to be issued in exchange therefor pursuant to the Exchange
Offer (all such Notes being referred to herein collectively as the "Notes").
Upon the issuance of the New Notes, if any, or the effectiveness of a Shelf
Registration Statement (as defined below), the Indenture will be subject to and
governed by the Trust Indenture Act. As used in this "Description of the Notes"
section, references to the "Company" means International Knife & Saw, Inc., but
not any of its subsidiaries (unless the context otherwise requires).
The following is a summary of the material provisions of the Indenture.
This summary does not purport to be complete and is subject to the detailed
provisions of, and is qualified in its entirety by reference to, the Trust
Indenture Act, the Notes and the Indenture, including the definitions of certain
terms contained therein and including those terms made part of the Indenture by
reference to the Trust Indenture Act. A copy of the form of Indenture may be
obtained from the Company. The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions." Reference
is made to the Indenture for the full definition of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
MATURITY AND INTEREST
The Notes are unsecured senior subordinated obligations of the Company
limited in aggregate principal amount to $90,000,000. The Notes mature on
November 15, 2006. Interest on the Notes accrues at the rate of 11 3/8% per
annum and is payable semi-annually in arrears on May 15 and November 15 in each
year, commencing on May 15, 1997, to holders of record on the immediately
preceding May 1 and November 1, respectively. Interest on the Notes accrues from
the most recent date to which interest has been paid or, if no interest has been
paid, from the date of the original issuance of the Notes (the "Issue Date").
Interest is computed on the basis of a 360-day year comprised of twelve 30-day
months.
Principal of, premium, if any, and interest on the Notes is payable at the
office or agency of the Company maintained for such purpose in The City of New
York or, at the option of the Company, payment of interest may be made by check
mailed to the holders of the Notes at their respective addresses as set forth in
the register of holders of Notes. Until otherwise designated by the Company, the
Company's office or agency in The City of New York will be the office of the
Trustee maintained for such purpose. The Notes are issued in fully registered
form, without coupons, and in denominations of $1,000 and integral multiples
thereof. No service charge will be made for any transfer, exchange or redemption
of Notes, except in certain circumstances for any tax or other governmental
charge that may be imposed in connection therewith.
REDEMPTION
Mandatory Redemption. The Notes are not subject to any mandatory sinking
fund redemption prior to maturity.
Optional Redemption. The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after November 15, 2001 at the
redemption prices (expressed as percentages of the principal amount of the
Notes) set forth below plus in each case accrued and
60
<PAGE> 66
unpaid interest, if any, to the date of redemption, if redeemed during the
twelve-month period beginning on November 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
--------------------------------------------------------------- ----------
<S> <C>
2001........................................................... 105.688%
2002........................................................... 103.792%
2003........................................................... 101.896%
2004 and thereafter............................................ 100.000%
</TABLE>
In addition, at any time or from time to time on or prior to November 15,
1999, the Company may, at its option, redeem up to $30 million aggregate
principal amount of the Notes with the net proceeds of one or more Public Equity
Offerings, at a redemption price equal to 111 3/8% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of redemption;
provided, however, that (x) not less than $60 million aggregate principal amount
of the Notes is outstanding immediately after giving effect to any such
redemption (other than any Notes owned by the Company or any of its Affiliates)
and (y) such redemption is effected within 90 days after the consummation of any
such Public Equity Offering.
"Public Equity Offering" means an underwritten public offering of Capital
Stock (other than Disqualified Capital Stock) of the Company or IKS Holdings
pursuant to an effective registration statement filed under the Securities Act;
provided, however, that in the event of a Public Equity Offering by IKS
Holdings, IKS Holdings shall contribute to the capital of the Company the
portion of the net cash proceeds of such Public Equity Offering necessary to pay
the aggregate redemption price, plus accrued and unpaid interest, if any, to the
redemption date, of the Notes to be redeemed pursuant to the preceding
paragraph.
Selection and Notice. If less than all of the Notes are to be redeemed at
any time, selection of the Notes to be redeemed will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not listed on a
securities exchange, on a pro rata basis or by lot or any other method as the
Trustee shall deem fair and appropriate; provided, however, that Notes redeemed
in part shall only be redeemed in integral multiples of $1,000; provided,
further, that any such redemption pursuant to the provisions relating to a
Public Equity Offering shall be made on a pro rata basis or on as nearly a pro
rata basis as practicable (subject to the procedures of The Depository Trust
Company or any other depositary), unless such method is otherwise prohibited.
Notices of any optional or mandatory redemption shall be mailed by first class
mail at least 30 but not more than 60 days before the redemption date to each
holder of Notes to be redeemed at such holder's registered address. If any Note
is to be redeemed in part only, the notice of redemption that relates to such
Note shall state the portion of the principal amount thereof to be redeemed, and
the Trustee shall authenticate and mail to the holder of the original Note a new
Note in principal amount equal to the unredeemed portion of the original Note
promptly after the original Note has been canceled. On and after the redemption
date, interest will cease to accrue on Notes or portions thereof called for
redemption.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on, or
Liquidated Damages, if any, with respect to, the Notes is subordinated, as set
forth in the Indenture, in right of payment to the prior payment in full of all
existing and future Senior Debt (including the indebtedness under the Senior
Credit Facility). The Notes are senior subordinated indebtedness of the Company
ranking pari passu with all other existing and future senior subordinated
indebtedness of the Company.
Upon any payment or distribution of cash, securities or other property of
the Company to creditors upon any liquidation, dissolution or winding up of the
Company, or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property or securities, an assignment
for the benefit of creditors or any marshalling of the
61
<PAGE> 67
Company's assets or liabilities, the holders of any Senior Debt of the Company
will be entitled to receive payment in full, in cash or Cash Equivalents, of all
Obligations due in respect of such Senior Debt (including interest after the
commencement of any such proceeding at the rate specified in the agreements
governing such Senior Debt) before the holders of the Notes or the Trustee on
behalf of such holders will be entitled to receive any payment or distribution
with respect to the Notes.
The Company also may not make any payment upon or in respect of the Notes
(except from the trust described under "-- Defeasance" below) if (i) a default
in the payment of the principal of, premium, if any, or interest on any
Designated Senior Debt occurs and is continuing, whether at maturity or on a
date fixed for prepayment or by declaration of acceleration or otherwise, or
(ii) the Trustee has received written notice ("Payment Blockage Notice") from
the representative of any holders of Designated Senior Debt that a nonpayment
default has occurred and is continuing with respect to such Designated Senior
Debt that permits such holders to accelerate the maturity of such Designated
Senior Debt. Payments on the Notes shall resume (and all past due amounts on the
Notes, with interest thereon as specified in the Indenture, shall be paid) (i)
in the case of a payment default in respect of any Designated Senior Debt, on
the date on which such default is cured or waived or otherwise ceases to exist;
and (ii) in the case of a nonpayment default in respect of any Designated Senior
Debt, on the earlier of (a) the date on which such nonpayment default is cured
or waived, or (b) 179 days after the date on which the Payment Blockage Notice
with respect to such default was received by the Trustee, in each case, unless
the maturity of any Designated Senior Debt has been accelerated and the Company
has defaulted with respect to the payment of such Designated Senior Debt, or (c)
the date on which such Payment Blockage Period (as defined below) shall have
been terminated by written notice to the Company or the Trustee from the
representative of the holders of Designated Senior Debt initiating such Payment
Blockage Period. During any consecutive 365-day period, the aggregate number of
days in which payments due on the Notes may not be made as a result of
nonpayment defaults on Designated Senior Debt (a "Payment Blockage Period")
shall not exceed 179 days, and there shall be a period of at least 186
consecutive days in each consecutive 365-day period during which no Payment
Blockage Period is in effect. No event or circumstance that creates a nonpayment
default under any Designated Senior Debt that (i) gives rise to the commencement
of a Payment Blockage Period or (ii) exists at the commencement of or during any
Payment Blockage Period shall be made the basis for the commencement of any
subsequent Payment Blockage Period unless such default has been cured or waived
for a period of not less than 90 consecutive days.
As a result of the subordination provisions described above, holders of
Notes may recover less ratably than creditors holding Senior Debt of the
Company. In such circumstances, funds which would otherwise be payable to the
holders of the Notes will be paid to the holders of the Senior Debt to the
extent necessary to pay the Senior Debt in full in cash or Cash Equivalents, and
the Company may be unable to meet its obligations fully with respect to the
Notes.
If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the holders of the Notes to accelerate the
maturity thereof. See "-- Events of Default."
As of September 30, 1996, on a pro forma basis after giving effect to
Transactions, there would have been no Senior Debt of the Company outstanding,
exclusive of unused commitments of $20.0 million that may be borrowed by the
Company under the Senior Credit Facility.
The Notes are also effectively subordinated to all existing and future
liabilities, including indebtedness, of the Company's Subsidiaries. As of
September 30, 1996, on a pro forma basis after giving effect to the
Transactions, the Company's Subsidiaries would have had indebtedness of
approximately $5.5 million (excluding China joint venture indebtedness of
approximately $3.8 million, which is non-recourse to the Company, and excluding
unused commitments of $5.0 million) and other liabilities of approximately $7.9
million reflected on the Company's
62
<PAGE> 68
consolidated balance sheet. Claims of creditors of the Company's Subsidiaries,
including trade creditors, will generally have priority as to the assets of such
Subsidiaries over the claims of the Company and the holders of the Company's
indebtedness, including the Notes.
CHANGE OF CONTROL
In the event of a Change of Control, each holder of Notes will have the
right, unless the Company has given a notice of redemption, subject to the terms
and conditions of the Indenture, to require the Company to offer to purchase all
or any portion (equal to $1,000 or an integral multiple thereof) of such
holder's Notes at a purchase price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase, in accordance with the terms set forth below (a "Change of Control
Offer").
Other debt instruments of the Company may in the future restrict the
Company's ability to purchase Notes pursuant to a Change of Control Offer.
Moreover, such debt instruments may contain a "change of control" provision that
is similar to the provision in the Indenture relating to a Change of Control,
and the occurrence of such a "change of control" would constitute a default
under such debt instruments. The Company's obligations under such debt
instruments may represent obligations senior in right of payment to the Notes,
and such debt instruments may not permit the purchase of the Notes absent
consent of the lenders thereunder in the event of a Change of Control.
Notwithstanding the foregoing, the failure of the Company to effect a Change of
Control Offer would constitute an Event of Default under the Indenture.
If the Company is unable to obtain the requisite consents and/or repay all
indebtedness which restricts the Company's ability to repurchase the Notes upon
the occurrence of a Change of Control, the Company may not be able to commence a
Change of Control Offer to purchase the Notes within 30 days of the occurrence
of the Change of Control. Such failure would constitute an Event of Default
under the Indenture. If a Change of Control were to occur, there can be no
assurance that the Company would have sufficient assets to first satisfy its
obligations under any other agreements relating to indebtedness, if accelerated,
and then to purchase all of the Notes that might be delivered by holders seeking
to accept a Change of Control Offer.
On or before the 30th day following the occurrence of any Change of
Control, the Company shall mail to each holder of Notes at such holder's
registered address a notice stating: (i) that a Change of Control has occurred
and that such holder has the right to require the Company to purchase all or a
portion (equal to $1,000 or an integral multiple thereof) of such holder's Notes
at a purchase price in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase (the
"Change of Control Purchase Date"), which shall be a business day, specified in
such notice, that is not earlier than 30 days or later than 60 days from the
date such notice is mailed, (ii) the amount of accrued and unpaid interest, if
any, as of the Change of Control Purchase Date, (iii) that any Note not tendered
will continue to accrue interest, (iv) that, unless the Company defaults in the
payment of the purchase price for the Notes payable pursuant to the Change of
Control Offer, any Notes accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest on the Change of Control Purchase Date, (v)
the procedures, consistent with the Indenture, to be followed by a holder of
Notes in order to accept a Change of Control Offer or to withdraw such
acceptance, and (vi) such other information as may be required by the Indenture
and applicable laws and regulations.
On the Change of Control Purchase Date, the Company will (x) accept for
payment all Notes or portions thereof tendered pursuant to the Change of Control
Offer, (y) deposit with the Paying Agent the aggregate purchase price of all
Notes or portions thereof accepted for payment, and (z) deliver or cause to be
delivered to the Trustee all Notes tendered pursuant to the Change of Control
Offer. The Paying Agent shall promptly mail to each holder of Notes or portions
thereof accepted for payment an amount equal to the purchase price for such
Notes plus accrued and unpaid interest, if any, thereon, and the Trustee shall
promptly authenticate and mail to each holder
63
<PAGE> 69
of Notes accepted for payment in part a new Note equal in principal amount to
any unpurchased portion of the Notes, and any Note not accepted for payment in
whole or in part shall be promptly returned to the holder of such Note. On and
after a Change of Control Purchase Date, interest will cease to accrue on the
Notes or portions thereof accepted for payment, unless the Company defaults in
the payment of the purchase price therefor. The Company will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Purchase Date.
The Company will comply with the applicable tender offer rules, including
the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, and all
other applicable securities laws and regulations in connection with any Change
of Control Offer and will be deemed not to be in violation of any of the
covenants under the Indenture to the extent such compliance is in conflict with
such covenants.
CERTAIN COVENANTS
Limitation on Incurrence of Indebtedness. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, create,
incur, issue, assume or directly or indirectly guarantee or in any other manner
become directly or indirectly liable for ("incur") any Indebtedness (including
Acquired Debt), except that the Company may incur Indebtedness (including
Acquired Debt) if, at the time of, and immediately after giving pro forma effect
to, such incurrence of Indebtedness, the Consolidated Cash Flow Coverage Ratio
of the Company for the most recently ended four fiscal quarters would be at
least 2.0 to 1.0 if incurred during the period from the Issue Date through
November 15, 1998, and 2.25 to 1.0 if incurred thereafter.
The foregoing limitations do not apply to the incurrence of any of the
following (collectively, "Permitted Indebtedness"), each of which are given
independent effect:
(i) Indebtedness of the Company arising under the Senior Credit
Facility and Indebtedness of IKS Klingelnberg GmbH and its Subsidiaries
arising under the German Subsidiary Facilities, in an aggregate principal
amount not to exceed at any time outstanding the greater of (x) $30.0
million, less any permanent reduction in commitments thereunder, and (y)
the sum, at such time, of (I) 85% of the consolidated book value of net
accounts receivable of the Company and the Restricted Subsidiaries and (II)
60% of the consolidated book value of inventory of the Company and the
Restricted Subsidiaries;
(ii) Indebtedness of the Company represented by the Notes and the
Exchange Notes;
(iii) Indebtedness of the Company or any Restricted Subsidiary not
covered by any other clause of this paragraph which is outstanding on the
Issue Date ("Existing Indebtedness"), including certain Indebtedness of IKS
Klingelnberg GmbH under the German Subsidiary Facilities outstanding on the
Issue Date;
(iv) Indebtedness owed by any Restricted Subsidiary to the Company or
to another Restricted Subsidiary, or owed by the Company to any Restricted
Subsidiary; provided, however, that any such Indebtedness shall at all
times be held by a Person which is either the Company or a Restricted
Subsidiary; provided, further, however, that upon either (a) the transfer
or other disposition of any such Indebtedness to a Person other than the
Company or another Restricted Subsidiary or (b) the sale, transfer or other
disposition of shares of Capital Stock (including by consolidation or
merger) of any such Restricted Subsidiary to a Person other than the
Company or another Restricted Subsidiary, the incurrence of such
Indebtedness shall be deemed to be an incurrence that is not permitted by
this clause (iv);
(v) Indebtedness of the Company or any Restricted Subsidiary arising
with respect to Interest Rate Agreement Obligations and Currency Agreement
Obligations incurred for the purpose of fixing or hedging interest rate
risk or currency risk with respect to any fixed or floating rate
Indebtedness that is permitted by the terms of the Indenture to be
outstanding or
64
<PAGE> 70
with respect to any receivable or liability the payment of which is
determined by reference to a foreign currency;
(vi) Indebtedness represented by performance, completion, guarantee,
surety and similar bonds provided by the Company or any Restricted
Subsidiary in the ordinary course of business consistent with past
practice;
(vii) Any Indebtedness incurred in connection with or given in
exchange for the renewal, extension, substitution, refunding, defeasance,
refinancing or replacement, in whole or in part, (a "refinancing") of any
Indebtedness incurred as permitted under the first paragraph of this
covenant or any Indebtedness described in clauses (ii) or (iii) above and
this clause (vii) ("Refinancing Indebtedness"); provided, however, that (a)
the principal amount of such Refinancing Indebtedness shall not exceed the
principal amount (or accreted amount, if less) of the Indebtedness so
refinanced (plus the premiums and reasonable expenses to be paid in
connection therewith, which, with respect to such premiums, shall not
exceed the stated amount of any premium or other payment required to be
paid in connection with such a refinancing pursuant to the terms of the
Indebtedness being refinanced); (b) if the Weighted Average Life to
Maturity of the Indebtedness being refinanced is equal to or greater than
the Weighted Average Life to Maturity of the Notes, the Refinancing
Indebtedness shall have a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness
being refinanced; (c) with respect to Refinancing Indebtedness other than
Senior Debt incurred by the Company, such Refinancing Indebtedness shall
rank no more senior than, and, if applicable, shall be at least as
subordinated in right of payment to the Notes as, the Indebtedness being
refinanced; and (d) the obligor on such Refinancing Indebtedness shall be
the obligor on the Indebtedness being refinanced or the Company;
(viii) Indebtedness of the Company or any Restricted Subsidiary (a)
representing Capitalized Lease Obligations and any refinancings thereof
and/or (b) in respect of Purchase Money Obligations for property acquired,
constructed or improved in the ordinary course of business and any
refinancings thereof, which taken together in the aggregate do not exceed
$5 million at any time outstanding;
(ix) commodity agreements entered into in the ordinary course of
business to protect against fluctuations in the prices of raw materials and
not for speculative purposes;
(x) Indebtedness incurred by the Company or any Restricted Subsidiary
constituting reimbursement obligations with respect to letters of credit
issued in the ordinary course of business, including, without limitation,
letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims or self-insurance;
(xi) (a) Guarantees by the Company of Indebtedness of a Restricted
Subsidiary permitted to be incurred under the Indenture, (b) Guarantees by
any Restricted Subsidiary in accordance with the covenant entitled
"-- Guarantees" below and (c) Guarantees by any Restricted Subsidiary of
Senior Debt so long as such Restricted Subsidiary executes a Guarantee of
the Notes on a senior subordinated basis;
(xii) Indebtedness of the Company or any Restricted Subsidiary arising
from agreements providing for indemnification, adjustment of purchase price
or similar obligations, in each case incurred or assumed in connection with
the disposition of any business, assets or a Subsidiary, other than
Guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided that the maximum liability in respect
of such Indebtedness shall not exceed the gross proceeds actually received
by the Company and its Restricted Subsidiaries in connection with such
disposition; and
65
<PAGE> 71
(xiii) Indebtedness of the Company or any Restricted Subsidiary in
addition to that described in clauses (i) through (xii) above, and any
renewals, extensions, substitutions, refinancings or replacements of such
Indebtedness, so long as the aggregate principal amount of all such
Indebtedness incurred pursuant to this clause (xiii) does not exceed $5.0
million at any one time outstanding (which may be, but shall not be
required to be, incurred, in whole or in part, under the Senior Credit
Facility or the German Subsidiary Facilities).
For purposes of determining any particular amount of Indebtedness under
this covenant, Guarantees, Liens or obligations with respect to letters of
credit supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included.
Indebtedness of any Person which is outstanding at the time such Person
becomes a Restricted Subsidiary or is merged with or into or consolidated with
the Company or a Restricted Subsidiary shall be deemed to have been incurred at
the time such Person becomes a Restricted Subsidiary or is merged with or into
or consolidated with the Company or a Restricted Subsidiary, and Indebtedness
which is assumed at the time of the acquisition of any asset shall be deemed to
have been incurred at the time of such acquisition.
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, make any Restricted Payment, unless at the time of and immediately
after giving effect to the proposed Restricted Payment (with the value of any
such Restricted Payment, if other than cash, to be determined reasonably and in
good faith by the Board of Directors of the Company):
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(ii) the Company could incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the covenant described
under "-- Limitation on Incurrence of Indebtedness"; and
(iii) the aggregate amount of all Restricted Payments made after the
Issue Date shall not exceed the sum of:
(a) an amount equal to 50% of the Company's aggregate cumulative
Consolidated Net Income accrued on a cumulative basis during the period
(treated as one accounting period) beginning on the Issue Date and
ending on the date of such proposed Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income for such period shall be a
deficit, minus 100% of such deficit); plus
(b) the aggregate amount of all net cash proceeds received since
the Issue Date by the Company from the issuance and sale (other than to
a Restricted Subsidiary) of, or equity contribution with respect to,
Capital Stock (other than Disqualified Stock) and the principal amount
of Indebtedness of the Company or any Restricted Subsidiary that has
been converted into or exchanged for Capital Stock (other than
Disqualified Stock), in any such case to the extent that such proceeds
are not used (x) to redeem, repurchase, retire or otherwise acquire
Capital Stock or any Indebtedness of the Company or any Restricted
Subsidiary pursuant to clause (ii) of the next paragraph or (y) to make
any Restricted Investment pursuant to clause (iv) of the next paragraph;
plus
(c) the amount of the net reduction in Investments in Unrestricted
Subsidiaries resulting from (x) the payment of dividends or the
repayment in cash of the principal of loans or the cash return on any
Investment, in each case to the extent received by the Company or any
Restricted Subsidiary from Unrestricted Subsidiaries, (y) the release or
extinguishment of any guarantee of Indebtedness of any Unrestricted
Subsidiary, and (z) the redesignation of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued as provided in the definition of
"Investment"), such aggregate amount of the net reduction in
66
<PAGE> 72
Investments not to exceed in the case of any Unrestricted Subsidiary the
amount of Restricted Investments previously made by the Company or any
Restricted Subsidiary in such Unrestricted Subsidiary, which amount was
included in the calculation of the amount of Restricted Payments; plus
(d) to the extent that any Restricted Investment that was made
after the Issue Date is sold for cash or otherwise liquidated or repaid
for cash, the amount of cash proceeds received with respect to such
Restricted Investment, net of taxes and the cost of disposition, not to
exceed the amount of Restricted Investments made after the Issue Date.
The foregoing provisions do not prohibit the following actions
(collectively, "Permitted Payments"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such payment would have
been permitted under the Indenture (which payment shall be deemed to have
been paid on such date of declaration for purposes of clause (iii) of the
preceding paragraph);
(ii) the redemption, repurchase, retirement or other acquisition of
any Capital Stock or any Indebtedness of the Company or any Restricted
Subsidiary in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Restricted Subsidiary) of, or equity
contribution with respect to, Capital Stock of the Company (other than any
Disqualified Stock);
(iii) any purchase or defeasance of Subordinated Indebtedness to the
extent required upon a Change of Control or Asset Sale (as defined therein)
by the indenture or other agreement or instrument pursuant to which such
Subordinated Indebtedness was issued, but only if the Company (x) in the
case of a Change of Control, has complied with its obligations under the
provisions described under "-- Change of Control" or (y) in the case of an
Asset Sale, has applied the Net Proceeds from such Asset Sale in accordance
with the provisions described under "-- Limitation on Asset Sales";
(iv) any Restricted Investment the sole consideration for which
consists of, or is made with the proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary) of, or equity contribution
with respect to, Capital Stock of the Company (other than any Disqualified
Stock);
(v) the making of payments by the Company to IKS Holdings in an amount
not in excess of the income tax liability that the Company and its
Subsidiaries would have been liable for if the Company and its Subsidiaries
had filed consolidated tax returns on a stand-alone basis;
(vi) distributions, loans or advances to IKS Holdings in an aggregate
amount not to exceed $50,000 per annum sufficient to permit IKS Holdings to
pay the ordinary operating expenses of IKS Holdings (including, without
limitation, reasonable directors' fees and expenses, indemnification
obligations and professional fees and expenses) directly related to IKS
Holdings' ownership of Capital Stock of the Company (other than any
expenses of CVC or any of its Affiliates);
(vii) payments to IKS Holdings in amounts and at times necessary to
permit the repurchase of Holdings Common Stock, Holdings Preferred Stock
and Holdings Debentures from directors, officers and employees of the
Company and its Subsidiaries who have died or whose employment has been
terminated; provided that such payments shall not exceed $500,000 in any
fiscal year plus any amount available for such payments hereunder since the
Issue Date which have not been used for such purpose; provided, further,
that in no event shall such payments exceed $2.0 million in any fiscal
year;
(viii) loans or advances to employees of the Company or any of its
Subsidiaries which loans or advances exist on the Issue Date, a loan to
John E. Halloran, the Company's President
67
<PAGE> 73
and Chief Executive Officer, to pay income taxes which will be incurred by
him in connection with the Recapitalization not to exceed $250,000 and
other loans or advances to employees of the Company or any Subsidiary to
pay reasonable relocation expenses; and
(ix) Restricted Investments in an amount such that the sum of the
aggregate amount of Restricted Investments made pursuant to this clause
(ix) after the Issue Date does not exceed $2.0 million at any one time
outstanding;
provided, however, that in the case of clauses (iii), (vii), (viii) and (ix) of
this paragraph, no Default or Event of Default shall have occurred and be
continuing.
For purposes of clause (iii) of the first paragraph of this covenant, the
Permitted Payments referred to in clauses (i), (vii) and (ix) above shall be
included in the aggregate amount of Restricted Payments made since the Issue
Date, and any other Permitted Payments described above shall be excluded.
Limitation on Asset Sales. The Indenture provides that the Company will
not, and will not permit any Restricted Subsidiary to, make any Asset Sale
unless (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the fair
market value (as evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee) of the assets or other
property sold or disposed of in the Asset Sale and (ii) at least 75% of such
consideration consists of either cash or Cash Equivalents; provided, however,
that for purposes of this covenant, "cash" shall include (x) the amount of any
Indebtedness (other than any Indebtedness that is by its terms subordinated to
the Notes) of the Company or such Restricted Subsidiary as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet or in the
notes thereto that is assumed by the transferee of any such assets or other
property in such Asset Sale (and excluding any liabilities that are incurred in
connection with or in anticipation of such Asset Sale), but only to the extent
that such assumption is effected on a basis such that there is no further
recourse to the Company or any of the Restricted Subsidiaries with respect to
such liabilities and (y) any notes, obligations or securities received by the
Company or such Restricted Subsidiary from such transferee that are converted
within 60 days by the Company or such Restricted Subsidiary into cash (to the
extent of the cash received).
Within 270 days after any Asset Sale, the Company or the applicable
Restricted Subsidiary may elect to apply the Net Proceeds from such Asset Sale
to (a) permanently reduce any Senior Debt of the Company or any Indebtedness of
the applicable Restricted Subsidiary and/or (b) make an investment in, or
acquire assets and properties that will be used in, the business of the Company
and the Restricted Subsidiaries existing on the Issue Date or in businesses
reasonably related thereto. Pending the final application of any such Net
Proceeds, the Company or any Restricted Subsidiary may temporarily reduce
Indebtedness of the Company under the Senior Credit Facility or temporarily
invest such Net Proceeds in any Investments described under clauses (i) through
(iii) of the definition of Permitted Investments. Any Net Proceeds from an Asset
Sale not applied or invested as provided in the first sentence of this paragraph
within 270 days of such Asset Sale will be deemed to constitute "Excess
Proceeds."
Each date that the aggregate amount of Excess Proceeds in respect of which
an Asset Sale Offer (as defined below) has not been made exceeds $5.0 million
shall be deemed an "Asset Sale Offer Trigger Date." As soon as practicable, but
in no event later than 20 business days after each Asset Sale Offer Trigger
Date, the Company shall commence an offer (an "Asset Sale Offer") to purchase
the maximum principal amount of Notes that may be purchased out of the Excess
Proceeds. Any Notes to be purchased pursuant to an Asset Sale Offer shall be
purchased pro rata based on the aggregate principal amount of Notes outstanding,
and all Notes shall be purchased at an offer price in cash in an amount equal to
100% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of purchase. To the extent that any Excess Proceeds remain after
completion of an Asset Sale Offer, the Company may use the remaining amount for
general corporate purposes otherwise permitted by the Indenture. In the event
that the Company is
68
<PAGE> 74
prohibited under the terms of any agreement governing outstanding Senior Debt of
the Company from repurchasing Notes with Excess Proceeds pursuant to an Asset
Sale Offer as set forth in the first sentence of this paragraph, the Company
shall promptly use all Excess Proceeds to permanently reduce such outstanding
Senior Debt of the Company. Upon the consummation of any Asset Sale Offer, the
amount of Excess Proceeds shall be deemed to be reset to zero.
Notice of an Asset Sale Offer shall be mailed by the Company not later than
the 20th business day after the related Asset Sale Offer Trigger Date to each
holder of Notes at such holder's registered address, stating: (i) that an Asset
Sale Offer Trigger Date has occurred and that the Company is offering to
purchase the maximum principal amount of Notes that may be purchased out of the
Excess Proceeds (to the extent provided in the immediately preceding paragraph),
at an offer price in cash in an amount equal to 100% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of the purchase
(the "Asset Sale Offer Purchase Date"), which shall be a business day, specified
in such notice, that is not earlier than 30 days or later than 60 days from the
date such notice is mailed, (ii) the amount of accrued and unpaid interest, if
any, as of the Asset Sale Offer Purchase Date, (iii) that any Note not tendered
will continue to accrue interest, (iv) that, unless the Company defaults in the
payment of the purchase price for the Notes payable pursuant to the Asset Sale
Offer, any Notes accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest after the Asset Sale Offer Purchase Date, (v) the
procedures, consistent with the Indenture, to be followed by a holder of Notes
in order to accept an Asset Sale Offer or to withdraw such acceptance, and (vi)
such other information as may be required by the Indenture and applicable laws
and regulations.
On the Asset Sale Offer Purchase Date, the Company will (i) accept for
payment the maximum principal amount of Notes or portions thereof tendered
pursuant to the Asset Sale Offer that can be purchased out of Excess Proceeds
from such Asset Sale that are to be applied to an Asset Sale Offer, (ii) deposit
with the Paying Agent the aggregate purchase price of all Notes or portions
thereof accepted for payment, and (iii) deliver or cause to be delivered to the
Trustee all Notes tendered pursuant to the Asset Sale Offer. If less than all
Notes tendered pursuant to the Asset Sale Offer are accepted for payment by the
Company for any reason consistent with the Indenture, selection of the Notes to
be purchased by the Company shall be in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed
or, if the Notes are not so listed, on a pro rata basis or by lot; provided,
however, that Notes accepted for payment in part shall only be purchased in
integral multiples of $1,000. The Paying Agent shall promptly mail to each
holder of Notes or portions thereof accepted for payment an amount equal to the
purchase price for such Notes plus accrued and unpaid interest, if any, thereon,
and the Trustee shall promptly authenticate and mail to such holder of Notes
accepted for payment in part a new Note equal in principal amount to any
unpurchased portion of the Notes, and any Note not accepted for payment in whole
or in part shall be promptly returned to the holder of such Note. On and after
an Asset Sale Offer Purchase Date, interest will cease to accrue on the Notes or
portions thereof accepted for payment, unless the Company defaults in the
payment of the purchase price therefor. The Company will publicly announce the
results of the Asset Sale Offer on or as soon as practicable after the Asset
Sale Offer Purchase Date.
The foregoing provisions do not apply to a transaction consummated in
compliance with the provisions of the Indenture described under "-- Merger,
Consolidation and Sale of Assets" below.
The Company will comply with the applicable tender offer rules, including
the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, and all
other applicable securities laws and regulations in connection with any Asset
Sale Offer and will be deemed not to be in violation of any of the covenants
under the Indenture to the extent such compliance is in conflict with such
covenants.
Limitation on Liens. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create,
incur, assume or suffer to exist any Lien securing Indebtedness that is pari
passu with or subordinated in right of payment to the Notes
69
<PAGE> 75
(other than Permitted Liens) on any asset now owned or hereafter acquired, or
any income or profits therefrom, or assign or convey any right to receive income
therefrom to secure any such Indebtedness, unless (i) if such Lien secures
Indebtedness which is pari passu with the Notes, then the Notes are secured on
an equal and ratable basis with the obligations so secured until such time as
such obligation is no longer secured by a Lien or (ii) if such Lien secures
Indebtedness which is subordinated to the Notes, any such Lien shall be
subordinated to a Lien granted to the holders of the Notes in the same
collateral as that securing such Lien to the same extent as such subordinated
Indebtedness is subordinated to the Notes.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create or otherwise
cause to become effective any consensual encumbrance or consensual restriction
on the ability of any Restricted Subsidiary to (i) pay dividends or make any
other distributions to the Company or any other Restricted Subsidiary on its
Capital Stock or with respect to any other interest or participation in, or
measured by, its profits, or pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (ii) make loans or advances to, or issue Guarantees
for the benefit of, the Company or any other Restricted Subsidiary or (iii)
transfer any of its properties or assets to the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of (a) the Senior Credit Facility, (b) any German Subsidiary Facility,
(c) applicable law, (d) any instrument governing Indebtedness or Capital Stock
of an Acquired Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with or in contemplation of such
acquisition); provided, however, that no such encumbrance or restriction is
applicable to any Person, or the properties or assets of any Person, other than
the Acquired Person, (e) by reason of customary non-assignment, subletting or
net worth provisions in leases or other agreements entered into the ordinary
course of business and consistent with past practices, (f) Purchase Money
Indebtedness for property acquired in the ordinary course of business that
impose restrictions only on the property so acquired, (g) an agreement for the
sale or disposition of assets or the Capital Stock of a Restricted Subsidiary;
provided, however, that such restriction or encumbrance is only applicable to
such Restricted Subsidiary or assets, as applicable, and such sale or
disposition otherwise is permitted by the provisions described under
"-- Limitation on Asset Sales"; provided, further, however, that such
restriction or encumbrance shall be effective only for a period from the
execution and delivery of such agreement through a termination date not later
than 270 days after such execution and delivery, (h) the Indenture and the
Notes, (i) Indebtedness (including Refinancing Indebtedness) permitted to be
incurred subsequent to the Issue Date pursuant to the provisions of the covenant
described under "-- Limitation on Incurrence of Indebtedness"; provided,
however, that any such restrictions are ordinary and customary with respect to
the type of Indebtedness being incurred, (j) encumbrances and restrictions
imposed by Liens incurred in accordance with the covenant described under
"-- Limitation on Liens", (k) customary provisions in joint venture agreements
and other similar agreements, and (l) encumbrances and restrictions imposed by
amendments, restatements, renewals, replacements or refinancings of the
contracts, instruments or obligations referred to in clauses (a) through (k)
above; provided that such encumbrances and restrictions are, in the good faith
judgment of the Company's Board of Directors, no more restrictive, in any
material respect, than those contained in such contracts, instruments or
obligations immediately prior to such amendment, restatement, renewal,
replacement or refinancing.
Limitation on Transactions with Affiliates. The Indenture provides that
the Company will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, enter into or suffer to exist any transaction or series of
related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any Affiliate of the
Company unless (1) such transaction or series of transactions is on terms that
are no less favorable to the Company or such Restricted Subsidiary, as the case
may be, than those that could reasonably be obtainable at such time in a
comparable transaction in arm's-length dealings with an unrelated third party,
and
70
<PAGE> 76
(2) the Company delivers to the Trustee (a) with respect to any transaction or
series of transactions involving aggregate payments in excess of $500,000, an
Officers' Certificate certifying that such transaction or series of related
transactions complies with clause (1) above and (b) with respect to any
transaction or series of transactions involving aggregate payments in excess of
$2.0 million, an Officers' Certificate certifying that such transaction or
series of related transactions has been approved by a majority of the members of
the Board of Directors of the Company (and approved by a majority of the
Independent Directors or, in the event there is only one Independent Director,
by such Independent Director), and (c) with respect to any transaction or series
of transactions involving aggregate payments in excess of $5.0 million, an
opinion as to the fairness to the Company from a financial point of view issued
by an investment banking firm of national standing. Notwithstanding the
foregoing, this covenant will not apply to (i) employment agreements or
compensation or employee benefit arrangements with any officer, director or
employee of the Company or any of its Restricted Subsidiaries entered into in
the ordinary course of business (including customary benefits thereunder and
including reimbursement or advancement of out-of-pocket expenses, and director's
and officer's liability insurance), (ii) any transaction entered into by or
among the Company or one of its Restricted Subsidiaries with one or more
Restricted Subsidiaries of the Company, (iii) any transaction permitted by the
second paragraph under "-- Limitation on Restricted Payments", (iv) transactions
permitted by, and complying with, the provisions described under "-- Merger,
Consolidation and Sale of Assets" and (v) transactions with suppliers or other
purchases or sales of goods or services, in each case in the ordinary course of
business (including, without limitation, pursuant to joint venture agreements)
and otherwise in compliance with the terms of the Indenture which, in the
reasonable determination of the Board of Directors of the Company, are on terms
no less favorable to the Company or its Restricted Subsidiaries than those that
could reasonably have been obtained at such time from an unaffiliated party.
Limitation on Designation of Unrestricted Subsidiaries. The Indenture
provides that the Company will not designate any Subsidiary of the Company
(other than a newly created Subsidiary in which no Investment has previously
been made) as an "Unrestricted Subsidiary" under the Indenture (a "Designation")
unless:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) immediately after giving effect to such Designation, the Company
would be able to incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the covenant described under "-- Limitation
on Incurrence of Indebtedness"; and
(c) the Company would not be prohibited under the Indenture from
making an Investment at the time of Designation in an amount (the
"Designation Amount") equal to the greater of (x) the book value of such
Restricted Subsidiary on such date and (y) the Fair Market Value of such
Restricted Subsidiary on such date.
In the event of any such Designation, the Company shall be deemed to have made
an Investment constituting a Restricted Payment pursuant to the covenant
described under "-- Limitation on Restricted Payments" for all purposes of the
Indenture in an amount equal to the Designation Amount.
The Indenture further provides that the Company will not designate an
Unrestricted Subsidiary as a Restricted Subsidiary (a "Redesignation"), unless:
(a) no Default shall have occurred and be continuing at the time of
and after giving effect to such Redesignation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Redesignation shall be deemed to
have been incurred at such time and shall have been permitted to be
incurred for all purposes of the Indenture.
71
<PAGE> 77
An Unrestricted Subsidiary shall be deemed to be redesignated as a
Restricted Subsidiary at any time if (a) the Company or any other Restricted
Subsidiary (i) provides credit support for, or a guarantee of, any Indebtedness
of such Unrestricted Subsidiary (including any undertaking, agreement or
instrument evidencing such Indebtedness) or (ii) is directly or indirectly
liable for any Indebtedness of such Unrestricted Subsidiary or (b) a default
with respect to any Indebtedness of such Unrestricted Subsidiary (including any
right which the holders thereof may have to take enforcement action against it)
would permit (upon notice, lapse of time or both) any holder of any other
Indebtedness of the Company or any Restricted Subsidiary to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity, except in the case of clause (a)
to the extent permitted under the covenant described above under the caption
" -- Limitation on Restricted Payments."
The Company's Subsidiaries in China were designated Unrestricted
Subsidiaries as of the Issue Date. All Designations (other than with respect to
the Company's Subsidiaries in China) and Redesignations must be evidenced by
Board Resolutions delivered to the Trustee certifying compliance with the
foregoing provisions. Subsidiaries that are not designated by the Board of
Directors as Restricted or Unrestricted Subsidiaries will be deemed to be
Restricted Subsidiaries. The Designation of a Restricted Subsidiary as an
Unrestricted Subsidiary shall be deemed a Designation of all of the Subsidiaries
of such Unrestricted Subsidiary as Unrestricted Subsidiaries.
Limitation on Incurrence of Senior Subordinated Indebtedness. The Company
shall not, directly or indirectly, incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinated or junior in
right of payment to any Senior Debt of the Company and senior in any respect in
right of payment to the Notes. For purposes of this provision, no Indebtedness
shall be deemed to be subordinated in right of payment to any other Indebtedness
by reason of the fact that such other Indebtedness is secured by any Lien or is
subject to a Guarantee.
Guarantees. If the Company or any of its Restricted Subsidiaries transfers
or causes to be transferred, in one transaction or a series of related
transactions, any property (other than cash) to any Restricted Subsidiary that
is not a Foreign Subsidiary, or if the Company or any of its Restricted
Subsidiaries shall organize, acquire or otherwise invest in another Restricted
Subsidiary that is not a Foreign Subsidiary, then such transferee or acquired or
other Restricted Subsidiary shall (i) execute and deliver to the Trustee a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Restricted Subsidiary shall unconditionally guarantee on a senior
subordinated basis all of the Company's obligations under the Notes and the
Indenture and (ii) deliver to the Trustee an opinion of counsel that such
supplemental indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and enforceable
obligation of such Restricted Subsidiary. The Indebtedness represented by any
such Guarantee will be subordinated on the same basis to senior Indebtedness of
the guarantor thereof as the Notes are subordinated to Senior Debt. The
obligations of each guarantor will be limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of such
guarantor, result in the obligations of such guarantor under the Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law.
Any such Guarantee will be released upon the sale of all of the Capital
Stock, or all or substantially all of the assets, of the applicable guarantor if
such sale is made in compliance with the Indenture.
Provision of Financial Statements and Information. The Indenture provides
that, following effectiveness of the Exchange Offer, whether or not the Company
is then subject to Section 13(a) or 15(d) of the Exchange Act, the Company will
file with the Commission so long as any Notes are outstanding, the annual
reports, quarterly reports and other periodic reports which the Company would
have been required to file with the Commission pursuant to such Section 13(a) or
15(d) if the Company were so subject, and such documents shall be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates") by
which the Company would have been
72
<PAGE> 78
required so to file such documents if the Company were so subject; provided the
Commission will accept such filings. The Company will also in any event (i)
within 15 days of each Required Filing Date, file with the Trustee, and supply
the Trustee with copies for delivery to the holders of the Notes, the annual
reports, quarterly reports and other periodic reports which the Company would
have been required to file with the Commission pursuant to Section 13(a) or
15(d) of the Exchange Act if the Company were subject to such Sections and (ii)
if the Commission will not accept the filing of such documents promptly upon
written request and payment of the reasonable cost of duplication and delivery,
supply copies of such documents to any prospective holder of the Notes.
The Company shall provide to any holder or any beneficial owner of Notes
any information reasonably requested by such holder or such beneficial owner
concerning the Company and its Subsidiaries (including financial statements)
necessary in order to permit such holder or such beneficial owner to sell or
transfer Notes in compliance with Rule 144A under the Securities Act.
Additional Covenants. The Indenture also contains covenants with respect
to the following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in The City of New York; (iii) maintenance of
corporate existence; (iv) payment of taxes and other claims; (v) maintenance of
properties; and (vi) maintenance of insurance.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Indenture provides that the Company shall not, in any single
transaction or series of related transactions, consolidate or merge with or into
(whether or not the Company is the Surviving Person), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets (determined on a consolidated basis for the Company and its Restricted
Subsidiaries) in one or more related transactions to, another Person, and the
Company will not permit any Restricted Subsidiary to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the properties and assets of the Company and the Restricted Subsidiaries, taken
as a whole, to another Person, unless (i) the Surviving Person is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the Surviving Person (if other than the Company)
assumes all the obligations of the Company under the Notes, the Indenture and,
if then in effect, the Registration Rights Agreement pursuant to a supplemental
indenture or other written agreement, as the case may be, in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction, no
Default or Event of Default shall have occurred and be continuing; (iv)
immediately after giving effect to such transaction or series of related
transactions, (A) in the case of a transaction involving the Company, the
Surviving Person shall have a Consolidated Net Worth equal to or greater than
the Consolidated Net Worth of the Company immediately prior to such transaction
or series of related transactions or (B) in the case of a transaction involving
a Restricted Subsidiary of the Company, the Surviving Person shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
such Restricted Subsidiary immediately prior to such transaction or series of
related transactions; and (v) after giving pro forma effect to such transaction,
the Surviving Person would be permitted to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the covenant
described under "-- Limitation on Incurrence of Indebtedness." Notwithstanding
clauses (iii), (iv) and (v) above, any Restricted Subsidiary may consolidate
with, merge into or transfer all or part of its properties and assets to the
Company or another Restricted Subsidiary.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraph in
which the Company is not the Surviving Person, such Surviving Person shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company, and the Company shall be discharged from its obligations under, the
Indenture, the Notes and the Registration Rights Agreement.
73
<PAGE> 79
EVENTS OF DEFAULT
The Indenture provides that each of the following constitutes an Event of
Default:
(i) a default for 30 days in the payment when due of interest on, or
Liquidated Damages (if any) with respect to, any Note (whether or not
prohibited by the subordination provisions of the Indenture);
(ii) a default in the payment when due of principal on any Note
(whether or not prohibited by the subordination provisions of the
Indenture), whether upon maturity, acceleration, optional or mandatory
redemption, required repurchase or otherwise;
(iii) failure to perform or comply with any covenant, agreement or
warranty in the Indenture (other than the defaults specified in clauses (i)
and (ii) above) which failure continues for 60 days after written notice
thereof has been given to the Company by the Trustee or to the Company and
the Trustee by the holders of at least 25% in aggregate principal amount of
the then outstanding Notes;
(iv) the occurrence of one or more defaults under any agreements,
indentures or instruments under which the Company or any Restricted
Subsidiary then has outstanding Indebtedness in excess of $5.0 million in
the aggregate and, if not already matured at its final maturity in
accordance with its terms, such Indebtedness shall have been accelerated
and such acceleration is not rescinded, annulled or cured within 10 days
thereafter;
(v) one or more judgments, orders or decrees for the payment of money
in excess of $5.0 million, either individually or in the aggregate, shall
be entered against the Company or any Restricted Subsidiary or any of their
respective properties and which judgments, orders or decrees are not paid,
discharged, bonded or stayed or stayed pending appeal for a period of 60
days after their entry; or
(vi) certain events of bankruptcy, insolvency or reorganization of the
Company or any Significant Subsidiary.
If any Event of Default (other than as specified in clause (vi) of the
preceding paragraph with respect to the Company) occurs and is continuing, the
Trustee or the holders of at least 25% in aggregate principal amount of the then
outstanding Notes may, and the Trustee at the request of such holders shall,
declare all the Notes to be due and payable immediately by notice in writing to
the Company, and to the Company and the Trustee if by the holders, specifying
the respective Event of Default and that such notice is a "notice of
acceleration," and the Notes shall become immediately due and payable.
Notwithstanding the foregoing, in the case of an Event of Default arising from
the events specified in clause (vi) of the preceding paragraph with respect to
the Company, the principal of, premium, if any, and any accrued interest on all
outstanding Notes shall ipso facto become immediately due and payable without
further action or notice. Holders of the Notes may not enforce the Indenture or
the Notes except as provided in the Indenture.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except (i) a continuing Default or Event of Default in the payment
of the principal of, or premium, if any, or interest on, the Notes (which may be
waived only with the consent of each holder of Notes affected), or (ii) in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each Note outstanding. Subject
to certain limitations, holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal, premium or interest) if it determines that withholding
notice is in their interest.
74
<PAGE> 80
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, interest on or Liquidated Damages, if any, with respect to
any of the Notes or for any claim based thereon or otherwise in respect thereof,
and no recourse under or upon any obligation, covenant or agreement of the
Company in the Indenture, or in any of the Notes or because of the creation of
any Indebtedness represented thereby, shall be had against any incorporator,
shareholder, officer, director, employee or controlling person of the Company or
of any successor Person thereof. Each Holder, by accepting the Notes, waives and
releases all such liability.
DEFEASANCE
The Company may, at its option and at any time, elect to have the
obligations of the Company discharged with respect to the outstanding Notes
("defeasance"). Such defeasance means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by the outstanding Notes
and to have satisfied all other obligations under the Notes and the Indenture
except for (i) the rights of holders of the outstanding Notes to receive, solely
from the trust fund described below, payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due, (ii) the
Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes, and
the maintenance of an office or agency for payment, (iii) the rights, powers,
trusts, duties and immunities of the Trustee under the Indenture, and (iv) the
defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company released
with respect to certain covenants that are described in the Indenture ("covenant
defeasance") and any omission to comply with such obligations shall not
constitute a Default or an Event of Default with respect to the Notes. In the
event that a covenant defeasance occurs, certain events (not including
non-payment, bankruptcy and insolvency events) described under "-- Events of
Default" will no longer constitute Events of Default with respect to the Notes.
In order to exercise either defeasance or covenant defeasance, (i) the
Company shall irrevocably deposit with the Trustee, as trust funds in trust, for
the benefit of the holders of the Notes, cash in United States dollars, U.S.
Government Obligations (as defined in the Indenture), or a combination thereof,
in such amounts as will be sufficient, in the report of a nationally recognized
firm of independent public accountants or a nationally recognized investment
banking firm, to pay and discharge the principal of, premium, if any, and
interest on the outstanding Notes to redemption or maturity; (ii) the Company
shall have delivered to the Trustee an opinion of counsel in the United States
to the effect that the holders of the outstanding Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such
defeasance or covenant defeasance, as the case may be, and will be subject to
Federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such defeasance or covenant defeasance, as the
case may be, had not occurred (in the case of defeasance, such opinion must
refer to and be based upon a ruling of the Internal Revenue Service or a change
in applicable Federal income tax laws); (iii) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit or insofar as
clause (vi) under the first paragraph under "-- Events of Default" is concerned,
at any time during the period ending on the 91st day after the date of deposit;
(iv) such defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a default under, any agreement or instrument to
which the Company is a party or by which it is bound; (v) the Company shall have
delivered to the Trustee an opinion of counsel to the effect that (A) the trust
funds will not be subject to any rights of holders of Indebtedness (other than
holders of the Notes) and (B) after the 91st day following the deposit, the
trust funds will not be subject to the effect of
75
<PAGE> 81
any applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and (vi) the Company shall have delivered to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent under the Indenture to either defeasance or covenant
defeasance, as the case may be, have been complied with and that no violations
under agreements governing any other outstanding Indebtedness of the Company
would result therefrom.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust and
thereafter repaid to the Company) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee an amount in United States
dollars sufficient to pay and discharge the entire indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for the principal of,
premium, if any, and interest to the date of deposit; (ii) the Company has paid
or caused to be paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an Officers' Certificate and
an opinion of counsel each stating that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture have been
complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two paragraphs, the Indenture or the Notes
may be amended or supplemented with the written consent of the holders of at
least a majority in aggregate principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for the Notes).
Without the consent of each holder affected, an amendment or waiver shall
not: (i) reduce the principal amount of the Notes whose holders must consent to
an amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Note, or alter or waive the provisions with respect to the
redemption of the Notes in a manner adverse to the holders of the Notes other
than with respect to a Change of Control Offer or an Asset Sale Offer, (iii)
reduce the rate of or change the time for payment of interest on any Notes, (iv)
waive a Default or Event of Default in the payment of principal of, premium, if
any, or interest on the Notes (except that holders of at least a majority in
aggregate principal amount of the then outstanding Notes may (a) rescind an
acceleration of the Notes that resulted from a non-payment default, and (b)
waive the payment default that resulted from such acceleration), (v) make any
Note payable in money other than that stated in the Notes, (vi) make any change
in the provisions of the Indenture relating to waivers of past Defaults or
Events of Default or the rights of holders of Notes to receive payments of
principal of, or premium, if any, or interest on, the Notes, (vii) following the
occurrence of a Change of Control, amend, change or modify the Company's
obligation to make and consummate a Change of Control Offer in the event of a
Change of Control or modify any of the provisions or definitions with respect
thereto in a manner adverse to the holders of the Notes, or following the
occurrence of an Asset Sale, amend, change or modify the Company's obligation to
make and consummate an Asset Sale Offer or modify any of the provisions or
definitions with respect thereto in a manner adverse to the holders of the
Notes, or (viii) modify or change any of the provisions of the Indenture
relating to the subordination of the Notes in a manner adverse to the holders of
the Notes.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
(i) to cure any ambiguity, defect or inconsistency, (ii) to provide for
uncertificated Notes in addition to or in place of certificated
76
<PAGE> 82
Notes, (iii) to provide for the assumption of the Company's obligations to
holders of the Notes in the event of any Disposition involving the Company in
which the Company is not the Surviving Person, (iv) to make any change that
would provide any additional rights or benefits to the holders of the Notes or
that does not adversely affect the rights of any such holder, (v) to release any
Guarantee permitted to be released under the Indenture, or (vi) to comply with
the requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
TRANSFER AND EXCHANGE
The registered holder of a Note will be treated as the owner of it for all
purposes. A holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. Neither the Company nor the Registrar shall be
required to issue, register the transfer of or exchange any Note (i) during a
period beginning at the opening of business on the day that the Trustee receives
notice of any redemption from the Company and ending at the close of business on
the day the notice of redemption is sent to holders, (ii) selected for
redemption, in whole or in part, except the unredeemed portion of any Note being
redeemed in part may be transferred or exchanged, and (iii) during a Change of
Control Offer or an Asset Sale Offer if such Note is tendered pursuant to such
Change of Control Offer or Asset Sale Offer and not withdrawn.
THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes.
The Indenture (including the provisions of the Trust Indenture Act
incorporated by reference therein) contains limitations on the rights of the
Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, if it acquires any
conflicting interest (as defined in the Trust Indenture Act) it must eliminate
such conflict or resign.
GOVERNING LAW
The Indenture and the Notes are governed by the laws of the State of New
York, without regard to the principles of conflicts of law.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for the definition of all other terms used in the
Indenture.
"Acquired Debt" means, with respect to any specified Person, Indebtedness
of any other Person (the "Acquired Person") existing at the time the Acquired
Person merges with or into, or becomes a Restricted Subsidiary of, such
specified Person, including Indebtedness incurred in connection with, or in
contemplation of, the Acquired Person merging with or into, or becoming a
Restricted Subsidiary of, such specified Person; provided, however, that
Indebtedness of such Acquired Person which is redeemed, defeased, retired or
otherwise repaid at the time of or immediately upon consummation of the
transactions by which such Acquired Person merges with or into or becomes a
Restricted Subsidiary of such specified Person shall not be Acquired Debt.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms
77
<PAGE> 83
"controlling," "controlled by" and "under common control with") of any Person
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Asset Sale" means (i) any sale, lease, conveyance or other disposition by
the Company or any Restricted Subsidiary of any assets (including by way of a
sale-and-leaseback) other than in the ordinary course of business, or (ii) the
issuance or sale of Capital Stock of any Restricted Subsidiary, in the case of
each of (i) and (ii), whether in a single transaction or a series of related
transactions, to any Person (other than to the Company or a Restricted
Subsidiary and other than directors' qualifying shares) for Net Proceeds in
excess of $250,000.
"Capital Lease Obligation" of any Person means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease for property leased by such Person that would at such time be
required to be capitalized on the balance sheet of such Person in accordance
with GAAP.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, of
such Person, including any Preferred Stock.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Rating Services or Moody's Investors
Service, Inc.; (iii) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's Rating Services or at least P-1 from Moody's
Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances
(or, with respect to foreign banks, similar instruments) maturing within one
year from the date of acquisition thereof issued by any bank organized under the
laws of the United States of America or any state thereof or the District of
Columbia or any member of the European Economic Community or any U.S. branch of
a foreign bank having at the date of acquisition thereof combined capital and
surplus of not less than $200 million; (v) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clause (i) above entered into with any bank meeting the qualifications specified
in clause (iv) above; and (vi) investments in money market funds which invest
substantially all their assets in securities of the types described in clauses
(i) through (v) above.
"Cash Flow" means, with respect to any period, Consolidated Net Income for
such period, plus, to the extent deducted in computing such Consolidated Net
Income: (i) extraordinary net losses, plus (ii) provision for taxes based on
income or profits and any provision for taxes utilized in computing the
extraordinary net losses under clause (i) hereof, plus (iii) Consolidated
Interest Expense, plus (iv) depreciation, amortization and all other non-cash
charges (including amortization of goodwill and other intangibles and any
last-in, first-out (LIFO) provisions).
"Change of Control" means the occurrence of any of the following events
after the Issue Date: (i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) (other than one or more Permitted
Holders) is or becomes (including by merger, consolidation or otherwise) the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have beneficial ownership of all shares
that such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of 50%
or more of the voting power of the total outstanding Voting Stock
78
<PAGE> 84
of the Company or IKS Holdings; (ii) after the consummation of an initial public
offering of any class of common stock of the Company or IKS Holdings, during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors who have been appointed by CVC, Citicorp N.A. or any Affiliate of CVC,
or any new directors whose election to such Board of Directors, or whose
nomination for election by the stockholders of the Company, was approved by a
vote of 66 2/3% of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of such
Board of Directors of the Company then in office; (iii) the approval by the
holders of Capital Stock of the Company of any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the terms of the Indenture); or (iv) the sale or other
disposition (including by merger, consolidation or otherwise) of all or
substantially all of the Capital Stock or assets of the Company to any Person or
group (as defined in Rule 13d-5 of the Exchange Act) (other than to one or more
of the Permitted Holders) as an entirety or substantially as an entirety in one
transaction or a series of related transactions.
"Consolidated Cash Flow Coverage Ratio" means, for any period, the ratio of
(i) the aggregate amount of Cash Flow for such period, to (ii) Consolidated
Interest Expense for such period, determined on a pro forma basis after giving
pro forma effect to (i) the incurrence of the Indebtedness giving rise to the
calculation of the Consolidated Cash Flow Coverage Ratio and (if applicable) the
application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred, and the application of such
proceeds occurred, at the beginning of such period; (ii) the incurrence,
repayment or retirement of any other Indebtedness by the Company and its
Restricted Subsidiaries since the first day of such period as if such
Indebtedness was incurred, repaid or retired at the beginning of such period
(except that, in making such computation, the amount of Indebtedness under any
revolving credit facility shall be computed based upon the average balance of
such Indebtedness at the end of each month during such period); (iii) in the
case of Acquired Debt, the related acquisition as if such acquisition had
occurred at the beginning of such period; and (iv) any acquisition or
disposition by the Company and its Restricted Subsidiaries of any company or any
business or any assets out of the ordinary course of business, or any related
repayment of Indebtedness, in each case since the first day of such period,
assuming such acquisition or disposition had been consummated on the first day
of such period.
"Consolidated Interest Expense" means, with respect to any period, the sum
of (i) the interest expense of the Company and its Restricted Subsidiaries for
such period, including, without limitation, (a) amortization of debt discount,
(b) the net payments, if any, under interest rate contracts (including
amortization of discounts), (c) the interest portion of any deferred payment
obligation and (d) accrued interest, plus (ii) the interest component of the
Capital Lease Obligations paid, accrued and/or scheduled to be paid or accrued
by the Company and its Restricted Subsidiaries during such period, and all
capitalized interest of the Company and its Restricted Subsidiaries, plus (iii)
all dividends paid during such period by the Company and its Restricted
Subsidiaries with respect to any Disqualified Stock (other than by any
Restricted Subsidiary to the Company or any other Restricted Subsidiary and
other than any dividend paid in Capital Stock (other than Disqualified Stock)),
in each case, as determined on a consolidated basis in accordance with GAAP
consistently applied.
"Consolidated Net Income" means, with respect to any period, the net income
(or loss) of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP consistently applied,
adjusted to the extent included in calculating such net income (or loss), by
excluding, without duplication, (i) all extraordinary gains and losses (less all
fees and expenses relating thereto), (ii) the portion of net income (or loss) of
the Company and its Restricted Subsidiaries allocable to interests in
unconsolidated Persons or Unrestricted Subsidiaries, except to the extent of the
amount of dividends or distributions actually paid to the
79
<PAGE> 85
Company or its Restricted Subsidiaries by such other Person during such period,
(iii) for purposes of the covenant entitled " -- Limitation on Restricted
Payments", net income (or loss) of any Person combined with the Company or any
of its Restricted Subsidiaries on a "pooling-of-interests" basis attributable to
any period prior to the date of combination, (iv) net gains and losses (less all
fees and expenses relating thereto) in respect of disposition of assets
(including, without limitation, pursuant to sale and leaseback transactions)
other than in the ordinary course of business, (v) the net income of any
Restricted Subsidiary to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income to the Company is not
at the time permitted, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, or (vi) the cumulative non-cash effect of any change in accounting
principle.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Stock of
such Person.
"Currency Agreement Obligations" means the obligations of any person under
a foreign exchange contract, currency swap agreement or other similar agreement
or arrangement to protect such person against fluctuations in currency values.
"Default" means any event that is, or after the giving of notice or passage
of time or both would be, an Event of Default.
"Designated Senior Debt" means (i) the Indebtedness under the Senior Credit
Facility, and (ii) any other Senior Debt of the Company permitted to be incurred
under the Indenture the principal amount of which is $25 million or more at the
time of the designation of such Senior Debt as "Designated Senior Debt" by the
Company in a written instrument delivered to the Trustee.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"Disqualified Stock" means (i) any Preferred Stock of any Restricted
Subsidiary and (ii) that portion of any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof (other than upon a change of control of the
Company in circumstances where the holders of the Notes would have similar
rights), in whole or in part on or prior to the stated maturity of the Notes.
"Dollars" and "$" means lawful money of the United States of America.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
"Foreign Subsidiary" means a Restricted Subsidiary not organized under the
laws of the United States or any political subdivision thereof and the
operations of which are located entirely outside the United States.
"GAAP" means generally accepted accounting principles in the United States
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a
80
<PAGE> 86
significant segment of the accounting profession in the United States of
America, which are applicable as of the Issue Date and consistently applied.
"German Subsidiary Facilities" means one or more credit facilities of IKS
Klingelnberg GmbH, as the same may be amended, modified, renewed, refunded,
replaced or refinanced from time to time, including (i) any related notes,
letters of credit, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time, and (ii) any notes,
guarantees, collateral documents, instruments and agreements executed in
connection with any such amendment, modification, renewal, refunding,
replacement or refinancing.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection or deposit in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Indebtedness" means, with respect to any Person, without duplication, and
whether or not contingent, (i) all indebtedness of such Person for borrowed
money or which is evidenced by a note, bond, debenture or similar instrument,
(ii) all obligations of such Person to pay the deferred or unpaid purchase price
of property or services, which purchase price is due more than six months after
the date of placing such property in service or taking delivery and title
thereto or the completion of such service, (iii) all Capital Lease Obligations
of such Person, (iv) all obligations of such Person in respect of letters of
credit or bankers' acceptances issued or created for the account of such Person,
(v) to the extent not otherwise included in this definition, all net obligations
of such Person under Interest Rate Agreement Obligations or Currency Agreement
Obligations of such Person, (vi) all liabilities of others of the kind described
in the preceding clause (i), (ii) or (iii) secured by any Lien on any property
owned by such Person; provided, however, if the obligations secured by a Lien
(other than a Permitted Lien not securing any liability that would itself
constitute Indebtedness) on any assets or property have not been assumed by such
Person in full or are not such Person's legal liability in full, the amount of
such Indebtedness for purposes of this definition shall be limited to the lesser
of the amount of Indebtedness secured by such Lien and the Fair Market Value of
the property subject to such Lien, (vii) all Disqualified Stock issued by such
Person and all Preferred Stock issued by a Subsidiary of such Person, and (viii)
to the extent not otherwise included, any guarantee by such Person of any other
Person's indebtedness or other obligations described in clauses (i) through
(vii) above. "Indebtedness" of the Company and the Restricted Subsidiaries shall
not include current trade payables incurred in the ordinary course of business
and payable in accordance with customary practices, and non-interest bearing
installment obligations and accrued liabilities incurred in the ordinary course
of business which are not more than 90 days past due. The principal amount
outstanding of any Indebtedness issued with original issue discount is the
accreted value of such Indebtedness. Notwithstanding the foregoing, Indebtedness
shall not include Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
drawn against insufficient funds in the ordinary course of business; provided
that such Indebtedness is extinguished within 3 business days of the incurrence
thereof.
"Independent Director" means a director of the Company other than a
director (i) who (apart from being a director of the Company or any Subsidiary
of the Company) is an employee, associate or Affiliate of the Company or a
Subsidiary of the Company, or (ii) who is a director, employee, associate or
Affiliate of another party (other than the Company or any of its Subsidiaries)
to the transaction in question.
"Interest Rate Agreement Obligations" means, with respect to any Person,
the Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
81
<PAGE> 87
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any other Person. "Investment" shall exclude travel and similar advances to
officers and employees of the Company in the ordinary course of business and
extensions of trade credit by the Company and its Restricted Subsidiaries on
commercially reasonable terms in accordance with normal trade practices of the
Company or such Restricted Subsidiary, as the case may be. For the purposes of
the "Limitation on Restricted Payments" covenant, (i) "Investment" shall include
and be valued at the Fair Market Value of the net assets of any Restricted
Subsidiary (to the extent of the Company's equity interest in such Restricted
Subsidiary) at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary and shall exclude the Fair Market Value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any
Investment shall be the original cost of such Investment plus the cost of all
additional Investments by the Company or any of its Restricted Subsidiaries,
without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment, reduced by the
payment of dividends or distributions in connection with such Investment or any
other amounts received in respect of such Investment; provided, however, that no
such payment of dividends or distributions or receipt of any such other amounts
shall reduce the amount of any Investment if such payment of dividends or
distributions or receipt of any such amounts would be included in Consolidated
Net Income. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Common Stock of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, the Company no longer owns, directly or indirectly, greater than
50% of the outstanding Common Stock of such Restricted Subsidiary, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the Fair Market Value of the Common Stock of such
Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date on which the Notes are first issued under the
Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in any asset and any filing of, or agreement to give, any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidated Damages" means all liquidated damages owing under the
Registration Rights Agreement.
"Net Proceeds" means, with respect to any Asset Sale by any Person, the
aggregate cash or Cash Equivalent proceeds received by such Person and/or its
Affiliates in respect of such Asset Sale, which amount is equal to the excess,
if any, of (i) the cash or Cash Equivalent received by such Person and/or its
Affiliates (including any cash payments received by way of deferred payment
pursuant to, or monetization of, a note or installment receivable or otherwise,
but only as and when received) in connection with such Asset Sale, over (ii) the
sum of (a) the amount of any Indebtedness that is secured by such asset and
which is required to be repaid by such Person in connection with such Asset
Sale, plus (b) all fees, commissions and other expenses incurred by such Person
in connection with such Asset Sale, plus (c) provision for taxes, including
income taxes, directly attributable to the Asset Sale or to required prepayments
or repayments of Indebtedness with the proceeds of such Asset Sale, plus (d) if
such Person is a Restricted Subsidiary, any dividends or distributions payable
to holders of minority interests in such Restricted Subsidiary from the proceeds
of such Asset Sale, plus (e) appropriate amounts to be provided by the Company
or any Restricted Subsidiary as a reserve against any liabilities associated
with such
82
<PAGE> 88
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale; provided that upon the release of any such reserves, such amounts shall
constitute "Net Proceeds" hereunder.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Permitted Holders" means (i) CVC, (ii) Citicorp, N.A. or any other
Affiliate of CVC, (iii) any officer, employee or director of CVC, (iv) the
Management Investors and (v) in the case of any natural person specified in the
foregoing clauses, any spouse or lineal descendant (including by adoption) of
such person; provided, however, that in no event shall the persons specified in
clauses (iii) through (v) be deemed "Permitted Holders" with respect to more
than 30% of the voting power of the total outstanding Voting Stock of the
Company or IKS Holdings in the aggregate.
"Permitted Investments" means (i) any Investment in the Company or any
Wholly-Owned Restricted Subsidiary (other than a Foreign Subsidiary) and any
Investment (other than a transfer of property (excluding cash)) in a Foreign
Subsidiary that is a Wholly-Owned Restricted Subsidiary; (ii) any investment in
cash or Cash Equivalents; (iii) any Investment in a Person (an "Acquired
Person") if, as a result of such Investment, (a) the Acquired Person becomes a
Wholly-Owned Restricted Subsidiary, or (b) the Acquired Person either (1) is
merged, consolidated or amalgamated with or into the Company or one of its
Wholly-Owned Restricted Subsidiaries and the Company or such Wholly-Owned
Restricted Subsidiary is the Surviving Person, or (2) transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or one of
its Wholly-Owned Restricted Subsidiaries; provided that any Investment pursuant
to this clause (iii) in a Person that is or becomes a Foreign Subsidiary shall
not constitute the transfer of property (other than cash); (iv) Investments in
accounts and notes receivable acquired in the ordinary course of business; (v)
any notes, obligations or other securities received in connection with an Asset
Sale that complies with the covenant described under "Limitations on Asset
Sales" or any other disposition not constituting an "Asset Sale"; (vi) Interest
Rate Obligations and Currency Agreement Obligations permitted pursuant to the
second paragraph of the covenant described under "Limitation on Incurrence of
Indebtedness" above; and (vii) investments in or acquisitions of Capital Stock
or similar interests in Persons (other than Affiliates of the Company) received
in the bankruptcy or reorganization of or by such Person or any exchange of such
investment with the issuer thereof or taken in settlement of or other resolution
of claims or disputes.
"Permitted Liens" means (i) Liens on assets or property of the Company that
secure Senior Debt of the Company and Liens on assets or property of a
Restricted Subsidiary that secure Indebtedness of such Restricted Subsidiary;
(ii) Liens securing Indebtedness of a Person existing at the time that such
Person is merged into or consolidated with the Company or a Restricted
Subsidiary; provided, however, that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of such Person; (iii) Liens on property acquired by the Company
or a Restricted Subsidiary; provided, however, that such Liens were in existence
prior to the contemplation of such acquisition and do not extend to any other
property; (iv) Liens in respect of Interest Rate Obligations and Currency
Agreement Obligations permitted under the Indenture; (v) Liens in favor of the
Company or any Restricted Subsidiary; (vi) Liens existing or created on the
Issue Date; and (vii) Liens securing the Notes or the obligations of the Company
to the Trustee under the Indenture.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or
83
<PAGE> 89
distributions, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such Person, over Capital Stock of any
other class of such Person.
"Purchase Money Obligation" means any Indebtedness secured by a Lien on
assets related to the business of the Company or the Restricted Subsidiaries,
and any additions and accessions thereto, which are purchased, constructed or
improved by the Company or any Restricted Subsidiary at any time after the Issue
Date; provided, however, that (i) any security agreement or conditional sales or
other title retention contract pursuant to which the Lien on such assets is
created (collectively, a "Security Agreement") shall be entered into within 90
days after the purchase or substantial completion of the construction or
improvement of such assets and shall at all times be confined solely to the
assets so purchased, constructed or improved, any additions and accessions
thereto and any proceeds therefrom, (ii) at no time shall the aggregate
principal amount of the outstanding Indebtedness secured thereby be increased,
except in connection with the purchase of additions and accessions thereto and
except in respect of fees and other obligations in respect of such Indebtedness
and (iii) (A) the aggregate outstanding principal amount of Indebtedness secured
thereby (determined on a per asset basis in the case of any additions and
accessions) shall not at the time such Security Agreement is entered into exceed
100% of the purchase price or cost of construction or improvement to the Company
or any Restricted Subsidiary of the assets subject thereto or (B) the
Indebtedness secured thereby shall be with recourse solely to the assets so
purchased, constructed or improved, any additions and accessions thereto and any
proceeds therefrom.
"Recapitalization Dividend" means the payment by the Company to IKS
Holdings on the Issue Date of amounts necessary to consummate the
Recapitalization.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment" means (i) any dividend or other distribution declared
or paid on any Capital Stock of the Company (other than (A) dividends or
distributions payable solely in Capital Stock (other than Disqualified Stock) of
the Company, (B) dividends or distributions payable to the Company or any
Restricted Subsidiary or (C) the Recapitalization Dividend); (ii) any payment to
purchase, redeem or otherwise acquire or retire for value any Capital Stock of
the Company (other than the Recapitalization Dividend); (iii) any payment to
purchase, redeem, defease or otherwise acquire or retire for value, prior to any
scheduled maturity, repayment or sinking fund payment, any Subordinated
Indebtedness other than the Recapitalization Dividend or a purchase, redemption,
defeasance or other acquisition or retirement for value that is paid for with
the proceeds of Refinancing Indebtedness that is permitted under the covenant
described under "-- Certain Covenants -- Limitation on Incurrence of
Indebtedness"; or (iv) any Restricted Investment.
"Restricted Subsidiary" means each direct or indirect Subsidiary of the
Company other than an Unrestricted Subsidiary.
"Senior Credit Facility" means the Senior Credit Facility, entered into on
the Issue Date between the Company and the lenders named therein as the same may
be amended, modified, renewed, refunded, replaced or refinanced from time to
time, including (i) any related notes, letters of credit, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, renewed, refunded, replaced or refinanced from
time to time, and (ii) any notes, guarantees, collateral documents, instruments
and agreements executed in connection with any such amendment, modification,
renewal, refunding, replacement or refinancing.
"Senior Debt" means the principal of and interest (including post-petition
interest) on, and all other amounts owing in respect of, (x) the Senior Credit
Facility and (y) any other Indebtedness incurred by the Company (including, but
not limited to, reasonable fees and expenses of counsel and all other charges,
fees and expenses incurred in connection with such Indebtedness), unless the
instrument creating or evidencing such Indebtedness or pursuant to which such
Indebtedness is outstanding expressly provides that such Indebtedness is on a
parity with or subordinated in right of
84
<PAGE> 90
payment to the Notes. Notwithstanding the foregoing, Senior Debt shall not
include (i) any Indebtedness for federal, state, local or other taxes, (ii) any
Indebtedness of the Company to any of its Subsidiaries or any of its Affiliates,
(iii) any Indebtedness incurred for the purchase of goods or materials, or for
services obtained, in the ordinary course of business or any obligations in
respect of any such Indebtedness, (iv) any Indebtedness that is incurred in
violation of the Indenture, (v) Indebtedness evidenced by the Notes or (vi)
Indebtedness of the Company that is expressly subordinate or junior in right of
payment (other than as a result of the Indebtedness being unsecured) to any
other Indebtedness of the Company.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X
promulgated pursuant to the Securities Act, as such Regulation S-X is in effect
on the Issue Date.
"Subordinated Indebtedness" means Indebtedness of the Company subordinated
in right of payment to the Notes.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding voting power of the Voting Stock of which is owned or controlled,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person, or by such Person and one or more other Subsidiaries thereof, or
(ii) any limited partnership of which such Person or any Subsidiary of such
Person is a general partner, or (iii) any other Person (other than a corporation
or limited partnership) in which such Person or one or more other Subsidiaries
of such Person, or such Person and one or more other Subsidiaries thereof,
directly or indirectly, has more than 50% of the outstanding ownership or
similar interests or has the power, by contract or otherwise, to direct or cause
the direction of the policies, management and affairs thereof.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Unrestricted Subsidiary" means (i) Shanghai IKS Mechanical Blade Company,
Ltd., (ii) Shanghai IKS Lida Mechanical Blade Company, Ltd. and (iii) any other
Subsidiary of the Company designated as such pursuant to and in compliance with
the covenant described under "-- Limitation on Designations of Unrestricted
Subsidiaries" and not redesignated a Restricted Subsidiary in compliance with
such covenant.
"Voting Stock" of a Person means Capital Stock of such Person of the class
or classes pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at the time stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, with (b)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary with
respect to which all of the outstanding voting securities (other than directors'
qualifying shares) of which are owned, directly or indirectly, by the Company or
a Surviving Person of any Disposition involving the Company, as the case may be.
85
<PAGE> 91
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in the
form of one or more registered notes in global form without coupons (each, a
"Global Note"). Upon issuance, each Global Note will be deposited with, or on
behalf of, the Depository Trust Company (the "Depository") and registered in the
name of Cede & Co., as nominee of the Depository.
If a holder tendering Existing notes so requests, such holder's New Notes
will be issued as described below under "Certificated Securities" in registered
form without coupons (the "Certificated Securities").
The Depository has advised the Company that it is (i) a limited purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation" within the meaning
of the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. The Depository was
created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical transfer
and delivery of certificates. The Depository's Participants include securities
brokers and dealers (including the Initial Purchaser), banks and trust
companies, clearing corporations and certain other organizations. Access to the
Depository's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants") that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Notes, the Depository will credit the
accounts of Participants who elect to exchange Existing Notes with an interest
in the Global Note and (ii) ownership of the New Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the Depository (with respect to the interest of Participants), the
Participants and the Indirect Participants. The laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
So long as the Depository or its nominee is the registered owner of a
Global Note, the Depository or such nominee, as the case may be, will be
considered the sole owner or holder of the New Notes represented by the Global
Note for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Note will not be entitled to have New Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Certificated Securities, and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any directions, instruction or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in New Notes represented by a Global Note to pledge such
interest to persons or entities that do not participate in the Depository's
system, or to otherwise take action with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
The Company understands that under existing industry practice, in the event
the Company requests any action of holders or an owner of a beneficial interest
in a Global Note desires to take any action that the Depository, as the holder
of such Global Note, is entitled to take, the Depository would authorize the
Participants to take such action and the Participant would authorize persons
owning through such Participants to take such action or would otherwise act upon
the instruction of such persons. Neither the Company nor the Trustee will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of New Notes by the Depository, or for maintaining,
supervising or reviewing any records of the Depository relating to such New
Notes.
Payments with respect to the principal of, premium, if any, and interest on
any New Notes represented by a Global Note registered in the name of the
Depository or its nominee on the
86
<PAGE> 92
applicable record date will be payable by the Trustee to or at the direction of
the Depository or its nominee in its capacity as the registered holder of the
Global Note representing such New Notes under the Indenture. Under the terms of
the Indenture, the Company and the Trustee may treat the persons in whose names
the New Notes, including the Global Notes, are registered as the owners thereof
for the purpose of receiving such payment and for any and all other purposes
whatsoever. Consequently, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of New Notes (including principal, premium, if any, and interest), or to
immediately credit the accounts of the relevant Participants with such payment,
in amounts proportionate to their respective holdings in principal amount of
beneficial interest in the Global Note as shown on the records of the
Depository. Payments by the Participants and the Indirect Participants to the
beneficial owners of New Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Participants or the
Indirect Participants.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depository is
no longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, then, upon surrender by the Depository of
its Global Notes, Certificated Securities will be issued to each person that the
Depository identifies as the beneficial owner of the New Notes represented by
the Global Note. In addition, any person having a beneficial interest in a
Global Note or any holder of Existing Notes whose Existing Notes have been
accepted for exchange may, upon request to the Trustee or the Exchange Agent, as
the case may be, exchange such beneficial interest or Existing Notes for
Certificated Securities. Upon any such issuance, the Trustee is required to
register such Certificated Securities in the name of such person or persons (or
the nominee of any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depository or any Participant or Indirect Participant in identifying the
beneficial owners of the related New Notes and each such person may conclusively
rely on, and shall be protected in relying on, instructions from the Depository
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of the New Notes to be issued).
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material United States federal
income tax consequences of the Exchange Offer to a holder of Existing Notes that
is an individual citizen or resident of the United States or a United States
corporation that purchased the Existing Notes pursuant to their original issue
(a "U.S. Holder"). It is based on the Internal Revenue Code of 1986, as amended
to the date hereof (the "Code"), existing and proposed Treasury regulations, and
judicial and administrative determinations, all of which are subject to change
at any time, possibly on a retroactive basis. The following relates only to the
Existing Notes, and the New Notes received therefor, that are held as "capital
assets" within the meaning of Section 1221 of the Code by U.S. Holders. It does
not discuss state, local, or foreign tax consequences, nor does it discuss tax
consequences to subsequent purchasers (persons who did not purchase the Existing
Notes pursuant to their original issue), or to categories of holders that are
subject to special rules, such as foreign persons, tax-exempt organizations,
insurance companies, banks, and dealers in stocks and securities. Tax
consequences may vary depending on the particular status of an investor. No
rulings will be sought from the Internal Revenue Service with respect to the
federal income tax consequences of the Exchange Offer.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO EXCHANGE OLD
87
<PAGE> 93
NOTES FOR NEW NOTES. EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR
CONCERNING THE APPLICATION OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS TO
ITS PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO EXCHANGE OLD NOTES FOR
NEW NOTES.
THE EXCHANGE OFFER
The exchange of Existing Notes pursuant to the Exchange Offer should be
treated as a continuation of the corresponding Existing Notes because the terms
of the New Notes are not materially different from the terms of the Existing
Notes. Accordingly, such exchange should not constitute a taxable event to U.S.
Holders and, therefore, (i) no gain or loss should be realized by a U.S. Holders
upon receipt of a New Note, (ii) the holding period of the New Note should
include the holding period of the Old Note exchanged therefor and (iii) the
adjusted tax basis of the New Note should be the same as the adjusted tax basis
of the Old Note exchanged therefor immediately before the exchange.
STATED INTEREST
Stated interest on a Note will be taxable to a U.S. Holder as ordinary
interest income at the time that such interest accrues or is received, in
accordance with the U.S. Holder's regular method of accounting for federal
income tax purposes. The Notes are not considered to have been issued with
original issue discount for federal income tax purposes.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
A U.S. Holder's tax basis in a Note generally will be its cost. A U.S.
Holder generally will recognize gain or loss on the sale, exchange or retirement
of a Note in an amount equal to the difference between the amount realized on
the sale, exchange or retirement and the tax basis of the Note. Gain or loss
recognized on the sale, exchange or retirement of a Note (excluding amounts
received in respect of accrued interest, which will be taxable as ordinary
interest income) generally will be capital gain or loss and will be long-term
capital gain or loss if the Note was held for more than one year.
BACKUP WITHHOLDING
Under certain circumstances, a U.S. Holder of a Note may be subject to
"backup withholding" at a 31% rate with respect to payments of interest thereon
or the gross proceeds from the disposition thereof. This withholding generally
applies if the U.S. Holder fails to furnish his or her social security number or
other taxpayer identification number in the specified manner and in certain
other circumstances. Any amount withheld from a payment to a U.S. Holder under
the backup withholding rules is allowable as a credit against such U.S. Holder's
federal income tax liability, provided that the required information is
furnished to the IRS. Corporations and certain other entities described in the
Code and Treasury regulations are exempt from backup withholding if their exempt
status is properly established.
88
<PAGE> 94
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Existing Notes
where such Existing Notes were acquired as a result of market-making activities
or other trading activities. The Company has agreed that, for a period of 180
days after the Effective Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until , 1997 (90 days after the date of this
Prospectus), all dealers effecting transactions in the New Notes may be required
to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market price or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Existing Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Existing Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Dechert Price & Rhoads, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994 and 1995, and for each of the three years in the period ended December 31,
1995, included in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as stated in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
89
<PAGE> 95
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors....................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995......................... F-3
Consolidated Statements of Income for the years ended
December 31, 1993, 1994 and 1995................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 1993, 1994 and 1995................................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1994 and 1995................................................... F-6
Notes to Consolidated Financial Statements........................................... F-7
Consolidated Balance Sheet as of September 30, 1996 (unaudited)...................... F-17
Consolidated Statements of Income for the nine month periods ended September 30, 1995
and 1996 (unaudited)............................................................... F-18
Consolidated Statement of Changes in Shareholders' Equity for the nine month period
ended September 30, 1996 (unaudited)............................................... F-19
Consolidated Statements of Cash Flows for the nine month periods ended September 30,
1995 and 1996 (unaudited).......................................................... F-20
Note to Consolidated Financial Statements (unaudited)................................ F-21
</TABLE>
F-1
<PAGE> 96
REPORT OF INDEPENDENT AUDITORS
Board of Directors
International Knife & Saw, Inc.
We have audited the accompanying consolidated balance sheets of
International Knife & Saw, Inc. and Subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of income, changes in
shareholders' equity, cash flows and schedule for each of the three years in the
period ended December 31, 1995. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
International Knife & Saw, Inc. and Subsidiaries at December 31, 1995 and 1994,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Cincinnati, Ohio
September 12, 1996, except for Note 17,
as to which the date is November 6, 1996
F-2
<PAGE> 97
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 6,574 $10,273
Accounts receivable, trade, less allowances for doubtful accounts of
$2,084 and $1,105................................................. 16,468 18,644
Notes receivable (Note 12)........................................... 1,483 --
Other receivables.................................................... 854 851
Inventories (Note 3)................................................. 21,765 29,036
Prepaid expenses, deferred taxes and sundry.......................... 1,135 978
------- -------
Total current assets................................................... 48,279 59,782
Other assets:
Cash value of life insurance (Note 4)................................ 350 375
Notes receivable (Note 12)........................................... 1,093 235
Advances and investments (Note 15)................................... 376 1,158
Cost in excess of net assets acquired................................ 742 1,272
Deposits, deferred charges and sundry................................ 97 148
------- -------
2,658 3,188
Property, plant and equipment (Notes 6 and 8):
Cost................................................................. 43,077 47,042
Less accumulated depreciation and amortization....................... 21,373 24,315
------- -------
Property, plant and equipment, net..................................... 21,704 22,727
------- -------
Total assets........................................................... $72,641 $85,697
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 7)............................................... $ 4,359 $10,270
Current portion of long-term debt (Note 7)........................... 609 699
Current portion -- capitalized lease obligation (Note 8)............. 140 128
Accounts and drafts payable.......................................... 5,858 7,402
Accrued and sundry liabilities (Note 9).............................. 3,980 4,765
Due to parent........................................................ 2,646 3,954
------- -------
Total current liabilities.............................................. 17,592 27,218
Long-term debt, less current portion (Note 7).......................... 12,087 12,747
Capitalized lease, less current portion (Note 8)....................... 4,566 3,512
Deferred taxes......................................................... 1,625 1,852
Deferred income (Note 8)............................................... 576 580
Other liabilities (Note 5)............................................. 1,461 1,759
Shareholders' equity (Note 2):
Common stock, no par value -- authorized-580,000 shares; issued --
526,904 shares; outstanding -- 481,971 shares..................... 5 5
Additional paid-in capital........................................... 8,125 8,125
Retained earnings.................................................... 29,719 32,557
Cumulative foreign currency translation adjustment................... 317 774
Treasury stock, at cost.............................................. (3,432) (3,432)
------- -------
Total shareholders' equity............................................. 34,734 38,029
------- -------
Total liabilities and shareholders' equity............................. $72,641 $85,697
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 98
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales.................................................. $84,964 $92,447 $107,030
Cost of sales.............................................. 60,391 62,273 76,057
------- ------- --------
24,573 30,174 30,973
Selling, general and administrative expenses............... 17,005 18,490 20,363
Other...................................................... 342 571 589
------- ------- --------
7,226 11,113 10,021
Other expenses (income):
Interest income.......................................... (270) (179) (411)
Interest expense......................................... 2,174 1,906 1,827
Sundry, net.............................................. 177 541 (249)
------- ------- --------
2,081 2,268 1,167
------- ------- --------
Income before income taxes................................. 5,145 8,845 8,854
Provision for income taxes (Note 10)....................... 1,951 3,663 3,606
------- ------- --------
Net income....................................... $ 3,194 $ 5,182 $ 5,248
======= ======= ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 99
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
ADDITIONAL CURRENCY TOTAL
COMMON PAID-IN RETAINED TRANSLATION TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK EQUITY
------ ---------- -------- ----------- -------- -------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993....... $5 $7,771 $ 21,343 $ 60 $ (4,077) $25,102
Net income..................... 3,194 3,194
Foreign currency translation
adjustment.................. (234) (234)
--
---------- -------- ----------- -------- -------------
Balance at December 31, 1993..... 5 7,771 24,537 (174) (4,077) 28,062
Net income..................... 5,182 5,182
Foreign currency translation
adjustment.................. 491 491
Sale of 15,500 treasury
shares...................... 354 645 999
--
---------- -------- ----------- -------- -------------
Balance at December 31, 1994..... 5 8,125 29,719 317 (3,432) 34,734
Net income..................... 5,248 5,248
Foreign currency translation
adjustment.................. 457 457
Cash dividends................. (2,410) (2,410)
--
---------- -------- ----------- -------- -------------
Balance at December 31, 1995..... $5 $8,125 $ 32,557 $ 774 $ (3,432) $38,029
======= ======== ======== ========= ======== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 100
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 3,194 $ 5,182 $ 5,248
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization............................. 3,169 3,522 3,786
Deferred income taxes..................................... 160 88 387
(Gain) loss on sale of fixed assets....................... (192) (124) 4
Changes in operating assets and liabilities net of effects
from purchases of operations:
Accounts receivable.................................... (387) (2,142) (2,176)
Inventories............................................ 942 (938) (7,271)
Prepaid and sundry..................................... 780 269 (53)
Accounts and drafts payable............................ 1,006 753 1,544
Accrued and sundry liabilities......................... (1,818) 205 1,083
Other, net............................................. (70) 58 436
-------- ------- -------
Net cash provided by operating activities................... 6,784 6,873 2,988
INVESTING ACTIVITIES
Purchases of operations, net of cash acquired............... (1,046) -- (1,488)
Purchases of fixed assets................................... (9,112) (3,383) (4,663)
Proceeds from sale of fixed assets.......................... 362 1,153 24
Decrease (increase) in notes and other receivables.......... (3,468) (21) 2,344
-------- ------- -------
Net cash used in investing activities....................... (13,264) (2,251) (3,783)
FINANCING ACTIVITIES
Increase (decrease) in amounts due to parent and
affiliates................................................ 1,526 (1,626) 1,308
Increase in notes payable and long-term debt................ 3,114 1,875 5,596
Cash received on sale of treasury stock..................... -- 515 --
Dividends paid.............................................. -- -- (2,410)
-------- ------- -------
Net cash provided by financing activities................... 4,640 764 4,494
-------- ------- -------
Increase (decrease) in cash and cash equivalents............ (1,840) 5,386 3,699
Cash and cash equivalents at beginning
of period................................................. 3,028 1,188 6,574
-------- ------- -------
Cash and cash equivalents at end of period.................. $ 1,188 $ 6,574 $10,273
======== ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 101
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of International
Knife & Saw, Inc. ("IKS") and its consolidated subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
Inventories
Inventories are stated at the lower of cost or market. Cost in the United
States is determined principally by use of the last-in, first-out method.
Subsidiaries use the first-in, first-out method.
Depreciation
Depreciation is computed by the straight-line method based on the estimated
useful lives of the assets. Depreciation expense includes amortization of assets
recorded under capitalized leases.
Amortization of Intangibles
The excess of cost over net assets acquired is being amortized over 10
years by the straight-line method.
Income Taxes
Deferred taxes are provided for accumulated temporary differences due to
basis differences for assets and liabilities for financial reporting and income
tax purposes. The Company's temporary differences are due to accelerated
depreciation, allowances for doubtful accounts, expenses not currently
deductible, and income not currently taxable.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
2. PARENT AND SUBSIDIARIES
The Company is a majority-owned subsidiary of The Klingelnberg Corporation
("TKC").
As of December 31, 1993, 1994 and 1995, the Company owned 100% of the
outstanding common stock of IKS Canadian Knife & Saw Ltd. ("CKS"), a Canadian
corporation.
As of December 31, 1993, 1994 and 1995 the Company owned 100% of the common
shares of IKS Klingelnberg GmbH ("IKG") and its wholly-owned subsidiary IKS
Messerfabrik Geringswalde GmbH ("IGG"), and as of December 31, 1994 and 1995 its
wholly-owned subsidiaries IKS Klingelnberg FAR EAST GmbH ("IFE"), and IKS
Klingelnberg ASIA Pte. Ltd. ("IKA"). Their results of operations are included in
the Company's consolidated financial statements. During 1995, the
F-7
<PAGE> 102
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Company increased its investment in PT Bevenmas Jaya (PTB), an Indonesian
corporation, thereby owning a 100% interest at December 31, 1995. In prior
years, the investment was recorded using the equity method of accounting. PTB's
financial statements are not material to the results of operations and financial
position of the Company's consolidated financial statements.
The Company maintains the accounting records and prepares the financial
statements of its subsidiaries in their respective functional currencies. The
accompanying financial statements, which include the effect of the consolidated
results of operations of these companies, are expressed in U.S. dollar
equivalents in accordance with generally accepted accounting principles. It
should not be construed that the assets and liabilities included at U.S. dollar
equivalents can actually be realized in or extinguished by U.S. dollars at the
exchange rates used in translation.
3. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Purchased finished goods............................... $ 6,444 $ 9,806
Manufactured finished goods............................ 6,433 7,640
Work in process........................................ 4,190 5,307
Raw materials.......................................... 4,156 5,563
Supplies............................................... 542 720
------- -------
$21,765 $29,036
======= =======
</TABLE>
Inventories include approximately $12,949 in 1994 and $16,216 in 1995
determined by the LIFO method. If the cost of LIFO inventories had been
determined by the FIFO method for financial reporting, they would have been
approximately $2,400 and $3,030 higher than the amounts reported at December 31,
1994, and 1995, respectively.
4. LIFE INSURANCE
The Company is the beneficiary under life insurance policies with a total
face amount of $4,400 at December 31, 1995 covering the lives of certain of its
officers and former officers. The policies have total cash values of $350 and
$375 at December 31, 1994 and 1995, respectively.
5. OTHER LIABILITIES
Included in other liabilities are amounts for deferred compensation plans
for certain officers and former officers of $482 and $499 at December 31, 1994
and 1995, respectively. The plans provide for a maximum payment of $25 annually
to each officer or beneficiary for a period of ten years commencing at
retirement or death.
IKG has a pension plan covering a majority of German employees who qualify
as to age and length of service. Entrance into the plan is at age 30 with
defined benefits payable at age 65. Vesting requirements vary dependent upon
employment category, contracts and years of service requirements which range
from five to fifteen years. Benefits are paid directly by IKG and are not
separately funded. The accrued liability at December 31, 1994 and 1995 amounted
to $978 and $1,259, respectively, which represented the actuarial computation
for the future liability.
F-8
<PAGE> 103
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Capitalized leases -- land and buildings....................... $ 5,371 $ 4,341
Land and land improvements..................................... 2,046 2,090
Buildings and leasehold improvements........................... 5,803 6,255
Machinery and equipment........................................ 25,226 28,896
Furniture and fixtures......................................... 2,613 3,036
Motor vehicles................................................. 2,018 2,424
------- -------
$43,077 $47,042
======= =======
</TABLE>
Amortization expense on assets recorded under capitalized leases is
included with depreciation expense. Accumulated amortization on assets recorded
under capitalized leases was $1,390 and $1,386 at December 31, 1994 and 1995,
respectively.
7. NOTES PAYABLE AND LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Notes payable:
Notes payable on demand in Deutsche Marks to German banks,
issued under revolving credit agreements, interest payable
quarterly................................................. $ 4,359 $ 9,467
Note payable related to acquisition.......................... -- 803
------- -------
$ 4,359 $10,270
======= =======
Long-term debt:
Term loan payable in U.S. dollars to a German bank........... $ 5,000 $ 5,000
Note payable in Deutsche Marks to a U.S. bank................ 3,226 3,478
Notes payable in Deutsche Marks to a German bank............. 4,173 4,688
Other........................................................ 297 280
------- -------
12,696 13,446
Less current portion........................................... 609 699
------- -------
$12,087 $12,747
======= =======
</TABLE>
Current agreements with banks provide for lines of credit under revolving
credit agreements and long-term loans payable up to $20,155 of which $17,633 is
outstanding at December 31, 1995. The agreements contain certain restrictive
covenants that the Company has complied with at December 31, 1995. The interest
rates under the lines of credit are variable (3.5% to 6.1325% at December 31,
1995), being based on, among other things, the prevailing prime rate and the
source of borrowed funds, whether from the domestic money supply, Deutsche
Marks, or from Eurodollars.
The note payable of $803 is payable in a single payment in 1996. Interest
is due at time note matures at an annual rate of 6.5%.
The term loan of $5,000 is payable in a single payment in 1997. Interest is
paid semi-annually at 6.9%.
F-9
<PAGE> 104
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
The note payable of $3,478 is payable in a single payment of 5,000 Deutsche
Marks on January 1, 1997. Interest is paid semi-annually at 5.75%.
The notes payable of $4,688 are payable in 6,739 Deutsche Marks, with
maturities that extend to 2004 at rates of 5.75% to 7.75%.
Land and building in Germany having a net book value of $4,537 are pledged
as collateral for the German revolving credit agreements and the German bank
notes payable.
At December 31, 1995, the fair value of the Company's outstanding debt
approximates its carrying value.
At December 31, 1995, the total amounts due each year as minimum payments
under long-term debt were as follows:
<TABLE>
<S> <C>
1996...................................................... $ 699
1997...................................................... 9,468
1998...................................................... 709
1999...................................................... 640
2000...................................................... 619
Thereafter................................................ 1,311
-------
$13,446
=======
</TABLE>
8. CAPITALIZED LEASES
The Company leases land and buildings from related parties under agreements
accounted for as capital leases. The leases have primary terms ranging from two
to five years and generally contain renewal options. Accordingly, the Company
has recorded the land and buildings under the lease agreements as property,
plant and equipment and the corresponding indebtedness is recorded as a
liability. Certain of the land and buildings had been previously owned by the
Company prior to their sale to and subsequent leaseback from the related
parties. The price for the properties and the rental amounts were based upon
appraisals by independent real estate appraisers. The Company's gain on these
sales is being amortized over the remaining lives of the buildings, which ranged
from 15 to 30 years.
During 1994, the Company entered into a capital lease in the amount of $288
with a related party for land and buildings. During 1995, a $1,030 capital lease
for land and building with a related party was terminated.
On July 25, 1996, the Company purchased the land and buildings formerly
under the capital lease with related parties for $5,600. The price was based
upon appraisals by independent real estate appraisers. No gain or loss was
recognized by the Company on this transaction.
F-10
<PAGE> 105
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
At December 31, 1995, the total amounts due each year as minimum payments
under capitalized leases were as follows:
<TABLE>
<S> <C>
1996........................................................ $ 494
1997........................................................ 494
1998........................................................ 494
1999........................................................ 494
2000........................................................ 494
Thereafter.................................................. 5,918
------
8,388
Less interest............................................... 4,748
------
Present value of minimum debt payments...................... $3,640
======
</TABLE>
9. ACCRUED AND SUNDRY LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Salaries, wages and bonuses..................................... $ 970 $ 970
Profit sharing and 401(k) plans................................. 795 809
Commissions..................................................... 500 471
Interest........................................................ 163 181
Taxes, other than income taxes.................................. 88 199
Withholdings.................................................... 469 227
Medical insurance............................................... 351 596
Professional fees............................................... 27 56
Customer payment advances and credits........................... 99 317
Accrued warranties.............................................. 308 382
Accrued indemnity............................................... 55 203
Sundry.......................................................... 155 354
------ ------
$3,980 $4,765
====== ======
</TABLE>
10. INCOME TAXES
TKC files a consolidated Federal income tax return which includes the
Company. The current and deferred tax expense and benefit for the Company are
recorded as if it files on a stand-alone basis. All participants in the
consolidated income tax return are separately liable for the full amount of the
taxes, including penalties and interest, if any, which may be assessed against
the consolidated group. The current provision for United States income taxes is
recorded to the intercompany account with TKC.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income
F-11
<PAGE> 106
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
tax purposes. The significant components of the Company's deferred tax assets
and liabilities as of December 31, 1994 and 1995 are as follows:
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Current deferred tax assets (liabilities):
Reserve for inventory obsolescence............................. $ 373 $ 385
Reserve for bad debts.......................................... 250 109
Prepaid insurance.............................................. (140) (157)
Other.......................................................... 166 152
------ ------
Total current deferred tax assets...................... $ 649 $ 489
------ ------
Noncurrent deferred tax (assets) liabilities:
Property, plant, and equipment, primarily differences in
depreciation methods........................................ $2,255 $2,466
Deferred compensation.......................................... (183) (189)
Deferred gain on sale of building.............................. (220) (201)
Capital leases................................................. (227)
------ ------
Total noncurrent deferred tax liabilities.............. $1,625 $1,852
------ ------
Net deferred tax liability............................. $ 976 $1,363
====== ======
</TABLE>
Summarized in the following tables are the Company's provision for income
taxes, the components of the provision for deferred income taxes and a
reconciliation of the U.S. statutory rate to the tax provision rate.
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Current provision
Federal...................................... $2,337 $3,016 $2,771
State and local.............................. 360 450 426
Foreign...................................... (906) 109 22
------ ------ ------
1,791 3,575 3,219
------ ------ ------
Deferred provision
Federal...................................... (140) -- 235
Foreign...................................... 300 88 152
------ ------ ------
160 88 387
------ ------ ------
$1,951 $3,663 $3,606
====== ====== ======
</TABLE>
F-12
<PAGE> 107
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
The differences between the provision and the amount computed by applying
the statutory Federal income tax rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Income before income taxes............................. $5,145 $8,845 $8,854
====== ====== ======
Tax on above amount at 34%............................. $1,749 $3,007 $3,010
State income taxes..................................... 238 298 281
Foreign tax rates in excess of U.S. statutory rate..... (30) 130 67
Foreign losses without tax benefit..................... -- 106 338
Other, net............................................. (6) 122 (90)
------ ------ ------
Provision for income taxes............................. $1,951 $3,663 $3,606
====== ====== ======
</TABLE>
In 1995, CKS utilized a net loss carryforward to offset current tax payable
of approximately $210. At December 31, 1995, the Company's subsidiaries had net
operating loss carryforwards aggregating approximately $1,600, substantially all
of which have no expiration dates.
Undistributed earnings of foreign subsidiaries which are intended to be
indefinitely reinvested aggregated approximately $1,231 at the end of 1995. In
the event these earnings were to be repatriated, foreign income tax credits and
deductions under existing U.S. federal income tax laws would offset a portion of
any additional U.S. tax liability.
11. EMPLOYEE BENEFIT PLANS
IKS and CKS have profit sharing plans for their employees. Annual
contributions are determined annually by their Boards of Directors. Expense for
these plans was $421 in 1993, $837 in 1994 and $818 in 1995.
IKS participates in a 401(k) plan covering substantially all of its
domestic employees. Company contributions are determined annually by the Board
of Directors. The plan provides that IKS contribute one-half of employee
contributions, up to a maximum of 2% of an employee's annual compensation. The
Company's contributions to the plan amounted to $162 in 1993, $179 in 1994 and
$202 in 1995.
See IKG pension plan (Note 5).
12. RELATED PARTIES
The consolidated financial statements include the following transactions
and balances, other than as indicated elsewhere in these financial statements,
with companies under common controlling ownership with the Company:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Notes (payable to) receivable from affiliated
companies.............................................. $ -- $ 758 $ (280)
Notes receivable from shareholders and officers.......... -- 1,818 235
Other receivables from (payables to) affiliated
companies.............................................. -- (456) (423)
Net interest expense..................................... 718 276 158
Purchased administrative and manufacturing services...... 1,100 1,309 1,473
Rental Payments to related parties under capital lease... 664 698 662
</TABLE>
F-13
<PAGE> 108
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
13. OPERATING LEASES
Future minimum rentals required under operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, BUILDINGS OTHER TOTAL
-------------------------------------------------- --------- ----- -----
<S> <C> <C> <C>
1996.............................................. $ 392 $21 $ 413
1997.............................................. 249 1 250
1998.............................................. 97 -- 97
1999.............................................. 7 -- 7
---- --- ----
$ 745 $22 $ 767
==== === ====
</TABLE>
Consolidated rent expense was $311 for 1993, $335 for 1994, and $323 for
1995.
14. ORGANIZATION
The Company manufactures, markets and services primarily industrial knives
and saws internationally, and its customers include distributors, original
equipment manufacturers and customers purchasing replacement parts and services.
The Company has a leading market share in each of the major sectors it serves:
Paper & Packaging; Wood; Metal; and Plastic & Recycling. The Company's sales are
principally in North America and Europe, representing 73% and 26% of 1995 net
sales, respectively. The Company has recently expanded its operations into Latin
America and Asia, and plans to continue its international growth. As a result of
the Company's broad product range and numerous applications, no customer
accounts for more than 3% of net sales. The Company performs periodic credit
evaluations of its customers and generally does not require collateral.
The following table summarizes the company's North American and European
operations.
Sales of North American operations include export sales of $2,818 in 1993,
$3,850 in 1994, and $3,517 in 1995.
Total sales of the Company's operations to unaffiliated customers outside
North America were $24,902 in 1993, $27,170 in 1994, and $31,978 in 1995,
respectively.
F-14
<PAGE> 109
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
North American Operations
Sales to unaffiliated companies........................... $64,803 $72,541 $78,470
Operating income.......................................... 7,906 10,399 10,372
Assets.................................................... 52,787 52,826 58,957
Capital expenditures...................................... 3,414 2,222 4,002
Depreciation and amortization............................. 2,609 2,760 2,943
European Operations
Sales to unaffiliated companies........................... 20,161 19,906 27,193
Operating income.......................................... (680) 714 (19)
Assets.................................................... 18,407 19,815 25,537
Capital expenditures...................................... 5,699 1,160 634
Depreciation and amortization............................. 561 762 828
Other Operations
Sales to unaffiliated companies........................... -- -- 1,367
Operating income.......................................... -- -- (332)
Assets.................................................... -- -- 1,203
Capital expenditures...................................... -- -- 27
Depreciation and amortization............................. -- -- 15
</TABLE>
15. CHINA INVESTMENT
Effective January 1, 1996, the Company acquired a 51% interest in two China
companies, Shanghai IKS Lida Mechanical Blade Co. Ltd. and Shanghai IKS
Mechanical Blade Co. Ltd. for $2.8 million.
16. OPERATING RESULTS BY QUARTER (UNAUDITED)
<TABLE>
<CAPTION>
1994
-------------------------------------------
QTR 1 QTR 2 QTR 3 QTR 4
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales................................ $22,659 $22,865 $23,818 $23,105
Gross profit............................. 7,164 6,595 7,348 9,067
Net income............................... 1,102 1,150 1,706 1,224
<CAPTION>
1995
-------------------------------------------
QTR 1 QTR 2 QTR 3 QTR 4
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales................................ $26,182 $25,437 $28,409 $27,002
Gross profit............................. 7,994 7,734 7,083 8,162
Net income............................... 1,544 1,133 1,574 997
</TABLE>
F-15
<PAGE> 110
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
17. RECAPITALIZATION TRANSACTION
On November 6, 1996, TKC ("IKS Holdings") completed a recapitalization. IKS
Holdings amended its charter to authorize two new classes of common stock,
consisting of voting common stock (the "Holdings Class A Stock") and non-voting
common stock (the "Holdings Class B Stock" and, together with the Holdings Class
A Stock, the "Holdings Common Stock") and a new class of preferred stock (the
"Holdings Preferred Stock"). The issued and outstanding capital stock of IKS
Holdings was exchanged for a Recapitalization Distribution which consisted of
(1) approximately $86,600 in cash and (2) Junior Subordinated Debentures of IKS
Holdings (the "Holdings Debentures"), Holdings Preferred Stock and Holdings
Class A Stock with an aggregate value of approximately $9,400. Certain key
employees of the Company purchased Holdings Debentures, Holdings Preferred Stock
and Holdings Class A Stock from IKS Holdings for approximately $1,300 in cash.
Citicorp Venture Capital Ltd. ("CVC") purchased Holdings Debentures, Holdings
Preferred Stock, Holdings Class A Stock and Holdings Class B Stock for
approximately $14,300 in cash.
In connection with this recapitalization IKS issued $90,000 of Senior
Subordinated Notes, the proceeds of which were used to pay a cash dividend to
IKS Holdings, pay amounts due to IKS Holdings and retire other notes payable and
long-term debt. In addition, the Company entered into new revolving credit
facilities totalling $25,000.
F-16
<PAGE> 111
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 6,544
Accounts receivable, trade, less allowances for doubtful accounts
of $1,428............................................................ 20,647
Other receivables....................................................... 906
Inventories............................................................. 30,554
Prepaid expenses, deferred taxes and sundry............................. 1,854
-------
Total current assets...................................................... 60,505
Other assets:
Cash value of life insurance............................................ 414
Notes receivable........................................................ 215
Advances and investments................................................ 364
Cost in excess of net assets acquired................................... 2,012
Deposits, deferred charges and sundry................................... 1,003
-------
4,008
Property, plant and equipment:
Cost.................................................................... 54,467
Less accumulated depreciation and amortization.......................... 25,569
-------
Property, plant and equipment, net........................................ 28,898
-------
Total assets.............................................................. $ 93,411
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable........................................................... 8,935
Current portion of long-term debt....................................... 5,588
Accounts and drafts payable............................................. 6,552
Accrued and sundry liabilities.......................................... 6,474
Due to parent........................................................... 11,142
-------
Total current liabilities................................................. 38,691
Long-term debt, less current portion...................................... 3,280
Joint venture indebtedness................................................ 3,801
Deferred taxes............................................................ 1,842
Other liabilities......................................................... 1,827
Minority interest......................................................... 2,178
Shareholders' equity:
Common stock, no par value -- authorized -- 580,000 shares; issued --
526,904 shares; outstanding -- 481,971 shares........................ 5
Additional paid-in capital.............................................. 8,125
Retained earnings....................................................... 36,204
Cumulative foreign currency translation adjustment...................... 890
Treasury stock, at cost................................................. (3,432)
-------
Total shareholders' equity................................................ 41,792
-------
Total liabilities and shareholders' equity................................ $ 93,411
=======
</TABLE>
See accompanying note.
F-17
<PAGE> 112
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTH PERIODS
ENDED
SEPTEMBER 30,
-------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net sales.............................................................. $79,238 $89,256
Cost of sales.......................................................... 56,047 62,748
------- -------
23,191 26,508
Selling, general and administrative expenses........................... 16,411 17,607
Other.................................................................. 72 --
------- -------
6,708 8,901
Other expenses (income):
Interest income...................................................... (219) (242)
Interest expense..................................................... 1,378 1,907
Sundry, net.......................................................... (543) 225
Minority interest.................................................... -- (191)
------- -------
616 1,699
------- -------
Income before income taxes............................................. 6,092 7,202
Provision for income taxes............................................. 2,615 2,350
------- -------
Net income................................................... $ 3,477 $ 4,852
======= =======
</TABLE>
See accompanying note.
F-18
<PAGE> 113
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
ADDITIONAL CURRENCY TOTAL
COMMON PAID-IN RETAINED TRANSLATION TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK EQUITY
------ ---------- -------- ----------- -------- -------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995..... $5 $8,125 $ 32,557 $ 774 $ (3,432) $38,029
Net income..................... 4,852 4,852
Foreign currency translation
adjustment.................. 116 116
Cash dividends................. (1,205) (1,205)
--
---------- -------- ----------- -------- -------------
Balance at September 30, 1996.... $5 $8,125 $ 36,204 $ 890 $ (3,432) $41,792
======= ======== ======== ========= ======== ===========
</TABLE>
See accompanying note.
F-19
<PAGE> 114
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTH
PERIODS ENDED
SEPTEMBER 30,
-------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................................. $ 3,477 $ 4,852
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation and amortization........................................ 2,575 3,264
Deferred income taxes................................................ 153 (156)
(Gain) loss on sale of fixed assets.................................. (5) (50)
Minority interest.................................................... -- (191)
Changes in operating assets and liabilities net of effects from
purchases of operations:
Accounts receivable............................................... (1,700) (1,438)
Inventories....................................................... (5,815) (1,049)
Prepaid and sundry................................................ 156 (328)
Accounts and drafts payable....................................... (23) (1,412)
Accrued and sundry liabilities.................................... 1,400 1,599
Other, net........................................................ 218 (908)
------- -------
Net cash provided by operating activities.............................. 436 4,183
INVESTING ACTIVITIES
Purchases of operations, net of cash acquired.......................... (702) --
Purchases of fixed assets.............................................. (2,781) (7,312)
Proceeds from sale of fixed assets..................................... 21 70
Decrease (increase) in notes and other receivables..................... 3,095 20
------- -------
Net cash used in investing activities.................................. (367) (7,222)
FINANCING ACTIVITIES
Increase (decrease) in amounts due to parent and affiliates............ (743) 7,188
Increase (decrease) in notes payable and long-term debt................ 4,235 (6,673)
Dividends paid......................................................... (1,205) (1,205)
------- -------
Net cash provided (used) by financing activities....................... 2,287 (690)
------- -------
Increase (decrease) in cash and cash equivalents....................... 2,356 (3,729)
Cash and cash equivalents at beginning
of year.............................................................. 6,574 10,273
------- -------
Cash and cash equivalents at end of period............................. $ 8,930 $ 6,544
======= =======
</TABLE>
See accompanying note.
F-20
<PAGE> 115
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited interim consolidated financial statements contain all
adjustments, consisting of normal recurring adjustments, which are, in the
opinion of the management of International Knife & Saw, Inc. and Subsidiaries,
(the Company), necessary to present fairly the consolidated financial position
of the Company as of September 30, 1996 and the consolidated results of
operations and cash flows of the Company for the nine month periods ended
September 30, 1995 and 1996, respectively. Results of operations for the periods
presented are not necessarily indicative of the results for the full fiscal
year. These financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 1995.
F-21
<PAGE> 116
------------------------------------------------------
------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................. i
Summary............................... 1
Risk Factors.......................... 9
The Transactions...................... 13
Use of Proceeds....................... 14
Capitalization........................ 15
Unaudited Pro Forma Consolidated
Financial Information............... 16
Selected Historical and Pro Forma
Financial Data...................... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
The Exchange Offer.................... 30
Business.............................. 36
Management............................ 48
Stock Ownership....................... 53
Certain Relationships and Related
Transactions........................ 57
Description of Certain Indebtedness... 58
Description of the Notes.............. 60
Book-Entry; Delivery and Form......... 86
Certain Federal Income Tax
Consequences........................ 87
Plan of Distribution.................. 89
Legal Matters......................... 89
Experts............................... 89
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1997 (90 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES,
WHETHER OR NOT PARTICIPATING IN THE ORIGINAL DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
----------------
PROSPECTUS
----------------
$90,000,000
[LOGO]
INTERNATIONAL KNIFE &
SAW, INC.
OFFER TO EXCHANGE
11 3/8% SENIOR SUBORDINATED NOTES DUE 2006
FOR ALL OUTSTANDING
11 3/8% SENIOR SUBORDINATED NOTES DUE 2006
, 1997
------------------------------------------------------
------------------------------------------------------
<PAGE> 117
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides in relevant
part that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
Section 145 further provides that nothing in the above-described provisions
shall be deemed exclusive of any other rights to indemnification or advancement
of expenses to which any person may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise.
The By-laws of the Company provide for the indemnification of each
director, officer, former director and former officer of the Company, and each
person who shall have served at the request of the Company as a director or
officer of another corporation in which the Company owns shares of capital stock
or of which the Company is a creditor, against expenses actually and necessarily
incurred by him or her in connection with the defense of any action, suit or
proceeding in which he or she is made a party by reason of his or her being or
having been a director or officer of the Company or of such other corporation,
except in relation to matters as to which he or she shall be adjudged in such
action, suit or proceeding to be liable for gross negligence or misconduct in
the performance of duty. The By-laws of the Company also provide that such
indemnification shall not be deemed exclusive of any other rights to which those
indemnified may be entitled as a matter of law or under any by-law, agreement,
vote of stockholders or otherwise.
Section 102(b)(7) of the Delaware General Corporation Law provides that a
corporation may in its certificate of incorporation eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director except for
II-1
<PAGE> 118
liability: for any breach of the director's duty of loyalty to the corporation
or its stockholders; for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; under Section 174 of the
Delaware General Corporation Law (pertaining to certain prohibited acts
including unlawful payment of dividends or unlawful purchase or redemption of
the corporation's capital stock); or for any transaction from which the director
derived an improper personal benefit. The Certificate of Incorporation of the
Company contains a provision so limiting the personal liability of directors of
the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
3.1 Restated Certificate of Incorporation, as amended, of the Company
3.2 By-laws of the Company
4.1 Indenture dated as of November 6, 1996 between the Company and United States Trust
Company of New York, as Trustee
4.2 Registration Rights Agreement dated as of November 6, 1996 among the Company,
Schroder Wertheim & Co. Incorporated and Smith Barney Inc.
4.3 Form of 11 3/8% Senior Subordinated Notes due 2006 (included in Exhibit 4.1)
5.1 Opinion of Dechert Price & Rhoads*
10.1 Purchase Agreement dated October 31, 1996 among the Company, Schroder Wertheim & Co.
Incorporated and Smith Barney Inc.
10.2 Letter Agreement dated October 8, 1996 between Deutsche Bank and the Company*
10.3 Letter Agreement dated October 8, 1996 between Deutsche Bank and IKS Klingelnberg
GmbH*
10.4 Agreement and Plan of Recapitalization dated September 17, 1996 among Citicorp
Venture Capital Ltd., The Klingelnberg Corporation ("IKS Holdings"), the stockholders
of IKS Holdings and certain stockholders of the Company
12.1 Statement of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of the Company
23.1 Consent of Dechert Price & Rhoads (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
24 Power of Attorney (included on signature page)
25 Statement of Eligibility and Qualification, Form T-1, of United States Trust Company
of New York
27 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
* To be supplied by amendment.
(b) Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts and Reserves
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.
II-2
<PAGE> 119
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, 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.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 120
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Erlanger,
State of Kentucky, on the 5th day of December 1996.
INTERNATIONAL KNIFE & SAW, INC.
By: /s/ JOHN E. HALLORAN
------------------------------------
John E. Halloran
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints John E. Halloran and
James A. Urry, any of whom may act without the joinder of the other, as 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 to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or their substitute or substitutes may lawfully do or cause to be
done by virtue thereof.
Pursuant to this requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities at the above-named Registrant on December 5th, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ -----------------------------------------------
<S> <C>
/s/ JOHN E. HALLORAN President and Chief Executive
- ------------------------------------------ Officer and Director (Principal Executive
John E. Halloran Officer)
/s/ WILLIAM M. SCHULT Chief Financial Officer, Vice
- ------------------------------------------ President-Finance,
William M. Schult and Secretary (Principal Financial and
Accounting Officer)
/s/ DIETHER KLINGELNBERG Director
- ------------------------------------------
Diether Klingelnberg
/s/ JAMES A. URRY Director
- ------------------------------------------
James A. Urry
</TABLE>
II-4
<PAGE> 121
Sheet 1 Exhibit 21b
Schedule II
International Knife & Saw, Inc.
Schedule II - Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1995, 1994, and 1993
(dollars in thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------------
-------Additions-------
Balance at Charged to Balance
Beginning Costs and Other Deductions at End
Description Of Period Expenses Describe Describe of Period
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED 1995
Allowance for doubtful accounts 2,084 28 68 (b) 1,185 (c) 1,105
111 (a)
Allowance for inventory Obsolescenc 3,395 631 178 (a) 1,371 (c) 2,833
YEAR ENDED 1994
Allowance for doubtful accounts 1,399 790 118 (a) 223 (c) 2,084
Allowances for inventory Obsolescenc 3,216 1,135 223 (a) 1,179 (c) 3,395
YEAR ENDED 1993
Allowance for doubtful accounts 1,187 500 226 (c) 1,399
62 (a)
Allowances for inventory Obsolescenc 3,394 702 734 (c) 3,216
145 (a)
(a) Represents foreign currency translation adjustments during the year.
(b) Consists of reserves of subsidiaries purchased during the year.
(c) Represents amounts charged against the reserves during the year.
</TABLE>
<PAGE> 122
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------- ------------
<C> <S> <C>
3.1 Restated Certificate of Incorporation, as amended, of the Company
3.2 By-laws of the Company
4.1 Indenture dated as of November 6, 1996 between the Company and United
States Trust Company of New York, as Trustee
4.2 Registration Rights Agreement dated as of November 6, 1996 among the
Company, Schroder Wertheim & Co. Incorporated and Smith Barney Inc.
4.3 Form of 11 3/8% Senior Subordinated Notes due 2006 (included in Exhibit
4.1)
5.1 Opinion of Dechert Price & Rhoads*
10.1 Purchase Agreement dated October 31, 1996 among the Company, Schroder
Wertheim & Co. Incorporated and Smith Barney Inc.
10.2 Letter Agreement dated October 8, 1996 between Deutsche Bank and the
Company*
10.3 Letter Agreement dated October 8, 1996 between Deutsche Bank and IKS
Klingelnberg GmbH*
10.4 Agreement and Plan of Recapitalization dated September 17, 1996 among
Citicorp Venture Capital Ltd., The Klingelnberg Corporation ("IKS
Holdings"), the stockholders of IKS Holdings and certain stockholders of
the Company
12.1 Statement of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of the Company
23.1 Consent of Dechert Price & Rhoads (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
24 Power of Attorney (included on signature page)
25 Statement of Eligibility and Qualification, Form T-1, of United States
Trust Company of New York
27 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
* To be supplied by amendment.
<PAGE> 1
State of Delaware
PAGE 1
Office of the Secretary of State
EXHIBIT 3.1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE RESTATED CERTIFICATE OF "IKS, INC.", CHANGING ITS
NAME FROM "IKS, INC." TO "INTERNATIONAL KNIFE & SAW, INC.",
FILED IN THIS OFFICE ON THE THIRTIETH DAY OF SEPTEMBER, A.D.
1985, AT 9 O'CLOCK A.M.
[SEAL]
/s/Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
0882218 8100 AUTHENTICATION: 8099805
960251564 DATE: 09-11-96
<PAGE> 2
RESTATED CERTIFICATE OF INCORPORATION
OF
IKS, INC.
Under Sections 242 and 245 or the
Delaware General Corporation Law
* * * * * *
The undersigned, being the Chairman and the Secretary of IKS, Inc., a
corporation existing under the laws of the State of Delaware, do hereby certify
as follows:
First: That the name of the corporation is IKS, Inc.
Second: That the original Certificate of Incorporation of the
corporation was filed with the Secretary of State of Delaware on November 14,
1979.
Third: The amendment to the Certificate of Incorporation effected by
this Restated Certificate of Incorporation is to change the name of the
corporation from IKS, Inc. to International Knife & Saw, Inc.
Fourth: The amendment and this Restated Certificate of Incorporation
have been duly adopted in accordance with the provisions of Sections 242 and 245
of the Delaware General Corporation Law by the written consent of the holders of
a majority of the outstanding stock of the corporation.
Fifth: The text of the Certificate of Incorporation of the corporation,
as amended, and as further amended by this Restated Certificate of
Incorporation, is as follows:
<PAGE> 3
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL KNIFE & SAW, INC.
First: The name of the corporation (hereinafter called the
"corporation") is:
INTERNATIONAL KNIFE & SAW, INC.
Second: The address, including street, number, city, and county, of the
registered office of the corporation in the State of Delaware is 229 South State
Street, City of Dover, County of Kent, and the name of the registered agent of
the corporation in the State of Delaware at such address is The Prentice-Hall
Corporation System, Inc.
Third: The nature of the business and of the purposes to be conducted
and promoted by the corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
Fourth: The total number of shares of stock which the corporation shall
have authority to issue is 580,000, all of which are common stock, without par
value.
Fifth: The corporation is to have perpetual existence.
Sixth: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the
<PAGE> 4
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of this corporation, as the case may be, and also on this
corporation.
Seventh: In furtherance and not in limitation of the powers conferred
upon the stockholders by statute, the Board of Directors may adopt, amend or
repeal the By-Laws of the corporation.
Eighth: Election of directors need not be by written ballot.
Ninth: From time to time any of the provisions of this certificate of
incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this
Article Ninth.
IN WITNESS WHEREOF, said IKS, Inc. , has caused this Restated
Certificate of Incorporation to be signed by J.L. Hanna, its Chairman, and
attested by Edward J. Brent, its Secretary, and its corporate seal affixed, this
13th day of September, 1985.
IKS, INC.
[SEAL]
By /s/J.L. Hanna
------------------------------
J.L. Hanna, Chairman
ATTEST:
By /s/Edward J. Brent
--------------------------------
Edward J. Brent, Secretary
<PAGE> 5
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "INTERNATIONAL KNIFE & SAW, INC.", FILED IN THIS OFFICE ON THE
NINETEENTH DAY OF DECEMBER, A.D. 1985, AT 9 O'CLOCK A.M.
[SEAL]
/s/Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
0882218 8100 AUTHENTICATION: 8099804
960251564 DATE: 09-11-96
<PAGE> 6
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL KNIFE & SAW, INC.
International Knife & Saw, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify:
1. That the board of directors of said corporation at a meeting duly
convened and held, adopted a resolution proposing and declaring advisable the
following amendment to the Restated Certificate of Incorporation of said
corporation;
RESOLVED, that the Restated Certificate of Incorporation of
the corporation be amended by adding Article Tenth thereto to read as
follows:
TENTH: A director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director in
connection with any act or omission of the director occurring
on or after the effective date of this article; provided,
however, that this article does not eliminate or limit the
liability of a director of the corporation (i) for any breach
of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) under section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.
2. That at a meeting of shareholders duly called and convened a
majority of the outstanding stock of the corporation entitled to vote thereon
approved the adoption of the aforesaid amendment.
<PAGE> 7
3. That the aforesaid amendment was duly adopted in accordance with the
applicable provisions of section 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, said corporation has caused its corporate seal to
be hereunto affixed and this certificate to be signed by its president and its
secretary, this 18th day of November, 1986.
(Corporate Seal)
/s/ James R. Reed
----------------------------
James R. Reed, President
ATTEST:
/s/ Edward J. Brent
- -------------------------------
Edward J. Brent, Secretary
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
IKS, INC.
(A Delaware Corporation)
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Every holder of stock in the
corporation shall be entitled to have a certificate signed by, or in the name
of, the corporation by the Chairman or Vice-Chairman of the Board of Directors,
if any, or by the President or a Vice-President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
corporation certifying the number of shares owned by him in the corporation. Any
and all signatures on any such certificate may be facsimiles. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificate representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen, or
destroyed, and the Board of Directors may require the owner of any lost, stolen,
or destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify the corporation against any
<PAGE> 2
claim that may be made against it on account of the alleged loss, theft, or
destruction of any such certificate or the issuance of any such new certificate.
2. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered or bearer form which
shall entitle the holder to receive a certificate for a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share shall, but scrip or warrants shall not unless otherwise
provided therein, entitle the holder to exercise voting rights, to receive
dividends thereon, and to participate in any of the assets of the corporation in
the event of liquidation. The Board of Directors may cause scrip or warrants to
be issued subject to the conditions that they shall become void if not exchanged
for certificates representing full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
3. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and on surrender of the certificate or certificates for such
shares of stock properly endorsed and the payment of all taxes due thereon.
4. RECORD DATE FOR STOCKHOLDERS. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or the allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the directors may fix, in advance, a record date, which
shall not be more than sixty days nor less than ten days before the
2
<PAGE> 3
date of such meeting, nor more than sixty days prior to any other action. If no
record date is fixed, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; the record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed; and the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at any
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
5. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such rights shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation.
6. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization of
the corpora-
3
<PAGE> 4
tion, and each successive annual meeting shall be held on a date within thirteen
months after the date of the preceding annual meeting. A special meeting shall
be held on the date and at the time fixed by the directors.
- PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
- CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall, (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. If a meeting is adjourned to
another time, not more than thirty days hence, and/or to another place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice need not be given to any stockholder who submits a written waiver of
notice signed by him before or after the time stated therein. Attendance of a
stockholder at a meeting of stockholders shall
4
<PAGE> 5
constitute a waiver of notice of such meeting, except when the stockholder
attends the meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders need be specified
in any written waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the stockholders.
The Secretary of the corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting, but if neither the Secretary nor an
Assistant Secretary is present the Chairman of the meeting shall appoint a
secretary of the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be
5
<PAGE> 6
irrevocable if it states that it is irrevocable and, if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power. A
proxy may be made irrevocable regardless of whether the interest with which it
is coupled is an interest in the stock itself or an interest in the corporation
generally.
- INSPECTORS. The directors, in advance of any meeting, may, but need
not, appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question or matter determined by him or them and execute a
certificate of any fact found by him or them.
- QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
- VOTING. Each share of stock shall entitle the holder thereof to one
vote. In the election of directors, a plurality of the votes cast shall elect.
Any other action shall be authorized by a majority of the votes cast except
where the General Corporation Law prescribes a different percentage of votes
and/or a different exercise of voting power, and except as may be otherwise
prescribed by the provisions of the certificate of incorporation or these
By-Laws. In the election of directors, and for any other action, voting need not
be by ballot.
6
<PAGE> 7
7. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of four (4) persons. Except for the
first Board of Directors, the number of directors may be fixed from time to time
by action of the stockholders or of the directors, or, if the number is not
fixed, the number shall be three. The number of directors may be increased or
decreased by action of the stockholders or of the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the
7
<PAGE> 8
corporation. Thereafter directors who are elected at an annual meeting of
stockholders, and directors who are elected in the interim to fill vacancies and
newly created directorships, shall hold office until the next annual meeting of
stockholders and until their successors are elected and qualified or until their
earlier resignation or removal. In the interim between annual meetings of
stockholders or of special meetings of stockholders called for the election of
directors and/or for the removal of one or more directors and for the filling of
any vacancies in that connection, newly created directorships and any vacancies
in the Board of Directors, including unfilled vacancies resulting from the
removal of directors for cause or without cause, may be filled by the vote of a
majority of the remaining directors then in office although less than a quorum,
or by the sole remaining director.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, of the President, or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required
for regular meetings for which the time and place have been fixed. Written,
oral, or any other mode of notice of the time and place shall be given for
special meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
8
<PAGE> 9
- QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in Office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these ByLaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of
9
<PAGE> 10
any such absent or disqualified member, Any such committee, to the extent
provided in the resolution of the Board, shall have and may exercise the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation with the exception of any authority the delegation of
which is prohibited by Section 141 of the General Corporation Law, and may
authorize the seal of the corporation to be affixed to all papers which may
require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the
Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an
Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
with such titles as the resolution of the Board of Directors choosing them
shall designate. Except as may otherwise be provided in the resolution of the
Board of Directors choosing him, no officer other than the Chairman or Vice-
Chairman of the Board, if any, need be a director. Any number of offices may be
held by the same person.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and choosing
such officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the cor-
10
<PAGE> 11
poration shall record all of the proceedings of all meetings and actions in
writing of stockholders, directors, and committees of directors, and shall
exercise such additional authority and perform such additional duties as the
Board shall assign to him. Any officer may be removed, with or without cause, by
the Board of Directors. Any vacancy in any office may be filled by the Board of
Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
ARTICLE VI
CONTROL OVER BY-LAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter or repeal
these By-Laws and to adopt new By-Laws may be exercised by the Board of
Directors or by the stockholders.
11
<PAGE> 12
ARTICLE VII
INDEMNIFICATION
Each director, each officer, each former director and each former
officer of the Corporation, and each person who shall have served at the request
of the Corporation as a director or officer of another corporation in which it
owns shares of capital stock or of which it is a creditor, shall be indemnified
by the Corporation against the expenses actually and necessarily incurred by him
or her in connection with the defense of any action, suit or proceeding in which
he or she is made a party be reason of his or her being or having been a
director or officer of the Corporation, or of such other corporation, except in
relation to matters as to which he or she shall be adjudged in such action, suit
or proceeding to be liable for gross negligence or misconduct in the performance
of duty. Each person who shall serve as a director or officer of the
Corporation, or of such other corporation, shall be deemed to be doing so in
reliance upon such indemnification. Such indemnification shall not be deemed
exclusive of any other rights to which those indemnified may be entitled as a
matter of law or under any by-law, agreement, vote or stockholders or otherwise.
The Board of Directors acting at a meeting at which a majority of the
quorum is unaffected by self-interest (notwithstanding that other members of the
quorum present but not voting may be so affected) shall determine the propriety
of the expenses (including counsel fees) incurred by any person who claims
indemnity hereunder, and such determination shall be final and conclusive. If,
however, a majority of a quorum of the Board of Directors which is unaffected by
self-interest and willing to act is not obtainable, the Board of Directors in
its discretion may either (a) appoint from among the stockholders who are not
directors or officers of the Corporation a committee of two (2) or more persons
to consider and determine any such question or (b) cause any such question to be
submitted to arbitration in the manner provided by the laws of the State of
Delaware for the arbitration of a controversy; and the determination of such
committee, or the decision rendered upon such arbitration, shall be final and
conclusive.
None of the provisions hereof shall be construed as a limitation upon
the right of the Corporation to exercise its general power to enter into a
contract or undertaking of indemnity with any director, officer, agent or
employee in any proper case not provided for herein.
12
<PAGE> 1
EXHIBIT 4.1
===============================================================
INTERNATIONAL KNIFE & SAW, INC.
and
UNITED STATES TRUST COMPANY
OF NEW YORK
as Trustee
--------------------
INDENTURE
Dated as of November 6, 1996
--------------------
$90,000,000
11-3/8% Senior Subordinated Notes due 2006
Series B 11-3/8% Senior Subordinated Notes due 2006
===============================================================
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section_
<C> <C> <C>
310(a)(1) .......................................... 7.10
(a)(2) .......................................... 7.10
(a)(3) .......................................... N.A.
(a)(4) .......................................... N.A.
(a)(5) .......................................... 7.08; 7.10
(b) ............................................. 7.08; 7.10;
11.02
(c) ............................................. N.A.
311(a) ............................................. 7.11
(b) ............................................. 7.11
(c) ............................................. N.A.
312(a) ............................................. 2.05
(b) ............................................. 11.03
(c) ............................................. 11.03
313(a) ............................................. 7.06
(b)(1) .......................................... N.A.
(b)(2) .......................................... 7.06
(c) ............................................. 7.06; 11.02
(d) ............................................. 7.06
314(a) ............................................. 4.06; 4.09;
11.02
(b) ............................................. N.A.
(c)(1) .......................................... 11.04
(c)(2) .......................................... 11.04
(c)(3) .......................................... N.A.
(d) ............................................. N.A.
(e) ............................................. 11.05
(f) ............................................. N.A.
315(a) ............................................. 7.01(b)
(b) ............................................. 7.05; 11.02
(c) ............................................. 7.01(a)
(d) ............................................. 7.01(c)
(e) ............................................. 6.11
316(a)(last sentence) .............................. 2.09
(a)(1)(A) ....................................... 6.05
(a)(1)(B) ....................................... 6.04
(a)(2) .......................................... N.A.
(b) ............................................. 6.07
(c) ............................................. 9.04
317(a)(1) .......................................... 6.08
(a)(2) .......................................... 6.09
(b) ............................................. 2.04
318(a) ............................................. 11.01
(c) ............................................. 11.01
</TABLE>
- -------------------------
N.A. means Not Applicable
NOTE: This Cross-Reference Table shall not, for any purpose,
be deemed to be a part of this Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
Section 1.01 Definitions ...................................... 1
Section 1.02 Incorporation by Reference of TIA ................ 22
Section 1.03 Rules of Construction ............................ 23
ARTICLE TWO
THE NOTES
Section 2.01 Form and Dating .................................. 24
Section 2.02 Execution and Authentication;
Aggregate Principal Amount...................... 25
Section 2.03 Registrar and Paying Agent ....................... 26
Section 2.04 Paying Agent To Hold Assets in
Trust........................................... 27
Section 2.05 Noteholder Lists ................................. 27
Section 2.06 Transfer and Exchange ............................ 27
Section 2.07 Replacement Notes ................................ 28
Section 2.08 Outstanding Notes ................................ 29
Section 2.09 Treasury Notes ................................... 29
Section 2.10 Temporary Notes .................................. 30
Section 2.11 Cancellation ..................................... 30
Section 2.12 Defaulted Interest ............................... 30
Section 2.13 CUSIP Number ..................................... 31
Section 2.14 Deposit of Monies ................................ 31
Section 2.15 Restrictive Legends .............................. 32
Section 2.16 Book-Entry Provisions for Global
Security........................................ 34
Section 2.17 Special Transfer Provisions ...................... 36
Section 2.18 Liquidated Damages Under Registra-
tion Rights Agreement........................... 39
ARTICLE THREE
REDEMPTION
Section 3.01 Notices to Trustee ............................... 39
Section 3.02 Selection of Notes To Be Redeemed ................ 39
Section 3.03 Notice of Redemption ............................. 40
Section 3.04 Effect of Notice of Redemption ................... 41
Section 3.05 Deposit of Redemption Price ...................... 41
Section 3.06 Notes Redeemed in Part ........................... 42
</TABLE>
<PAGE> 4
ARTICLE FOUR
COVENANTS
<TABLE>
<S> <C> <C>
Section 4.01 Payment of Notes ................................. 42
Section 4.02 Maintenance of Office or Agency .................. 43
Section 4.03 Corporate Existence .............................. 43
Section 4.04 Payment of Taxes and Other Claims ................ 43
Section 4.05 Maintenance of Properties and
Insurance....................................... 44
Section 4.06 Compliance Certificate; Notice of
Default......................................... 44
Section 4.07 Compliance with Laws ............................. 45
Section 4.08 Waiver of Stay, Extension or Usury
Laws............................................ 45
Section 4.09 Provision of Financial Statements
and Information................................. 45
Section 4.10 Limitation on Incurrence of
Indebtedness.................................... 46
Section 4.11 Limitation on Restricted Payments ................ 50
Section 4.12 Limitation on Liens .............................. 54
Section 4.13 Limitation on Dividends and Other
Payment Restrictions Affecting..................
Restricted Subsidiaries......................... 54
Section 4.14 Limitation on Transactions with
Affiliates...................................... 56
Section 4.15 Change of Control ................................ 57
Section 4.16 Limitation on Asset Sales ........................ 59
Section 4.17 Limitation on Designation of Unre-
stricted Subsidiaries........................... 62
Section 4.18 Limitation on Incurrence of Senior
Subordinated Indebtedness....................... 64
Section 4.19 Guarantees ....................................... 64
ARTICLE FIVE
SUCCESSOR CORPORATION
Section 5.01 Merger, Consolidation and Sale of
Assets.......................................... 65
Section 5.02 Successor Corporation Substituted ................ 67
ARTICLE SIX
DEFAULT AND REMEDIES
Section 6.01 Events of Default ................................ 67
Section 6.02 Acceleration ..................................... 69
Section 6.03 Other Remedies ................................... 70
Section 6.04 Waiver of Past Defaults .......................... 70
Section 6.05 Control by Majority .............................. 71
Section 6.06 Limitation on Suits .............................. 71
Section 6.07 Rights of Holders To Receive
Payment......................................... 72
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 6.08 Collection Suit by Trustee ....................... 72
Section 6.09 Trustee May File Proofs of Claim ................. 72
Section 6.10 Priorities ....................................... 73
Section 6.11 Undertaking for Costs ............................ 74
ARTICLE SEVEN
TRUSTEE
Section 7.01 Duties of Trustee ................................ 74
Section 7.02 Rights of Trustee ................................ 75
Section 7.03 Individual Rights of Trustee ..................... 77
Section 7.04 Trustee's Disclaimer ............................. 77
Section 7.05 Notice of Default ................................ 78
Section 7.06 Reports by Trustee to Holders .................... 78
Section 7.07 Compensation and Indemnity ....................... 78
Section 7.08 Replacement of Trustee ........................... 80
Section 7.09 Successor Trustee by Merger, Etc ................. 81
Section 7.10 Eligibility; Disqualification .................... 81
Section 7.11 Preferential Collection of Claims
Against Company 81
ARTICLE EIGHT
SATISFACTION AND DISCHARGE; DEFEASANCE
Section 8.01 Satisfaction and Discharge of
Indenture 82
Section 8.02 Defeasance or Covenant Defeasance ................ 83
Section 8.03 Application of Trust Money ....................... 86
Section 8.04 Repayment to the Company ......................... 86
Section 8.05 Reinstatement .................................... 87
Section 8.06 Acknowledgment of Discharge by
Trustee......................................... 87
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.01 Without Consent of Holders ....................... 88
Section 9.02 With Consent of Holders .......................... 89
Section 9.03 Compliance with TIA .............................. 90
Section 9.04 Revocation and Effect of Consents ................ 91
Section 9.05 Notation on or Exchange of Notes ................. 92
Section 9.06 Trustee To Sign Amendments, Etc .................. 92
ARTICLE TEN
SUBORDINATION OF SECURITIES
Section 10.01 Notes Subordinate to Senior Debt ................. 92
Section 10.02 Payment Over of Proceeds Upon Dis-
solution, Etc................................... 93
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
Section 10.03 Suspension of Payment When Desig-
nated Senior Debt in Default 94
Section 10.04 Payment Permitted if No Default .................. 96
Section 10.05 Subrogation to Rights of Holders of
Senior Debt 96
Section 10.06 Provisions Solely to Define Rela-
tive Rights 96
Section 10.07 Trustee to Effectuate Subordination .............. 97
Section 10.08 No Waiver of Subordination Provi-
sions 97
Section 10.09 Notice to Trustee ................................ 98
Section 10.10 Reliance on Judicial Order or Cer-
tificate of Liquidating Agent 99
Section 10.11 Rights of Trustee as a Holder of
Senior Debt; Preservation of
Trustee's Rights 99
Section 10.12 Article Applicable to Paying Agents .............. 100
Section 10.13 No Suspension of Remedies ........................ 100
Section 10.14 Trustee's Relation to Holders of
Senior Debt..................................... 100
ARTICLE ELEVEN
MISCELLANEOUS
Section 11.01 TIA Controls ..................................... 101
Section 11.02 Notices .......................................... 101
Section 11.03 Communications by Holders with
Other Holders 102
Section 11.04 Certificate and Opinion as to Con-
ditions Precedent 103
Section 11.05 Statements Required in Certificate
or Opinion 103
Section 11.06 Rules by Trustee, Paying Agent,
Registrar 103
Section 11.07 Legal Holidays ................................... 103
Section 11.08 Governing Law .................................... 104
Section 11.09 No Adverse Interpretation of Other
Agreements 104
Section 11.10 No Recourse Against Others ....................... 104
Section 11.11 Successors ....................................... 104
Section 11.12 Duplicate Originals .............................. 104
Section 11.13 Severability ..................................... 104
Section 11.14 Independence of Covenants ........................ 105
Signatures
Exhibit A - Form of Initial Note ............................. A-1
Exhibit B - Form of Exchange Note ............................ B-1
Exhibit C - Form of Certificate To Be Delivered in
Connection with Transfers to Non-QIB
Accredited Investors............................ C-1
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C>
Exhibit D - Form of Certificate To Be Delivered in
Connection with Transfers Pursuant
to Regulation S..................................... D-1
</TABLE>
Note: This Table of Contents shall not, for any purpose,
be deemed to be part of this Indenture.
<PAGE> 8
INDENTURE, dated as of November 6, 1996, between International Knife
& Saw, Inc., a Delaware corporation (the "Company"), and United States Trust
Company of New York, a New York banking corporation, as Trustee (the "Trustee").
The Company has duly authorized the creation of an issue of 11-3/8%
Senior Subordinated Notes due 2006 (the "Initial Notes") and Series B 11-3/8%
Senior Subordinated Notes due 2006 to be issued in exchange for the Initial
Notes pursuant to the Registration Rights Agreement (the "Exchange Notes" and,
together with the Initial Notes, the "Notes") and, to provide therefor, the
Company has duly authorized the execution and delivery of this Indenture. All
things necessary to make the Notes, when duly issued and executed by the
Company, and authenticated and delivered hereunder, the valid obligations of the
Company, and to make this Indenture a valid and binding agreement of the
Company, have been done.
Each party hereto agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Notes:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Accredited Investor" means an "accredited investor" as that term is
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
"Acquired Debt" means, with respect to any specified Person,
Indebtedness of any other Person (the "Acquired Person") existing at the time
the Acquired Person merges with or into, or becomes a Restricted Subsidiary of,
such specified Person, including Indebtedness incurred in connection with, or in
contemplation of, the Acquired Person merging with or into, or becoming a
Restricted Subsidiary of, such specified Person; provided, however, that
Indebtedness of such Acquired Person which is redeemed, defeased, retired or
otherwise repaid at the time of or immediately upon consummation of the
transactions by which such Acquired Person merges with or into or becomes a
Restricted Subsidiary of such specified Person shall not be Acquired Debt.
"Affiliate" means, with respect to any specified Person, any other
Person directly or indirectly controlling or
<PAGE> 9
controlled by or under direct or indirect common control with such specified
Person. For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by" and "under common control
with") of any Person means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Agent Members" has the meaning provided in Section 2.16(a).
"Asset Sale" means (i) any sale, lease, conveyance or other
disposition by the Company or any Restricted Subsidiary of any assets (including
by way of a sale-and-leaseback) other than in the ordinary course of business,
or (ii) the issuance or sale of Capital Stock of any Restricted Subsidiary, in
the case of each of (i) and (ii), whether in a single transaction or a series of
related transactions, to any Person (other than to the Company or a Restricted
Subsidiary and other than directors' qualifying shares) for Net Proceeds in
excess of $250,000.
"Asset Sale Offer" has the meaning provided in Section 4.16(c).
"Asset Sale Offer Purchase Date" has the meaning provided in Section
4.16(d).
"Asset Sale Offer Trigger Date" has the meaning provided in Section
4.16(c).
"Authenticating Agent" has the meaning provided in Section 2.02.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"Board of Directors" means, as to (a) any corporate Person, the
board of directors of such Person or any duly authorized committee thereof, (b)
any partnership, limited liability company or comparably organized Person which
is ultimately controlled by a corporate general partner, managing member or
other corporation, the "Board of Directors" of such corporation as specified in
clause (a) of this definition and (c) any partnership, limited liability company
or comparably organized Person which is ultimately controlled by individuals,
such controlling individuals.
<PAGE> 10
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors.
"Business Day" means a day that is not a Legal Holiday.
"Capital Lease Obligation" of any Person means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease for property leased by such Person that would at such time be
required to be capitalized on the balance sheet of such Person in accordance
with GAAP.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, of
such Person, including any Preferred Stock.
"Cash Equivalents" means (i) marketable direct obligations issued
by, or unconditionally guaranteed by, the United States Government or issued by
any agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Rating Services or Moody's Investors
Service, Inc.; (iii) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's Rating Services or at least P-1 from Moody's
Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances
(or, with respect to foreign banks, similar instruments) maturing within one
year from the date of acquisition thereof issued by any bank organized under the
laws of the United States of America or any state thereof or the District of
Columbia or any member of the European Economic Community or any U.S. branch of
a foreign bank having at the date of acquisition thereof combined capital and
surplus of not less than $200 million; (v) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clause (i) above entered into with any bank meeting the qualifications specified
in clause (iv) above; and (vi) investments in money market funds which invest
substantially all their assets in securities of the types described in clauses
(i) through (v) above.
"Cash Flow" means, with respect to any period, Consolidated Net
Income for such period, plus, to the extent deducted in computing such
Consolidated Net Income: (i) extra-
<PAGE> 11
ordinary net losses, plus (ii) provision for taxes based on income or profits
and any provision for taxes utilized in computing the extraordinary net losses
under clause (i) hereof, plus (iii) Consolidated Interest Expense, plus (iv)
depreciation, amortization and all other non-cash charges (including
amortization of goodwill and other intangibles and any last-in, first-out (LIFO)
provisions).
"Change of Control" means the occurrence of any of the following
events after the Issue Date: (i) any "person" or "group" (as such terms are used
in Sections 13(d) and 14(d) of the Exchange Act) (other than one or more
Permitted Holders) is or becomes (including by merger, consolidation or
otherwise) the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a Person shall be deemed to have beneficial ownership
of all shares that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of 50% or more of the voting power of the total outstanding Voting
Stock of the Company or IKS Holdings; (ii) after the consummation of an initial
public offering of any class of common stock of the Company or IKS Holdings,
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors of the Company (together with any
new directors who have been appointed by CVC, Citicorp N.A. or any Affiliate of
CVC, or any new directors whose election to such Board of Directors, or whose
nomination for election by the stockholders of the Company, was approved by a
vote of 66 2/3% of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of such
Board of Directors of the Company then in office; (iii) the approval by the
holders of Capital Stock of the Company of any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the terms of this Indenture); or (iv) the sale or other
disposition (including by merger, consolidation or otherwise) of all or
substantially all of the Capital Stock or assets of the Company to any Person or
group (as defined in Rule 13d-5 of the Exchange Act) (other than to one or more
of the Permitted Holders) as an entirety or substantially as an entirety in one
transaction or a series of related transactions.
"Change of Control Offer" has the meaning provided in Section
4.15(a).
"Change of Control Purchase Date" has the meaning provided in
Section 4.15(b).
"Commission" means the Securities and Exchange Commission, as from
time to time constituted or, if at any time after the execution of this
Indenture such Commission is not
<PAGE> 12
existing and performing the duties now assigned to it under the TIA, then the
body performing such duties at such time.
"Common Stock" of any Person means any and all shares, interests,
participations, or other equivalents (however designated) of such Person's
common stock whether now outstanding or issued after the Issue Date.
"Company" means the party named as such in the first paragraph of
this Indenture until a successor replaces it pursuant to this Indenture and
thereafter means such successor.
"Consolidated Cash Flow Coverage Ratio" means, for any period, the
ratio of (i) the aggregate amount of Cash Flow for such period, to (ii)
Consolidated Interest Expense for such period, determined on a pro forma basis
after giving pro forma effect to (i) the incurrence of the Indebtedness giving
rise to the calculation of the Consolidated Cash Flow Coverage Ratio and (if
applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was incurred, and the
application of such proceeds occurred, at the beginning of such period; (ii) the
incurrence, repayment or retirement of any other Indebtedness by the Company and
its Restricted Subsidiaries since the first day of such period as if such
Indebtedness was incurred, repaid or retired at the beginning of such period
(except that, in making such computation, the amount of Indebtedness under any
revolving credit facility shall be computed based upon the average balance of
such Indebtedness at the end of each month during such period); (iii) in the
case of Acquired Debt, the related acquisition as if such acquisition had
occurred at the beginning of such period; and (iv) any acquisition or
disposition by the Company and its Restricted Subsidiaries of any company or any
business or any assets out of the ordinary course of business, or any related
repayment of Indebtedness, in each case since the first day of such period,
assuming such acquisition or disposition had been consummated on the first day
of such period.
"Consolidated Interest Expense" means, with respect to any period,
the sum of (i) the interest expense of the Company and its Restricted
Subsidiaries for such period, including, without limitation, (a) amortization of
debt discount, (b) the net payments, if any, under interest rate contracts
(including amortization of discounts), (c) the interest portion of any deferred
payment obligation and (d) accrued interest, plus (ii) the interest component of
the Capital Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and its Restricted Subsidiaries during such period, and
all capitalized interest of the Company and its Restricted Subsidiaries, plus
(iii) all dividends paid during such period by the Company and its Restricted
Subsidiaries with respect to any Disqualified Stock (other than by any
Restricted Subsidiary to the Company or any other Restricted Subsidiary and
other
<PAGE> 13
than any dividend paid in Capital Stock (other than Disqualified Stock)), in
each case, as determined on a consolidated basis in accordance with GAAP
consistently applied.
"Consolidated Net Income" means, with respect to any period, the net
income (or loss) of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP consistently applied,
adjusted to the extent included in calculating such net income (or loss), by
excluding, without duplication, (i) all extraordinary gains and losses (less all
fees and expenses relating thereto), (ii) the portion of net income (or loss) of
the Company and its Restricted Subsidiaries allocable to interests in
unconsolidated Persons or Unrestricted Subsidiaries, except to the extent of the
amount of dividends or distributions actually paid to the Company or its
Restricted Subsidiaries by such other Person during such period, (iii) for
purposes of Section 4.11, net income (or loss) of any Person combined with the
Company or any of its Restricted Subsidiaries on a "pooling-of-interests" basis
attributable to any period prior to the date of combination, (iv) net gains and
losses (less all fees and expenses relating thereto) in respect of disposition
of assets (including, without limitation, pursuant to sale and leaseback
transactions) other than in the ordinary course of business, (v) the net income
of any Restricted Subsidiary to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income to the
Company is not at the time permitted, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, or (vi) the cumulative non-cash effect of any
change in accounting principle.
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Stock of such Person.
"covenant defeasance" has the meaning provided in Section 8.02(b).
"Currency Agreement Obligations" means the obligations of any person
under a foreign exchange contract, currency swap agreement or other similar
agreement or arrangement to protect such person against fluctuations in currency
values.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"CVC" means Citicorp Venture Capital Ltd., a New York corporation.
<PAGE> 14
"Default" means any event that is, or after the giving of notice or
passage of time or both would be, an Event of Default.
"Default Interest Payment Date" has the meaning provided in
Section 2.12.
"defeasance" has the meaning provided in Section 8.02(a).
"Designated Senior Debt" means (i) the Indebtedness under the Senior
Credit Facility, and (ii) any other Senior Debt of the Company permitted to be
incurred under this Indenture the principal amount of which is $25 million or
more at the time of the designation of such Senior Debt as "Designated Senior
Debt" by the Company in a written instrument delivered to the Trustee.
"Designation" has the meaning provided in Section 4.17(a).
"Designation Amount" has the meaning provided in Section 4.17(a).
"Disposition" means, with respect to any Person, any merger,
consolidation or other business combination involving such Person (whether or
not such Person is the Surviving Person) or the sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of such
Person's assets.
"Disqualified Stock" means (i) any Preferred Stock of any Restricted
Subsidiary and (ii) that portion of any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof (other than upon a change of control of the
Company in circumstances where the Holders of the Notes would have similar
rights), in whole or in part on or prior to the stated maturity of the Notes.
"Dollars" and "$" means lawful money of the United States of
America.
"DTC" means The Depository Trust Company, its nominees and
successors.
"Event of Default" has the meaning provided in Section 6.01.
"Excess Proceeds" has the meaning provided in Section 4.16(b).
<PAGE> 15
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" has the meaning provided in the preamble to this
Indenture.
"Existing Indebtedness" has the meaning provided in Section
4.10(b)(iii).
"Fair Market Value" means, with respect to any asset or property,
the sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"Foreign Subsidiary" means a Restricted Subsidiary not organized
under the laws of the United States or any political subdivision thereof and the
operations of which are located entirely outside the United States.
"GAAP" means generally accepted accounting principles in the United
States set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession in the United States of America, which are applicable
as of the Issue Date and consistently applied.
"German Subsidiary Facilities" means one or more credit facilities
of IKS Klingelnberg GmbH, as the same may be amended, modified, renewed,
refunded, replaced or refinanced from time to time, including (i) any related
notes, letters of credit, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time, and (ii)
any notes, guarantees, collateral documents, instruments and agreements executed
in connection with any such amendment, modification, renewal, refunding,
replacement or refinancing.
"Global Note" has the meaning provided in Section 2.01.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection or deposit in the ordinary course of
business), direct or indirect, in any manner (including, without limitation,
letters of credit and reimbursement agreements in respect thereof), of all or
any part of any Indebtedness.
"Holder" means the Person in whose name a Note is registered on the
Registrar's books.
<PAGE> 16
"IKS Holdings" means The Klingelnberg Corporation, a Delaware
corporation, and its successors.
"incur" has the meaning provided in Section 4.10(a).
"Indebtedness" means, with respect to any Person, without
duplication, and whether or not contingent, (i) all indebtedness of such Person
for borrowed money or which is evidenced by a note, bond, debenture or similar
instrument, (ii) all obligations of such Person to pay the deferred or unpaid
purchase price of property or services, which purchase price is due more than
six months after the date of placing such property in service or taking delivery
and title thereto or the completion of such service, (iii) all Capital Lease
Obligations of such Person, (iv) all obligations of such Person in respect of
letters of credit or bankers' acceptances issued or created for the account of
such Person, (v) to the extent not otherwise included in this definition, all
net obligations of such Person under Interest Rate Agreement Obligations or
Currency Agreement Obligations of such Person, (vi) all liabilities of others of
the kind described in the preceding clause (i), (ii) or (iii) secured by any
Lien on any property owned by such Person; provided, however, if the obligations
secured by a Lien (other than a Permitted Lien not securing any liability that
would itself constitute Indebtedness) on any assets or property have not been
assumed by such Person in full or are not such Person's legal liability in full,
the amount of such Indebtedness for purposes of this definition shall be limited
to the lesser of the amount of Indebtedness secured by such Lien and the Fair
Market Value of the property subject to such Lien, (vii) all Disqualified Stock
issued by such Person and all Preferred Stock issued by a Subsidiary of such
Person, and (viii) to the extent not otherwise included, any guarantee by such
Person of any other Person's indebtedness or other obligations described in
clauses (i) through (vii) above. "Indebtedness" of the Company and the
Restricted Subsidiaries shall not include current trade payables incurred in the
ordinary course of business and payable in accordance with customary practices,
and non-interest bearing installment obligations and accrued liabilities
incurred in the ordinary course of business which are not more than 90 days past
due. The principal amount outstanding of any Indebtedness issued with original
issue discount is the accreted value of such Indebtedness. Notwithstanding the
foregoing, Indebtedness shall not include Indebtedness arising from the honoring
by a bank or other financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary course of
business; provided that such Indebtedness is extinguished within 3 Business Days
of the incurrence thereof.
"Indenture" means this Indenture, as amended or supplemented from
time to time in accordance with the terms hereof.
<PAGE> 17
"Independent Director" means a director of the Company other than a
director (i) who (apart from being a director of the Company or any Subsidiary
of the Company) is an employee, associate or Affiliate of the Company or a
Subsidiary of the Company, or (ii) who is a director, employee, associate or
Affiliate of another party (other than the Company or any of its Subsidiaries)
to the transaction in question.
"Initial Notes" has the meaning provided in the preamble to this
Indenture.
"Initial Purchasers" means Schroder Wertheim & Co. Incorporated and
Smith Barney Inc.
"interest" on the Notes means interest (including Liquidated
Damages) on the Notes.
"Interest Payment Date" means the stated maturity of an installment
of interest on the Notes.
"Interest Rate Agreement Obligations" means, with respect to any
Person, the Obligations of such Person under (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, to the date hereof and from time to time hereafter.
"Investment" means, with respect to any Person, any direct or
indirect loan or other extension of credit (including, without limitation, a
guarantee) or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition by such Person of any Capital
Stock, bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any other Person. "Investment" shall exclude travel and similar
advances to officers and employees of the Company in the ordinary course of
business and extensions of trade credit by the Company and its Restricted
Subsidiaries on commercially reasonable terms in accordance with normal trade
practices of the Company or such Restricted Subsidiary, as the case may be. For
the purposes of Section 4.11, (i) "Investment" shall include and be valued at
the Fair Market Value of the net assets of any Restricted Subsidiary (to the
extent of the Company's equity interest in such Restricted Subsidiary) at the
time that such Restricted Subsidiary is designated an Unrestricted Subsidiary
and shall exclude the Fair Market Value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary and (ii) the amount of any Investment shall be the
original cost of such Investment plus
<PAGE> 18
the cost of all additional Investments by the Company or any of its Restricted
Subsidiaries, without any adjustments for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment, reduced by
the payment of dividends or distributions in connection with such Investment or
any other amounts received in respect of such Investment; provided, however,
that no such payment of dividends or distributions or receipt of any such other
amounts shall reduce the amount of any Investment if such payment of dividends
or distributions or receipt of any such amounts would be included in
Consolidated Net Income. If the Company or any Restricted Subsidiary of the
Company sells or otherwise disposes of any Common Stock of any direct or
indirect Restricted Subsidiary of the Company such that, after giving effect to
any such sale or disposition, the Company no longer owns, directly or
indirectly, greater than 50% of the outstanding Common Stock of such Restricted
Subsidiary, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the Fair Market Value of the Common
Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means November 6, 1996, the date the Notes are
originally issued under this Indenture.
"Legal Holiday" has the meaning provided in Section 11.07.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in any asset and any filing of, or agreement to give, any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidated Damages" means all liquidated damages owing under the
Registration Rights Agreement.
"Management Investors" means the management investors listed on
Schedule I to the Securities Purchase and Holders Agreement dated the Issue Date
among IKS Holdings, CVC, Diether Klingelnberg, Arndt Klingelnberg and such
management investors.
"Maturity Date" means November 15, 2006.
"Net Proceeds" means, with respect to any Asset Sale by any Person,
the aggregate cash or Cash Equivalent proceeds received by such Person and/or
its Affiliates in respect of such Asset Sale, which amount is equal to the
excess, if any, of (i) the cash or Cash Equivalent received by such Person
and/or its Affiliates (including any cash payments received by
<PAGE> 19
way of deferred payment pursuant to, or monetization of, a note or installment
receivable or otherwise, but only as and when received) in connection with such
Asset Sale, over (ii) the sum of (a) the amount of any Indebtedness that is
secured by such asset and which is required to be repaid by such Person in
connection with such Asset Sale, plus (b) all fees, commissions and other
expenses incurred by such Person in connection with such Asset Sale, plus (c)
provision for taxes, including income taxes, directly attributable to the Asset
Sale or to required prepayments or repayments of Indebtedness with the proceeds
of such Asset Sale, plus (d) if such Person is a Restricted Subsidiary, any
dividends or distributions payable to holders of minority interests in such
Restricted Subsidiary from the proceeds of such Asset Sale, plus (e) appropriate
amounts to be provided by the Company or any Restricted Subsidiary as a reserve
against any liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale; provided that upon the release of
any such reserves, such amounts shall constitute "Net Proceeds" hereunder.
"Nonpayment Default" means any default (other than any Payment
Default) under any agreement governing Designated Senior Debt, beyond the
applicable grace period with respect thereto.
"Non-U.S. Person" means a person who is not a U.S. person, as
defined in Regulation S.
"Notes" mean the Initial Notes and the Exchange Notes treated as a
single class of securities, as amended or supplemented from time to time in
accordance with the terms hereof, that are issued pursuant to this Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Offering Memorandum" means the Offering Memorandum dated October
31, 1996 of the Company relating to the offering of the Notes.
"Officer" means, with respect to any Person, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, any Vice
President, the Chief Financial Officer, the Treasurer, the Controller, or the
Secretary of such Person, or any other officer designated by the Board of
Directors serving in a similar capacity.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Officers or by an Officer
<PAGE> 20
and either an Assistant Treasurer or an Assistant Secretary of such Person and
otherwise complying with the requirements of Sections 11.04 and 11.05, as they
relate to the making of an Officers' Certificate.
"Offshore Physical Notes" has the meaning provided in Section 2.01.
"Opinion of Counsel" means a written opinion from legal counsel who
is reasonably acceptable to the Trustee complying with the requirements of
Sections 11.04 and 11.05, as they relate to the giving of an Opinion of Counsel.
"Paying Agent" has the meaning provided in Section 2.03.
"Payment Blockage Notice" has the meaning provided in Section 10.03.
"Payment Blockage Period" has the meaning provided in
Section 10.03.
"Payment Default" means any default in the payment of principal of
or interest on any Designated Senior Debt, beyond the applicable grace period
with respect thereto.
"Permitted Holders" means (i) CVC, (ii) Citicorp, N.A. or any other
Affiliate of CVC, (iii) any officer, employee or director of CVC, (iv) the
Management Investors and (v) in the case of any natural person specified in the
foregoing clauses, any spouse or lineal descendant (including by adoption) of
such person; provided, however, that in no event shall the persons specified in
clauses (iii) through (v) be deemed "Permitted Holders" with respect to more
than 30% of the voting power of the total outstanding Voting Stock of the
Company or IKS Holdings in the aggregate.
"Permitted Indebtedness" has the meaning provided in Section
4.10(b).
"Permitted Investments" means (i) any Investment in the Company or
any Wholly-Owned Restricted Subsidiary (other than a Foreign Subsidiary) and any
Investment (other than a transfer of property (excluding cash)) in a Foreign
Subsidiary that is a Wholly-Owned Restricted Subsidiary; (ii) any investment in
cash or Cash Equivalents; (iii) any Investment in a Person (an "Acquired
Person") if, as a result of such Investment, (a) the Acquired Person becomes a
Wholly-Owned Restricted Subsidiary, or (b) the Acquired Person either (1) is
merged, consolidated or amalgamated with or into the Company or one of its
Wholly-Owned Restricted Subsidiaries and the Company or such Wholly-Owned
Restricted Subsidiary is the Surviving Person, or (2) transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or one of
its
<PAGE> 21
Wholly-Owned Restricted Subsidiaries; provided that any Investment pursuant to
this clause (iii) in a Person that is or becomes a Foreign Subsidiary shall not
constitute the transfer of property (other than cash); (iv) Investments in
accounts and notes receivable acquired in the ordinary course of business; (v)
any notes, obligations or other securities received in connection with an Asset
Sale that complies with Section 4.16 or any other disposition not constituting
an "Asset Sale"; (vi) Interest Rate Obligations and Currency Agreement
Obligations permitted pursuant to Section 4.10(b)(v); and (vii) investments in
or acquisitions of Capital Stock or similar interests in Persons (other than
Affiliates of the Company) received in the bankruptcy or reorganization of or by
such Person or any exchange of such investment with the issuer thereof or taken
in settlement of or other resolution of claims or disputes.
"Permitted Junior Securities" means any securities of the Company or
any other corporation that are equity securities or are subordinated in right of
payment to all Senior Debt that may at the time be outstanding to substantially
the same extent as, or to a greater extent than, the Notes are so subordinated
as provided in this Indenture.
"Permitted Liens" means (i) Liens on assets or property of the
Company that secure Senior Debt of the Company and Liens on assets or property
of a Restricted Subsidiary that secure Indebtedness of such Restricted
Subsidiary; (ii) Liens securing Indebtedness of a Person existing at the time
that such Person is merged into or consolidated with the Company or a Restricted
Subsidiary; provided, however, that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of such Person; (iii) Liens on property acquired by the Company
or a Restricted Subsidiary; provided, however, that such Liens were in existence
prior to the contemplation of such acquisition and do not extend to any other
property; (iv) Liens in respect of Interest Rate Obligations and Currency
Agreement Obligations permitted under this Indenture; (v) Liens in favor of the
Company or any Restricted Subsidiary; (vi) Liens existing or created on the
Issue Date; and (vii) Liens securing the Notes or the obligations of the Company
to the Trustee hereunder.
"Permitted Payments" has the meaning provided in Section 4.11(b).
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Physical Notes" has the meaning provided in Section 2.01.
<PAGE> 22
"Preferred Stock" as applied to the Capital Stock of any Person,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends or distributions, or as to the
distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such Person, over Capital Stock of any other class of such
Person.
"principal" of any Indebtedness (including the Notes) means the
principal amount of such Indebtedness plus the premium, if any, on such
Indebtedness.
"Private Placement Legend" means the legend initially set forth on
the Notes in the form set forth in Section 2.15.
"Public Equity Offering" means an underwritten public offering of
Capital Stock (other than Disqualified Capital Stock) of the Company or IKS
Holdings pursuant to an effective registration statement filed under the
Securities Act; provided, however, that in the event of a Public Equity Offering
by IKS Holdings, IKS Holdings shall contribute to the capital of the Company the
portion of the net cash proceeds of such Public Equity Offering necessary to pay
the aggregate redemption price, plus accrued and unpaid interest, if any, to the
redemption date, of the Notes to be redeemed pursuant to Paragraph 6(b) of the
Notes.
"Purchase Money Obligation" means any Indebtedness secured by a Lien
on assets related to the business of the Company or the Restricted Subsidiaries,
and any additions and accessions thereto, which are purchased, constructed or
improved by the Company or any Restricted Subsidiary at any time after the Issue
Date; provided, however, that (i) any security agreement or conditional sales or
other title retention contract pursuant to which the Lien on such assets is
created (collectively, a "Security Agreement") shall be entered into within 90
days after the purchase or substantial completion of the construction or
improvement of such assets and shall at all times be confined solely to the
assets so purchased, constructed or improved, any additions and accessions
thereto and any proceeds therefrom, (ii) at no time shall the aggregate
principal amount of the outstanding Indebtedness secured thereby be increased,
except in connection with the purchase of additions and accessions thereto and
except in respect of fees and other obligations in respect of such Indebtedness
and (iii) (A) the aggregate outstanding principal amount of Indebtedness secured
thereby (determined on a per asset basis in the case of any additions and
accessions) shall not at the time such Security Agreement is entered into exceed
100% of the purchase price or cost of construction or improvement to the Company
or any Restricted Subsidiary of the assets subject thereto or (B) the
Indebtedness secured thereby shall be with recourse solely to the assets so
purchased, constructed
<PAGE> 23
or improved, any additions and accessions thereto and any proceeds therefrom.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"Recapitalization" means the recapitalization of the Company
pursuant to that certain Agreement and Plan of Recapitalization dated September
17, 1996 by and among IKS Holdings, CVC, certain stockholders of IKS Holdings
and certain stockholders of the Company.
"Recapitalization Dividend" means the payment by the Company to IKS
Holdings on the Issue Date of amounts necessary to consummate the
Recapitalization.
"Record Date" means the Record Dates specified in the Notes;
provided, however, that if any such date is a Legal Holiday, the Record Date
shall be the first day immediately preceding such specified day that is not a
Legal Holiday.
"Redemption Date," when used with respect to any Note to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Notes.
"Redemption Price," when used with respect to any Note to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
and the Notes.
"Redesignation" has the meaning provided in Section 4.17(b).
"refinancing" has the meaning provided in Section 4.10(b)(vii).
"Refinancing Indebtedness" has the meaning provided in Section
4.10(b)(vii).
"Registrar" has the meaning provided in Section 2.03.
"Registration Rights Agreement" means the Registration Rights
Agreement dated on or about the Issue Date between the Company and the Initial
Purchasers for the benefit of themselves and the Holders as the same may be
amended from time to time in accordance with the terms thereof.
"Regulation S" means Regulation S under the Securities Act.
"Required Filing Dates" has the meaning provided in Section 4.09(a).
"Restricted Investment" means an Investment other than a Permitted
Investment.
<PAGE> 24
"Restricted Payment" means (i) any dividend or other distribution
declared or paid on any Capital Stock of the Company (other than (A) dividends
or distributions payable solely in Capital Stock (other than Disqualified Stock)
of the Company, (B) dividends or distributions payable to the Company or any
Restricted Subsidiary or (C) the Recapitalization Dividend); (ii) any payment to
purchase, redeem or otherwise acquire or retire for value any Capital Stock of
the Company (other than the Recapitalization Dividend); (iii) any payment to
purchase, redeem, defease or otherwise acquire or retire for value, prior to any
scheduled maturity, repayment or sinking fund payment, any Subordinated
Indebtedness other than the Recapitalization Dividend or a purchase, redemption,
defeasance or other acquisition or retirement for value that is paid for with
the proceeds of Refinancing Indebtedness that is permitted under Section
4.10(b)(vii); or (iv) any Restricted Investment.
"Restricted Security" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act; provided, however, that the Trustee shall be
entitled to request and conclusively rely on an Opinion of Counsel with respect
to whether any Note constitutes a Restricted Security.
"Restricted Subsidiary" means each direct or indirect Subsidiary of
the Company other than an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Senior Credit Facility" means the Senior Credit Facility, entered
into on the Issue Date between the Company and the lenders named therein as the
same may be amended, modified, renewed, refunded, replaced or refinanced from
time to time, including (i) any related notes, letters of credit, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced or
refinanced from time to time, and (ii) any notes, guarantees, collateral
documents, instruments and agreements executed in connection with any such
amendment, modification, renewal, refunding, replacement or refinancing.
"Senior Debt" means the principal of and interest (including
post-petition interest) on, and all other amounts owing in respect of, (x) the
Senior Credit Facility and (y) any other Indebtedness incurred by the Company
(including, but not limited to, reasonable fees and expenses of counsel and all
other charges, fees and expenses incurred in connection with such Indebtedness),
unless the instrument creating or evidencing such Indebtedness or pursuant to
which such Indebtedness is
<PAGE> 25
outstanding expressly provides that such Indebtedness is on a parity with or
subordinated in right of payment to the Notes. Notwithstanding the foregoing,
Senior Debt shall not include (i) any Indebtedness for federal, state, local or
other taxes, (ii) any Indebtedness of the Company to any of its Subsidiaries or
any of its Affiliates, (iii) any Indebtedness incurred for the purchase of goods
or materials, or for services obtained, in the ordinary course of business or
any obligations in respect of any such Indebtedness, (iv) any Indebtedness that
is incurred in violation of this Indenture, (v) Indebtedness evidenced by the
Notes or (vi) Indebtedness of the Company that is expressly subordinate or
junior in right of payment (other than as a result of the Indebtedness being
unsecured) to any other Indebtedness of the Company.
"Senior Representative" means the agent bank under the Senior Credit
Facility or any other representatives of the holders of Designated Senior Debt,
as the case may be.
"Significant Subsidiary" means any Restricted Subsidiary that would
be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation
S-X promulgated pursuant to the Securities Act, as such Regulation S-X is in
effect on the Issue Date.
"Subordinated Indebtedness" means Indebtedness of the Company
subordinated in right of payment to the Notes.
"Subsidiary" of a Person means (i) any corporation more than 50% of
the outstanding voting power of the Voting Stock of which is owned or
controlled, directly or indirectly, by such Person or by one or more other
Subsidiaries of such Person, or by such Person and one or more other
Subsidiaries thereof, or (ii) any limited partnership of which such Person or
any Subsidiary of such Person is a general partner, or (iii) any other Person
(other than a corporation or limited partnership) in which such Person or one or
more other Subsidiaries of such Person, or such Person and one or more other
Subsidiaries thereof, directly or indirectly, has more than 50% of the
outstanding ownership or similar interests or has the power, by contract or
otherwise, to direct or cause the direction of the policies, management and
affairs thereof.
"Surviving Person" means, with respect to any Person involved in or
that makes any Disposition, the Person formed by or surviving such Disposition
or the Person to which such Disposition is made.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
{{77aaa-77bbbb), as amended, as in effect on the date of this Indenture, except
as otherwise provided in Section 9.03.
<PAGE> 26
"Trust Officer" means any officer or assistant officer of the
Trustee assigned by the Trustee to administer this Indenture or any part
thereof, or in the case of a successor trustee, an officer assigned to the
department, division or group performing the corporation trust work of such
successor and assigned to administer this Indenture.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Unrestricted Subsidiary" means (i) Shanghai IKS Mechanical Blade
Company, Ltd., (ii) Shanghai IKS Lida Mechanical Blade Company, Ltd. and (iii)
any other Subsidiary of the Company designated as such pursuant to and in
compliance with Section 4.17 and not redesignated a Restricted Subsidiary in
compliance with such covenant.
"U.S. Government Obligations" mean direct obligations of, and
obligations guaranteed by, the United States of America for the payment of which
the full faith and credit of the United States of America is pledged.
"U.S. Legal Tender" means such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"U.S. Physical Notes" has the meaning provided in Section 2.01.
"Voting Stock" of a Person means Capital Stock of such Person of the
class or classes pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at the time stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, with (b)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary
with respect to which all of the outstanding voting securities (other than
directors' qualifying
<PAGE> 27
shares) of which are owned, directly or indirectly, by the Company or a
Surviving Person of any Disposition involving the Company, as the case may be.
SECTION 1.02. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder or a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means
the Trustee.
"obligor" on the indenture securities means the Company or any
other obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
and not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
1. a term has the meaning assigned to it;
2. an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP as in effect on the date hereof;
3. "or" is not exclusive;
4. words in the singular include the plural, and words in the
plural include the singular;
5. a reference to a Section or Article shall be to a Section or
Article of this Indenture;
6. "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision; and
7. any reference to a statute, law or regulation means that
statute, law or regulation as amended and in effect from time to time and
includes any successor
<PAGE> 28
statute, law or regulation; provided, however, that any reference to the
Bankruptcy Law shall mean the Bankruptcy Law as applicable to the relevant
case.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating.
The Initial Notes and the Trustee's certificate of authentication
relating thereto shall be substantially in the form of Exhibit A hereto. The
Exchange Notes and the Trustee's certificate of authentication relating thereto
shall be substantially in the form of Exhibit B hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
depository rule or usage. The Company and the Trustee shall approve the form of
the Notes and any notation, legend or endorsement on them. Each Note shall be
dated the date of its issuance and shall show the date of its authentication.
The terms and provisions contained in the Notes, annexed hereto as
Exhibits A and B, shall constitute, and are hereby expressly made, a part of
this Indenture and, to the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Notes offered and sold to Accredited Investors or in reliance on
Rule 144A shall be issued initially in the form of one or more permanent global
Notes in registered form, substantially in the form set forth in Exhibit A (the
"Global Note"), deposited with the Trustee, as custodian for DTC, duly executed
by the Company and authenticated by the Trustee as hereinafter provided and
shall bear the legend set forth in Section 2.15(a) and (b). The aggregate
principal amount of the Global Notes may from time to time be increased or
decreased by adjustments made on the records of the Trustee, as custodian for
DTC, as hereinafter provided.
Notes offered and sold in offshore transactions in reliance on
Regulation S shall be issued in the form of permanent certificated Notes in
registered form in substantially the form set forth in Exhibit A (the "Offshore
Physical Notes"), duly executed by the Company and authenticated by the Trustee
as hereinafter provided and shall bear the legend set forth in Section 2.15(a).
Notes offered and sold to Accredited Investors or in reliance on Rule 144A may
be issued, in the form of permanent certificated Notes in registered form, in
substantially the form set forth in Exhibit A (the "U.S. Physical Notes"), duly
executed by the Company and authenticated by the
<PAGE> 29
Trustee as hereinafter provided and shall bear the legend set forth in
Section 2.15(a). The Offshore Physical Notes and the U.S. Physical Notes are
sometimes collectively herein referred to as the "Physical Notes."
SECTION 2.02. Execution and Authentication;
Aggregate Principal Amount.__
Two Officers, or an Officer and an Assistant Secretary, shall sign,
or one Officer shall sign and one Officer or an Assistant Secretary (each of
whom shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Notes for the Company by manual or facsimile
signature.
If an Officer or Assistant Secretary whose signature is on a Note
was an Officer or Assistant Secretary at the time of such execution but no
longer holds that office or position at the time the Trustee authenticates the
Note, the Note shall nevertheless be valid.
A Note shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Note. The
signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.
The Trustee shall authenticate (i) Initial Notes for original issue
in the aggregate principal amount not to exceed $90,000,000 and (ii) Exchange
Notes from time to time for issue only in exchange for a like principal amount
of Initial Notes, in each case upon a written order of the Company. Such order
shall specify the amount of Notes to be authenticated and the date on which the
Notes are to be authenticated, whether the Notes are to be Initial Notes or
Exchange Notes and whether the Notes are to be issued as Physical Notes or a
Global Note or such other information as the Trustee may reasonably request. The
aggregate principal amount of Notes outstanding at any time may not exceed
$90,000,000, except as provided in Section 2.07.
The Trustee may appoint an authenticating agent (the "Authenticating
Agent") reasonably acceptable to the Company to authenticate Notes. Unless
otherwise provided in the appointment, an Authenticating Agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such Authenticating
Agent. An Authenticating Agent has the same rights as an Agent to deal with the
Company or with any Affiliate of the Company.
The Notes shall be issuable in fully registered form only, without
coupons, in denominations of $1,000 and any integral multiple thereof.
<PAGE> 30
The Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name any Note is registered as the owner of such
Note for the purpose of receiving payment of principal of and (subject to the
provisions of this Indenture and the Notes with respect to record dates)
interest on such Note, whether or not such Note is overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice of the contrary.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall be
located in the Borough of Manhattan in The City of New York, State of New York)
where (a) Notes may be presented or surrendered for registration of transfer or
for exchange ("Registrar"), (b) Notes may be presented or surrendered for
payment ("Paying Agent") and (c) notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Registrar shall keep
a register of the Notes and of their transfer and exchange. The Company, upon
prior written notice to the Trustee, may have one or more co-Registrars and one
or more additional Paying Agents reasonably acceptable to the Trustee. The term
"Paying Agent" includes any additional Paying Agent. The Company may act as its
own Paying Agent, except that for the purposes of payments on the Notes pursuant
to Sections 4.15 and 4.16, neither the Company nor any Affiliate of the Company
may act as Paying Agent.
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which agreement shall incorporate the
provisions of the TIA and implement the provisions of this Indenture that relate
to such Agent. The Company shall notify the Trustee, in advance, of the name and
address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such.
The Company initially appoints the Trustee as Registrar, Paying
Agent and agent for service of demands and notices in connection with the Notes,
until such time as the Trustee has resigned or a successor has been appointed.
Any of the Registrar, the Paying Agent or any other agent may resign upon 30
days' notice to the Company.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that each Paying Agent shall hold in trust for the benefit
of the Holders or the Trustee all assets held by the Paying Agent for the
payment of principal of, or interest on, the Notes (whether such assets have
been distributed to it by the Company or any other obligor on the Notes), and
the Company and the Paying Agent shall notify the Trustee of any Default by the
Company (or any other
<PAGE> 31
obligor on the Notes) in making any such payment. The Company at any time may
require a Paying Agent to distribute all assets held by it to the Trustee and
account for any assets disbursed and the Trustee may at any time during the
continuance of any payment Default, upon written request to a Paying Agent,
require such Paying Agent to distribute all assets held by it to the Trustee and
to account for any assets distributed. Upon distribution to the Trustee of all
assets that shall have been delivered by the Company to the Paying Agent, the
Paying Agent shall have no further liability for such assets.
SECTION 2.05. Noteholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Holders. If the Trustee is not the Registrar, the Company shall furnish or
cause the Registrar to furnish to the Trustee before each Record Date and at
such other times as the Trustee may request in writing a list as of such date
and in such form as the Trustee may reasonably require of the names and
addresses of the Holders, which list may be conclusively relied upon by the
Trustee.
SECTION 2.06. Transfer and Exchange.
When Notes are presented to the Registrar or a co-Registrar with a
request to register the transfer of such Notes or to exchange such Notes for an
equal principal amount of Notes of other authorized denominations, the Registrar
or co-Registrar shall register the transfer or make the exchange as requested if
its requirements for such transaction are met; provided, however, that the Notes
presented or surrendered for registration of transfer or exchange shall be duly
endorsed or accompanied by a written instrument of transfer in form satisfactory
to the Company or the Registrar or co-Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing. To permit registrations of
transfer and exchanges, the Company shall execute and the Trustee shall
authenticate Notes at the Registrar's or co-Registrar's request. No service
charge shall be made for any registration of transfer or exchange, but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon exchanges (without
transfer to another Person) pursuant to Sections 2.02, 2.10, 3.06, 4.15, 4.16 or
9.05, in which event the Company shall be responsible for the payment of such
taxes).
The Registrar or co-Registrar shall not be required to register the
transfer of or exchange of any Note (i) during a period beginning at the close
of business on the day the Trustee receives notice of any redemption of Notes
and ending at the close of business on the day such notice of redemption is
mailed to the Holders, (ii) selected for redemption in whole
<PAGE> 32
or in part pursuant to Article Three, except the unredeemed portion of any Note
being redeemed in part and (iii) during a Change of Control Offer or an Asset
Sale Offer if such Note is tendered pursuant to such Change of Control Offer or
Asset Sale Offer and not withdrawn.
Any Holder of the Global Note shall, by acceptance of such Global
Note, agree that transfers of beneficial interests in such Global Notes may be
effected only through a book-entry system maintained by the Holder of such
Global Note (or its agent), and that ownership of a beneficial interest in the
Note shall be required to be reflected in a book-entry system.
SECTION 2.07. Replacement Notes.
If a mutilated Note is surrendered to the Trustee or if the Holder
of a Note claims that the Note has been lost, destroyed or wrongfully taken, the
Company shall issue and the Trustee shall authenticate a replacement Note if the
Trustee's requirements are met. If required by the Trustee or the Company, such
Holder must provide an indemnity bond or other indemnity of reasonable tenor,
sufficient in the reasonable judgment of both the Company and the Trustee, to
protect the Company, the Trustee or any Agent from any loss which any of them
may suffer if a Note is replaced. Every replacement Note shall constitute an
additional obligation of the Company.
SECTION 2.08. Outstanding Notes.
Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those cancelled by it, those delivered to it
for cancellation and those described in this Section as not outstanding. Subject
to the provisions of Section 2.09, a Note does not cease to be outstanding
because the Company or any of its Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.07 (other than a
mutilated Note surrendered for replacement), it ceases to be outstanding unless
the Trustee receives proof satisfactory to it that the replaced Note is held by
a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender
of such Note and replacement thereof pursuant to Section 2.07.
If on a Redemption Date or the Maturity Date the Paying Agent (other
than the Company) holds U.S. Legal Tender or U.S. Government Obligations
sufficient to pay all of the principal and interest due on the Notes payable on
that date and is not prohibited from paying such money to the Holders thereof
pursuant to the terms of this Indenture, then on and after that date such Notes
cease to be outstanding and interest on them ceases to accrue.
<PAGE> 33
SECTION 2.09. Treasury Notes.
In determining (x) whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver, consent or notice or
(y) how much principal amount of Notes remains outstanding after a redemption
under Paragraph 6(b) of the Notes, Notes owned by the Company or an Affiliate
shall be considered as though they are not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent under clause (x) above, only Notes which a
Trust Officer of the Trustee actually knows are so owned shall be so considered.
The Company shall notify the Trustee, in writing, when it or, to the Company's
knowledge, any of its Affiliates purchases or otherwise acquires Notes, of the
aggregate principal amount of such Notes so purchased or otherwise acquired.
SECTION 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes upon receipt of a
written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Notes to be
authenticated and the date on which the temporary Notes are to be authenticated.
Temporary Notes shall be substantially in the form of definitive Notes but may
have variations that the Company considers appropriate for temporary Notes and
so indicates in the Officers' Certificate. Without unreasonable delay, the
Company shall prepare and the Trustee shall authenticate upon receipt of a
written order of the Company pursuant to Section 2.02 definitive Notes in
exchange for temporary Notes.
SECTION 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee, or
at the direction of the Trustee, the Registrar or the Paying Agent, and no one
else, shall cancel and, at the written direction of the Company, shall dispose,
in its customary manner, of all Notes surrendered for transfer, exchange,
payment or cancellation. Subject to Section 2.07, the Company may not issue new
Notes to replace Notes that it has paid or delivered to the Trustee for
cancellation. If the Company shall acquire any of the Notes, such acquisition
shall not operate as a redemption or satisfaction of the Indebtedness
represented by such Notes unless and until the same are surrendered to the
Trustee for cancellation pursuant to this Section 2.11.
<PAGE> 34
SECTION 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest to the Persons who are Holders on a subsequent
special record date, which special record date shall be the fifteenth day next
preceding the date fixed by the Company for the payment of defaulted interest or
the next succeeding Business Day if such date is not a Business Day. The Company
shall notify the Trustee in writing of the amount of defaulted interest proposed
to be paid on each Note and the date of the proposed payment (a "Default
Interest Payment Date"), and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such defaulted interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the Persons entitled
to such defaulted interest as provided in this Section; provided, however, that
in no event shall the Company deposit monies proposed to be paid in respect of
defaulted interest later than 11:00 a.m. of the proposed Default Interest
Payment Date. At least 15 days before the subsequent special record date, the
Company shall mail (or cause to be mailed) to each Holder, as of a recent date
selected by the Company, with a copy to the Trustee, a notice that states the
subsequent special record date, the payment date and the amount of defaulted
interest, and interest payable on such defaulted interest, if any, to be paid.
Notwithstanding the foregoing, any interest which is paid prior to the
expiration of the 30-day period set forth in Section 6.01(i) shall be paid to
Holders as of the regular record date for the Interest Payment Date for which
interest has not been paid. Notwithstanding the foregoing, the Company may make
payment of any defaulted interest in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Notes may be
listed, and upon such notice as may be required by such exchange.
SECTION 2.13. CUSIP Number.
The Company in issuing the Notes may use a "CUSIP" number, and, if
so, the Trustee shall use the CUSIP number in notices of redemption or exchange
as a convenience to Holders; provided, however, that no representation is hereby
deemed to be made by the Trustee as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Notes, and that reliance may be placed
only on the other identification numbers printed on the Notes. The Company shall
promptly notify the Trustee of any change in the CUSIP number.
<PAGE> 35
SECTION 2.14. Deposit of Monies.
Prior to 11:00 a.m. New York City time on each Interest Payment
Date, Maturity Date, Redemption Date, Change of Control Purchase Date and Asset
Sale Offer Purchase Date, the Company shall have deposited with the Paying Agent
in immediately available funds money sufficient to make cash payments, if any,
due on such Interest Payment Date, Maturity Date, Redemption Date, Change of
Control Purchase Date and Asset Sale Offer Purchase Date, as the case may be, in
a timely manner which permits the Paying Agent to remit payment to the Holders
on such Interest Payment Date, Maturity Date, Redemption Date, Change of Control
Purchase Date and Asset Sale Offer Purchase Date, as the case may be.
SECTION 2.15. Restrictive Legends.
(a) Each Global Note and Physical Note that constitutes a Restricted
Security shall bear the following legend (the "Private Placement Legend") on the
face thereof until after the third anniversary of the Issue Date, unless
otherwise agreed by the Company and the Holder thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) UNDER THE ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A
U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFF-SHORE TRANSACTION,
(2) AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE
OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY, EXCEPT (A) TO
THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE ACT,
(C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A
U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE
FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH
REGULATION S UNDER THE ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF
<PAGE> 36
AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM
THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED
TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE AND THE ISSUER SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR
IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT.
AS USED HEREIN, THE TERMS "OFF-SHORE TRANSACTION," "UNITED STATES" AND
"U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
EACH PURCHASER BY ITS PURCHASE OF THIS SECURITY SHALL BE DEEMED TO HAVE
REPRESENTED AND COVENANTED THAT EITHER (I) IT IS NOT ACQUIRING THE
SECURITY FOR OR ON BEHALF OF ANY PENSION OR WELFARE PLAN (AS DEFINED IN
SECTION 3 OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
("ERISA")) OR (II) IF IT IS ACQUIRING THE SECURITY FOR OR ON BEHALF OF A
PENSION OR WELFARE PLAN, THE APPLICABLE CONDITIONS OF PROHIBITED
TRANSACTION EXEMPTION 91-38, 90-1, 84-14 OR 95-60 ISSUED BY THE DEPARTMENT
OF LABOR HAVE BEEN SATISFIED OR THE PLAN IS A GOVERNMENTAL PLAN THAT IS
NOT SUBJECT TO TITLE I OF ERISA OR SECTION 4975 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED.
(b) Each Global Note shall also bear the following legend on the
face thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY
THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF
THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR
DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF
SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN
THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR
<PAGE> 37
TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE
& CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTION 2.17 OF THE INDENTURE.
SECTION 2.16. Book-Entry Provisions for Global Security.
(a) The Global Note initially shall (i) be registered in the name of
DTC or the nominee of such DTC, (ii) be delivered to the Trustee as custodian
for such DTC and (iii) bear legends as set forth in Section 2.15.
Members of, or participants in, DTC ("Agent Members") shall have no
rights under this Indenture with respect to any Global Note held on their behalf
by DTC, or the Trustee as its custodian, or under the Global Note, and DTC may
be treated by the Company, the Trustee and any Agent as the absolute owner of
the Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any Agent from giving
effect to any written certification, proxy or other authorization furnished by
DTC or impair, as between DTC and its Agent Members, the operation of customary
practices governing the exercise of the rights of a Holder of any Note.
(b) Transfers of the Global Note shall be limited to transfers in
whole, but not in part, to DTC, its successors or their respective nominees.
Interests of beneficial owners in the Global Note may be transferred or
exchanged for Physical Notes in accordance with the rules and procedures of DTC
and the provisions of Section 2.17. In addition, Physical Notes shall be
transferred to all beneficial owners in exchange for their beneficial interests
in the Global Note if (i) DTC notifies the Company that it is unwilling or
unable to continue as DTC for the Global Note and a successor depositary is not
appointed by the Company within 90 days of such notice or (ii) an Event of
Default has occurred and is continuing and the Registrar has received a written
request from DTC to issue Physical Notes.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in the Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall
<PAGE> 38
(if one or more Physical Notes are to be issued) reflect on its books and
records the date and a decrease in the principal amount of the Global Note in an
amount equal to the principal amount of the beneficial interest in the Global
Note to be transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Physical Notes of like tenor and amount.
(d) In connection with the transfer of the entire Global Note to
beneficial owners pursuant to paragraph (b), the Global Note shall be deemed to
be surrendered to the Trustee for cancellation, and the Company shall execute,
and the Trustee shall authenticate and deliver, to each beneficial owner
identified by DTC in exchange for its beneficial interest in the Global Note, an
equal aggregate principal amount of Physical Notes of authorized denominations.
(e) Any Physical Note constituting a Restricted Security delivered
in exchange for an interest in the Global Note pursuant to paragraph (b) or (c)
shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of Section
2.17, bear the legend regarding transfer restrictions applicable to the Physical
Notes set forth in Section 2.15.
(f) The Holder of the Global Note may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Notes.
SECTION 2.17. Special Transfer Provisions.
(a) Transfers to Non-U.S. Persons. The following provisions shall
apply with respect to the registration of any proposed transfer of a Note
constituting a Restricted Security to any Non-U.S. Person:
(i) the Registrar shall register the transfer of any Note
constituting a Restricted Security, whether or not such Note bears the
Private Placement Legend, if (x) the requested transfer is after the third
anniversary of the Issue Date (provided, however, that neither the Company
nor any Affiliate of the Company has held any beneficial interest in such
Note, or portion thereof, at any time on or prior to the third anniversary
of the Issue Date) or (y) the proposed transferor has delivered to the
Registrar a certificate substantially in the form of Exhibit D hereto; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in the Global Note, upon receipt by the Registrar of
the certificate, if any, required by paragraph (i) above and written
instructions given in accordance with the procedures of DTC and the
<PAGE> 39
Registrar, then (x) the Registrar shall reflect on its books and records
the date and (if the transfer does not involve a transfer of outstanding
Physical Notes) a decrease in the principal amount of the Global Note in
an amount equal to the principal amount of the beneficial interest in the
Global Note to be transferred, and (y) the Company shall execute and the
Trustee shall authenticate and deliver one or more Physical Notes of like
tenor and amount.
(b) Transfers to Accredited Investors. The following provisions
shall apply with respect to any proposed transfer of a Note constituting a
Restricted Security to any Accredited Investor that is not a QIB:
(i) the Registrar shall register the transfer of any Note
constituting a Restricted Security, whether or not such Note bears the
Private Placement Legend, if (x) the requested transfer is after the third
anniversary of the Issue Date (provided, however, that neither the Company
nor any Affiliate of the Company has held any beneficial interest in such
Note, or portion thereof, at any time on or prior to the third anniversary
of the Issue Date) or (y) the proposed transferee has delivered to the
Registrar a certificate substantially in the form of Exhibit C hereto; and
(ii) if the proposed transferee is an Agent Member, and the Notes to
be transferred consist of Physical Notes which after transfer are to be
evidenced by an interest in the Global Note, upon receipt by the Registrar
of written instructions given in accordance with DTC's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and an increase in the principal amount of the Global Note in an amount
equal to the principal amount of the Physical Notes to be transferred, and
the Trustee shall cancel the Physical Notes so transferred.
(c) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Note constituting a
Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer if such transfer is
being made by a proposed transferor who has checked the box provided for
on the form of Note stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Note stating, or has otherwise advised the
Company and the Registrar in writing, that it is purchasing the Note for
its own account or an account with respect to which it
<PAGE> 40
exercises sole investment discretion and that it and any such account is a
QIB within the meaning of Rule 144A, and is aware that the sale to it is
being made in reliance on Rule 144A and acknowledges that it has received
such information regarding the Company as it has requested pursuant to
Rule 144A or has determined not to request such information and that it is
aware that the transferor is relying upon its foregoing representations in
order to claim the exemption from registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the Notes to
be transferred consist of Physical Notes which after transfer are to be
evidenced by an interest in the Global Note, upon receipt by the Registrar
of written instructions given in accordance with DTC's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and an increase in the principal amount of the Global Note in an amount
equal to the principal amount of the Physical Notes to be transferred, and
the Trustee shall cancel the Physical Notes so transferred.
(d) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar shall deliver only Notes that bear the Private Placement Legend
unless (i) the requested transfer is after the third anniversary of the Issue
Date (provided, however, that neither the Company nor any Affiliate of the
Company has held any beneficial interest in such Note, or portion thereof, at
any time prior to or on the third anniversary of the Issue Date), or (ii) there
is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to
the Company and the Trustee to the effect that neither such legend nor the
related restrictions on transfer are required in order to maintain compliance
with the provisions of the Securities Act.
(e) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.16 or this Section 2.17.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time during the
Registrar's normal business hours upon the giving of reasonable written notice
to the Registrar.
<PAGE> 41
(f) Transfers of Notes Held by Affiliates. Any certificate (i)
evidencing a Note that has been transferred to an Affiliate of the Company
within three years after the Issue Date, as evidenced by a notation on the
Assignment Form for such transfer or in the representation letter delivered in
respect thereof, for so long as such Note is held by such Affiliate, or (ii)
evidencing a Note that has been acquired from an Affiliate (other than by an
Affiliate) in a transaction or a chain of transactions not involving any public
offering, shall, until three years after the last date on which the Company or
any Affiliate of the Company was an owner of such Note, in each case, bear the
legend in substantially the form set forth in Section 2.15(a), unless otherwise
agreed by the Company (with written notice thereof to the Trustee).
SECTION 2.18. Liquidated Damages Under Registration Rights
Agreement.
Under certain circumstances, the Company shall be obligated to pay
certain liquidated damages to the Holders, all as set forth in Section 4 of the
Registration Rights Agreement. The terms thereof are hereby incorporated herein
by reference.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to Paragraph 6 of the
Notes, it shall notify the Trustee and the Paying Agent in writing of the
Redemption Date and the principal amount of the Notes to be redeemed.
The Company shall give each notice provided for in this Section 3.01
at least 60 days before the Redemption Date (unless a shorter notice period
shall be satisfactory to the Trustee, as evidenced in a writing signed on behalf
of the Trustee), together with an Officers' Certificate stating that such
redemption shall comply with the conditions contained herein and in the Notes.
SECTION 3.02. Selection of Notes To Be Redeemed.
If fewer than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not listed on a national securities
exchange, by lot or by such method as the Trustee shall deem fair and
appropriate; provided, however, that if the Notes are redeemed pursuant to
Paragraph 6(b) of the Notes, the Notes shall be
<PAGE> 42
redeemed solely on a pro rata basis or on as nearly a pro rata basis as
practicable (subject to the procedures of DTC or any other depositary), unless
such method is otherwise prohibited. If the Notes are listed on any national
securities exchange, the Company shall notify the Trustee of the requirements of
such exchange in respect of any redemption. The Trustee shall make the selection
from the Notes outstanding and not previously called for redemption and shall
promptly notify the Company in writing of the Notes selected for redemption and,
in the case of any Note selected for partial redemption, the principal amount
thereof to be redeemed. Notes in denominations of $1,000 may be redeemed only in
whole. The Trustee may select for redemption portions (equal to $1,000 or any
integral multiple thereof) of the principal of Notes that have denominations
larger than $1,000. Provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail or cause to be mailed a notice of redemption by first
class mail to each Holder whose Notes are to be redeemed, with a copy to the
Trustee and any Paying Agent. At the Company's request, the Trustee shall give
the notice of redemption in the Company's name and at the Company's expense. The
Company shall provide such notices of redemption to the Trustee at least five
Business Days before the intended mailing date.
Each notice for redemption shall identify (including the CUSIP
number) the Notes to be redeemed and shall state:
1. the Redemption Date;
2. the Redemption Price and the amount of accrued interest, if any,
to be paid;
3. the name and address of the Paying Agent;
4. the subparagraph of the Notes pursuant to which such redemption
is being made;
5. that Notes called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price plus accrued interest, if
any;
6. that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the Redemption Date, and the only remaining right of the Holders of
such Notes is to receive payment of the Redemption Price plus accrued
interest, if any, upon surrender to the Paying Agent of the Notes
redeemed;
<PAGE> 43
7. if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
Redemption Date, and upon surrender of such Note, a new Note or Notes in
the aggregate principal amount equal to the unredeemed portion thereof
will be issued; and
8. if fewer than all the Notes are to be redeemed, the
identification of the particular Notes (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Notes to be
redeemed and the aggregate principal amount of Notes to be outstanding
after such partial redemption.
SECTION 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03,
Notes called for redemption become due and payable on the Redemption Date and at
the Redemption Price plus accrued interest, if any. Upon surrender to the
Trustee or Paying Agent, such Notes called for redemption shall be paid at the
Redemption Price plus accrued interest thereon to the Redemption Date, but
installments of interest, the maturity of which is on or prior to the Redemption
Date, shall be payable to Holders of record at the close of business on the
relevant record dates referred to in the Notes.
SECTION 3.05. Deposit of Redemption Price.
On or before the Redemption Date and in accordance with Section 2.14
hereof, the Company shall deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the Redemption Price plus accrued interest, if any, of all
Notes to be redeemed on that date. The Paying Agent shall promptly return to the
Company any U.S. Legal Tender so deposited which is not required for that
purpose, except with respect to monies owed as obligations to the Trustee
pursuant to Article Seven.
If the Company complies with the preceding paragraph, then, unless
the Company defaults in the payment of such Redemption Price plus accrued
interest, if any, interest on the Notes to be redeemed will cease to accrue on
and after the applicable Redemption Date, whether or not such Notes are
presented for payment.
SECTION 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is to be redeemed in part, the Trustee
shall authenticate for the Holder a new Note or Notes equal in principal amount
to the unredeemed portion of the Note surrendered.
<PAGE> 44
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.
(a) The Company shall pay the principal of and interest on the Notes
on the dates and in the manner provided in the Notes and in this Indenture.
(b) An installment of principal of or interest on the Notes shall be
considered paid on the date it is due if the Trustee or Paying Agent (other than
the Company or any of its Affiliates) holds, prior to 11:00 a.m. New York City
time on that date, U.S. Legal Tender designated for and sufficient to pay the
installment in full and is not prohibited from paying such money to the Holders
pursuant to the terms of this Indenture or the Notes.
(c) The Company shall pay, to the extent such payments are lawful,
interest on overdue principal and on overdue installments of interest (without
regard to any applicable grace periods) from time to time on demand at the rate
borne by the Notes. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
(d) Notwithstanding anything to the contrary contained in this
Indenture, the Company may, to the extent it is required to do so by law, deduct
or withhold income or other similar taxes imposed by the United States of
America from principal or interest payments hereunder.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain the office or agency required under
Section 2.03. The Company shall give prior written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in Section 11.02.
SECTION 4.03. Corporate Existence.
Except as otherwise permitted by Article Five or by Section 4.16,
the Company shall do or cause to be done, at its own cost and expense, all
things necessary to preserve and keep in full force and effect its corporate
existence and the corporate existence of each of the Subsidiaries in accordance
with the respective organizational documents of each such Subsidiary and the
material rights (charter and statutory) and franchises
<PAGE> 45
of the Company and each such Subsidiary; provided, however, that the Company
shall not be required to preserve, with respect to itself, any material right or
franchise and, with respect to any Subsidiary, any such existence, material
right or franchise, if the Board of Directors of the Company shall determine in
good faith that the preservation thereof is no longer desirable in the conduct
of the business of the Company and the Subsidiaries, taken as a whole.
SECTION 4.04. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all material taxes,
assessments and governmental charges (including withholding taxes and any
penalties, interest and additions to taxes) levied or imposed upon it or any
Subsidiary or properties of it or any Subsidiary and (ii) all material lawful
claims for labor, materials and supplies that, if unpaid, might by law become a
Lien upon the property of it or any Subsidiary; provided, however, that the
Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate negotiations or
proceedings properly instituted and diligently conducted for which adequate
reserves, to the extent required under GAAP, have been taken.
SECTION 4.05. Maintenance of Properties and Insurance.
(a) The Company shall, and shall cause each Restricted Subsidiary
to, maintain all properties used or useful in the conduct of its business in
good working order and condition (subject to ordinary wear and tear) and make
all necessary repairs, renewals, replacements, additions, betterments and
improvements thereto; provided, however, that nothing in this Section 4.05 shall
prevent the Company or any Restricted Subsidiary from discontinuing the
operation and maintenance of any of its properties, if such discontinuance is
(i) in the ordinary course of business pursuant to customary business terms or
(ii) in the good faith judgment of the Board of Directors or other governing
body of the Company or the Restricted Subsidiary, as the case may be, desirable
in the conduct of their respective businesses and is not disadvantageous in any
material respect to the Holders.
(b) The Company shall provide or cause to be provided, for itself
and each Restricted Subsidiary, insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the good faith judgment of the
Company, are adequate and appropriate for the conduct of the business of the
Company and such Restricted Subsidiary in a prudent manner, with reputable
insurers or with the government of the United States of America or an agency or
instrumentality thereof, in
<PAGE> 46
such amounts, with such deductibles, and by such methods as shall be customary,
in the good faith judgment of the Company, for companies similarly situated in
the industry and owning like properties.
SECTION 4.06. Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee, within 105 days after
the end of the Company's fiscal year, a certificate signed by the Chairman of
the Board of Directors, the Chief Executive Officer, the President or any Vice
President and by the Chief Financial Officer, Treasurer or any Assistant
Treasurer or the Secretary or any Assistant Secretary of the Company (provided,
however, that one of such signatories shall be the Company's principal executive
officer, principal financial officer or principal accounting officer), as to
such Officers' knowledge of the Company's compliance with all conditions and
covenants under this Indenture (without regard to any period of grace or
requirement of notice provided hereunder) and in the event any Default exists,
such Officers shall specify the nature of such Default.
(b) (i) If any Default or Event of Default has occurred and is
continuing or (ii) if any Holder seeks to exercise any remedy hereunder with
respect to a claimed Default under this Indenture or the Notes, the Company
shall deliver to the Trustee, at its address set forth in Section 11.02, by
registered or certified mail or by facsimile transmission followed by hard copy
by registered or certified mail an Officers' Certificate specifying such event,
notice or other action within five Business Days of its becoming aware of such
occurrence.
SECTION 4.07. Compliance with Laws.
The Company shall comply, and shall cause each Subsidiary to comply,
with all applicable statutes, rules, regulations, orders and restrictions of the
United States of America, all states and municipalities thereof, and of any
governmental department, commission, board, regulatory authority, bureau, agency
and instrumentality of the foregoing, in respect of the conduct of their
respective businesses and the ownership of their respective properties, except
for such noncompliances as would not singly or in the aggregate have a material
adverse effect on the financial condition, business or results of operations of
the Company and the Subsidiaries, taken as a whole.
SECTION 4.08. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other
<PAGE> 47
law that would prohibit or forgive the Company from paying all or any portion of
the principal of or interest on the Notes as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
SECTION 4.09. Provision of Financial Statements and Information.
(a) Following effectiveness of the Exchange Offer (as defined in the
Registration Rights Agreement), whether or not the Company is then subject to
Section 13(a) or 15(d) of the Exchange Act, the Company will file with the
Commission, so long as any Notes are outstanding, the annual reports, quarterly
reports and other periodic reports which the Company would have been required to
file with the Commission pursuant to such Section 13(a) or 15(d) if the Company
were so subject, and such documents shall be filed with the Commission on or
prior to the respective dates (the "Required Filing Dates") by which the Company
would have been required so to file such documents if the Company were so
subject; provided the Commission will accept such filings. Upon qualification of
this Indenture under the TIA, the Company shall also comply with the provisions
of TIA { 314(a).
(b) The Company will also in any event (i) within 15 days of each
Required Filing Date, file with the Trustee, and supply the Trustee with copies
for delivery to the Holders of the Notes, the annual reports, quarterly reports
and other periodic reports which the Company would have been required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if
the Company were subject to such Sections and (ii) if the Commission will not
accept the filing of such documents promptly upon written request and payment of
the reasonable cost of duplication and delivery, supply copies of such documents
to any prospective Holder of the Notes.
(c) Until the Company is subject to Section 13 or 15(d) of the
Exchange Act, the Company shall provide to any Holder or any beneficial owner of
Notes any information reasonably requested by such Holder or such beneficial
owner concerning the Company and its Subsidiaries (including financial
statements) necessary in order to permit such Holder or such beneficial owner to
sell or transfer Notes in compliance with Rule 144A under the Securities Act.
<PAGE> 48
SECTION 4.10. Limitation on Incurrence of Indebtedness.___________
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, create, incur, issue, assume or directly or indirectly guarantee
or in any other manner become directly or indirectly liable for ("incur") any
Indebtedness (including Acquired Debt), except that the Company may incur
Indebtedness (including Acquired Debt) if, at the time of, and immediately after
giving pro forma effect to, such incurrence of Indebtedness, the Consolidated
Cash Flow Coverage Ratio of the Company for the most recently ended four fiscal
quarters would be at least 2.0 to 1.0 if incurred during the period from the
Issue Date through November 15, 1998, and 2.25 to 1.0 if incurred thereafter.
(b) The foregoing limitations will not apply to the incurrence of
any of the following (collectively, "Permitted Indebtedness"), each of which
shall be given independent effect:
(i) Indebtedness of the Company arising under the Senior Credit
Facility and Indebtedness of IKS Klingelnberg GmbH and its Subsidiaries
arising under the German Subsidiary Facilities, in an aggregate principal
amount not to exceed at any time outstanding the greater of (x) $30.0
million, less any permanent reduction in commitments thereunder, and (y)
the sum, at such time, of (I) 85% of the consolidated book value of net
accounts receivable of the Company and the Restricted Subsidiaries and
(II) 60% of the consolidated book value of inventory of the Company and
the Restricted Subsidiaries;
(ii) Indebtedness of the Company represented by the Initial Notes
and the Exchange Notes;
(iii) Indebtedness of the Company or any Restricted Subsidiary not
covered by any other clause of this paragraph which is outstanding on the
Issue Date ("Existing Indebtedness"), including certain Indebtedness of
IKS Klingelnberg GmbH under the German Subsidiary Facilities
outstanding on the Issue Date;
(iv) Indebtedness owed by any Restricted Subsidiary to the Company or
to another Restricted Subsidiary, or owed by the Company to any Restricted
Subsidiary; provided, however, that any such Indebtedness shall at all
times be held by a Person which is either the Company or a Restricted
Subsidiary; provided, further, however, that upon either (a) the transfer
or other disposition of any such Indebtedness to a Person other than the
Company or another Restricted Subsidiary or (b) the sale, transfer or
other disposition of shares of Capital Stock (including by consolidation
or merger) of any such Restricted Subsidiary
<PAGE> 49
to a Person other than the Company or another Restricted Subsidiary, the
incurrence of such Indebtedness shall be deemed to be an incurrence that
is not permitted by this clause (iv);
(v) Indebtedness of the Company or any Restricted Subsidiary arising
with respect to Interest Rate Agreement Obligations and Currency Agreement
Obligations incurred for the purpose of fixing or hedging interest rate
risk or currency risk with respect to any fixed or floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding or with respect to any receivable or liability the payment of
which is determined by reference to a foreign currency;
(vi) Indebtedness represented by performance, completion, guarantee,
surety and similar bonds provided by the Company or any Restricted
Subsidiary in the ordinary course of business consistent with past
practice;
(vii) Any Indebtedness incurred in connection with or given in
exchange for the renewal, extension, substitution, refunding, defeasance,
refinancing or replacement, in whole or in part, (a "refinancing") of any
Indebtedness incurred as permitted under Section 4.10(a) or any
Indebtedness described in clauses (ii) or (iii) above and this clause
(vii) ("Refinancing Indebtedness"); provided, however, that (a) the
principal amount of such Refinancing Indebtedness shall not exceed the
principal amount (or accreted amount, if less) of the Indebtedness so
refinanced (plus the premiums and reasonable expenses to be paid in
connection therewith, which, with respect to such premiums, shall not
exceed the stated amount of any premium or other payment required to be
paid in connection with such a refinancing pursuant to the terms of the
Indebtedness being refinanced); (b) if the Weighted Average Life to
Maturity of the Indebtedness being refinanced is equal to or greater than
the Weighted Average Life to Maturity of the Notes, the Refinancing
Indebtedness shall have a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness
being refinanced; (c) with respect to Refinancing Indebtedness other than
Senior Debt incurred by the Company, such Refinancing Indebtedness shall
rank no more senior than, and, if applicable, shall be at least as
subordinated in right of payment to the Notes as, the Indebtedness being
refinanced; and (d) the obligor on such Refinancing Indebtedness shall be
the obligor on the Indebtedness being refinanced or the Company;
(viii) Indebtedness of the Company or any Restricted Subsidiary (a)
representing Capitalized Lease Obligations and any refinancings thereof
and/or (b) in respect of Purchase Money Obligations for property acquired,
constructed
<PAGE> 50
or improved in the ordinary course of business and any refinancings
thereof, which taken together in the aggregate do not exceed $5.0 million
at any time outstanding;
(ix) commodity agreements entered into in the ordinary course of
business to protect against fluctuations in the prices of raw materials
and not for speculative purposes;
(x) Indebtedness incurred by the Company or any Restricted
Subsidiary constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims
or self-insurance, or other Indebtedness with respect to reimbursement
type obligations regarding workers' compensation claims or self-insurance;
(xi) (a) Guarantees by the Company of Indebtedness of a Restricted
Subsidiary permitted to be incurred under this Indenture, (b) Guarantees
by any Restricted Subsidiary in accordance with Section 4.19 and (c)
Guarantees by any Restricted Subsidiary of Senior Debt so long as such
Restricted Subsidiary executes a Guarantee of the Notes on a senior
subordinated basis;
(xii) Indebtedness of the Company or any Restricted Subsidiary arising
from agreements providing for indemnification, adjustment of purchase
price or similar obligations, in each case incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary,
other than Guarantees of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided that the maximum liability in respect
of such Indebtedness shall not exceed the gross proceeds actually received
by the Company and its Restricted Subsidiaries in connection with such
disposition; and
(xiii) Indebtedness of the Company or any Restricted Subsidiary in
addition to that described in clauses (i) through (xii) above, and any
renewals, extensions, substitutions, refinancings or replacements of such
Indebtedness, so long as the aggregate principal amount of all such
Indebtedness incurred pursuant to this clause (xiii) does not exceed $5.0
million at any one time outstanding (which may be, but shall not be
required to be, incurred, in whole or in part, under the Senior Credit
Facility or the German Subsidiary Facilities).
(c) For purposes of determining any particular amount of
Indebtedness under this Section 4.10, Guarantees, Liens or obligations with
respect to letters of credit
<PAGE> 51
supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included.
(d) Indebtedness of any Person which is outstanding at the time such
Person becomes a Restricted Subsidiary or is merged with or into or consolidated
with the Company or a Restricted Subsidiary shall be deemed to have been
incurred at the time such Person becomes a Restricted Subsidiary or is merged
with or into or consolidated with the Company or a Restricted Subsidiary, and
Indebtedness which is assumed at the time of the acquisition of any asset shall
be deemed to have been incurred at the time of such acquisition.
SECTION 4.11. Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, make any Restricted Payment, unless at
the time of and immediately after giving effect to the proposed Restricted
Payment (with the value of any such Restricted Payment, if other than cash, to
be determined reasonably and in good faith by the Board of Directors of the
Company):
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(ii) the Company could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section
4.10(a); and
(iii) the aggregate amount of all Restricted Payments made after the
Issue Date shall not exceed the sum of:
(a) an amount equal to 50% of the Company's aggregate
cumulative Consolidated Net Income accrued on a cumulative basis
during the period (treated as one accounting period) beginning on
the Issue Date and ending on the date of such proposed Restricted
Payment (or, if such aggregate cumulative Consolidated Net Income
for such period shall be a deficit, minus 100% of such deficit);
plus
(b) the aggregate amount of all net cash proceeds received
since the Issue Date by the Company from the issuance and sale
(other than to a Restricted Subsidiary) of, or equity contribution
with respect to, Capital Stock (other than Disqualified Stock) and
the principal amount of Indebtedness of the Company or any
Restricted Subsidiary that has been converted into or exchanged for
Capital Stock (other than Disqualified Stock), in any such case to
the extent that such proceeds are not used (x) to redeem,
repurchase, retire or otherwise acquire
<PAGE> 52
Capital Stock or any Indebtedness of the Company or any Restricted
Subsidiary pursuant to clause (ii) of the next paragraph or (y) to
make any Restricted Investment pursuant to clause (iv) of the next
paragraph; plus
(c) the amount of the net reduction in Investments in
Unrestricted Subsidiaries resulting from (x) the payment of
dividends or the repayment in cash of the principal of loans or the
cash return on any Investment, in each case to the extent received
by the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries, (y) the release or extinguishment of any guarantee of
Indebtedness of any Unrestricted Subsidiary, and (z) the
redesignation of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued as provided in the definition of "Investment"),
such aggregate amount of the net reduction in Investments not to
exceed in the case of any Unrestricted Subsidiary the amount of
Restricted Investments previously made by the Company or any
Restricted Subsidiary in such Unrestricted Subsidiary, which amount
was included in the calculation of the amount of Restricted
Payments; plus
(d) to the extent that any Restricted Investment that was made
after the Issue Date is sold for cash or otherwise liquidated or
repaid for cash, the amount of cash proceeds received with respect
to such Restricted Investment, net of taxes and the cost of
disposition, not to exceed the amount of Restricted Investments made
after the Issue Date.
(b) Section 4.11(a) shall not prohibit the following actions
(collectively, "Permitted Payments"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such payment would have
been permitted under this Indenture (which payment shall be deemed to have
been paid on such date of declaration for purposes of Section
4.11(a)(iii));
(ii) the redemption, repurchase, retirement or other acquisition of
any Capital Stock or any Indebtedness of the Company or any Restricted
Subsidiary in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Restricted Subsidiary) of, or equity
contribution with respect to, Capital Stock of the Company (other than any
Disqualified Stock);
(iii) any purchase or defeasance of Subordinated Indebtedness to the
extent required upon a Change of Control or Asset Sale (as defined
therein) by the indenture
<PAGE> 53
or other agreement or instrument pursuant to which such Subordinated
Indebtedness was issued, but only if the Company (x) in the case of a
Change of Control, has complied with its obligations under Section 4.15 or
(y) in the case of an Asset Sale, has applied the Net Proceeds from such
Asset Sale in accordance with Section 4.16;
(iv) any Restricted Investment the sole consideration for which
consists of, or is made with the proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary) of, or equity contribution
with respect to, Capital Stock of the Company (other than any Disqualified
Stock);
(v) the making of payments by the Company to IKS Holdings in an
amount not in excess of the income tax liability that the Company and its
Subsidiaries would have been liable for if the Company and its
Subsidiaries had filed consolidated tax returns on a stand-alone basis;
(vi) distributions, loans or advances to IKS Holdings in an aggregate
amount not to exceed $50,000 per annum sufficient to permit IKS Holdings
to pay the ordinary operating expenses of IKS Holdings (including, without
limitation, reasonable directors' fees and expenses, indemnification
obligations and professional fees and expenses) directly related to IKS
Holdings' ownership of Capital Stock of the Company (other than any
expenses of CVC or any of its Affiliates);
(vii) payments to IKS Holdings in amounts and at times necessary to
permit the repurchase of Holdings Common Stock, Holdings Preferred Stock
and Holdings Debentures from directors, officers and employees of the
Company and its Subsidiaries who have died or whose employment has been
terminated; provided that such payments shall not exceed $500,000 in any
fiscal year plus any amount available for such payments hereunder since
the Issue Date which have not been used for such purpose; provided,
further, that in no event shall such payments exceed $2.0 million in any
fiscal year;
(viii) loans or advances to employees of the Company or any of its
Subsidiaries which loans or advances exist on the Issue Date, a loan to
John E. Halloran, the Company's President and Chief Executive Officer, to
pay income taxes which will be incurred by him in connection with the
Recapitalization not to exceed $250,000 and other loans or advances to
employees of the Company or any Subsidiary to pay reasonable relocation
expenses; and
(ix) Restricted Investments in an amount such that the sum of the
aggregate amount of Restricted Investments
<PAGE> 54
made pursuant to this clause (ix) after the Issue Date does not exceed
$2.0 million at any one time outstanding;
provided, however, that in the case of clauses (iii), (vii), (viii) and (ix) of
this Section 4.11(b), no Default or Event of Default shall have occurred and be
continuing.
(c) For purposes of Section 4.11(a)(iii), the Permitted Payments
referred to in clauses (i), (vii) and (ix) of Section 4.11(b) shall be included
in the aggregate amount of Restricted Payments made since the Issue Date, and
any other Permitted Payments described above shall be excluded.
(d) Not later than thirty (30) days after the end of any fiscal
quarter of the Company during which any Restricted Payment or Restricted
Investment has been made, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment or Restricted Investment
complies with this Indenture and setting forth in reasonable detail the basis
upon which the required calculations were computed, which calculations may be
based upon the Company's latest available internal quarterly financial
statements.
SECTION 4.12. Limitation on Liens.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien securing Indebtedness that is pari passu with or subordinated in right
of payment to the Notes (other than Permitted Liens) on any asset now owned or
hereafter acquired, or any income or profits therefrom, or assign or convey any
right to receive income therefrom to secure any such Indebtedness, unless (i) if
such Lien secures Indebtedness which is pari passu with the Notes, then the
Notes are secured on an equal and ratable basis with the obligations so secured
until such time as such obligation is no longer secured by a Lien or (ii) if
such Lien secures Indebtedness which is subordinated to the Notes, any such Lien
shall be subordinated to a Lien granted to the Holders of the Notes in the same
collateral as that securing such Lien to the same extent as such subordinated
Indebtedness is subordinated to the Notes.
SECTION 4.13. Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries.______
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause to become
effective any consensual encumbrance or consensual restriction on the ability of
any Restricted Subsidiary to (i) pay dividends or make any other distributions
to the Company or any other Restricted Subsidiary on its Capital Stock or with
respect to any other interest or participation in, or measured by, its profits,
or pay any Indebtedness owed
<PAGE> 55
to the Company or any other Restricted Subsidiary, (ii) make loans or advances
to, or issue Guarantees for the benefit of, the Company or any other Restricted
Subsidiary or (iii) transfer any of its properties or assets to the Company or
any other Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of:
(a) the Senior Credit Facility;
(b) any German Subsidiary Facility;
(c) applicable law;
(d) any instrument governing Indebtedness or Capital Stock of an
Acquired Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the
extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition); provided, however, that no such
encumbrance or restriction is applicable to any Person, or the properties
or assets of any Person, other than the Acquired Person;
(e) by reason of customary non-assignment, subletting or net worth
provisions in leases or other agreements entered into the ordinary course
of business and consistent with past practices;
(f) Purchase Money Indebtedness for property acquired in the
ordinary course of business that impose restrictions only on the property
so acquired;
(g) an agreement for the sale or disposition of assets or the
Capital Stock of a Restricted Subsidiary; provided, however, that such
restriction or encumbrance is only applicable to such Restricted
Subsidiary or assets, as applicable, and such sale or disposition
otherwise is permitted by Section 4.16; provided, further, however, that
such restriction or encumbrance shall be effective only for a period from
the execution and delivery of such agreement through a termination date
not later than 270 days after such execution and delivery;
(h) this Indenture and the Notes;
(i) Indebtedness (including Refinancing Indebtedness) permitted to
be incurred subsequent to the Issue Date pursuant to Section 4.10;
provided, however, that any such restrictions are ordinary and customary
with respect to the type of Indebtedness being incurred;
(j) encumbrances and restrictions imposed by Liens incurred in
accordance with Section 4.12;
<PAGE> 56
(k) customary provisions in joint venture agreements and other
similar agreements; and
(l) encumbrances and restrictions imposed by amendments,
restatements, renewals, replacements or refinancings of the contracts,
instruments or obligations referred to in clauses (a) through (k) above;
provided that such encumbrances and restrictions are, in the good faith
judgment of the Company's Board of Directors, no more restrictive, in any
material respect, than those contained in such contracts, instruments or
obligations immediately prior to such amendment, restatement, renewal,
replacement or refinancing.
SECTION 4.14. Limitation on Transactions with Affiliates.__________
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with any
Affiliate of the Company unless (1) such transaction or series of transactions
is on terms that are no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could reasonably be obtainable
at such time in a comparable transaction in arm's-length dealings with an
unrelated third party, and (2) the Company delivers to the Trustee (a) with
respect to any transaction or series of transactions involving aggregate
payments in excess of $500,000, an Officers' Certificate certifying that such
transaction or series of related transactions complies with clause (1) above and
(b) with respect to any transaction or series of transactions involving
aggregate payments in excess of $2.0 million, an Officers' Certificate
certifying that such transaction or series of related transactions has been
approved by a majority of the members of the Board of Directors of the Company
(and approved by a majority of the Independent Directors or, in the event there
is only one Independent Director, by such Independent Director), and (c) with
respect to any transaction or series of transactions involving aggregate
payments in excess of $5.0 million, an opinion as to the fairness to the Company
from a financial point of view issued by an investment banking firm of national
standing.
(b) Section 4.14(a) will not apply to (i) employment agreements or
compensation or employee benefit arrangements with any officer, director or
employee of the Company or any of its Restricted Subsidiaries entered into in
the ordinary course of business (including customary benefits thereunder and
including reimbursement or advancement of out-of-pocket expenses, and director's
and officer's liability insurance); (ii) any transaction entered into by or
among the Company or one of its Restricted Subsidiaries with one or more
Restricted
<PAGE> 57
Subsidiaries of the Company; (iii) any transaction permitted by Section 4.11(b);
(iv) transactions permitted by, and complying with, Article Five; and (v)
transactions with suppliers or other purchases or sales of goods or services, in
each case in the ordinary course of business (including, without limitation,
pursuant to joint venture agreements) and otherwise in compliance with the terms
of this Indenture which, in the reasonable determination of the Board of
Directors of the Company, are on terms no less favorable to the Company or its
Restricted Subsidiaries than those that could reasonably have been obtained at
such time from an unaffiliated party.
SECTION 4.15. Change of Control.
(a) In the event of a Change of Control, each Holder shall have the
right, unless the Company has given a notice of redemption, subject to the terms
and conditions of this Indenture, to require the Company to offer to purchase
all or any portion (equal to $1,000 or an integral multiple thereof) of such
Holder's Notes at a purchase price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase, in accordance with the terms set forth below (a "Change of Control
Offer").
In the event of any Change of Control, the Company shall not, and
shall not cause or permit any of the Subsidiaries to, purchase, redeem or
otherwise acquire or retire any Indebtedness of the Company ranking junior or
subordinate to the Notes pursuant to any analogous provisions relating to such
Indebtedness until after the 91st day after the Change of Control Purchase Date
(as such date may be extended).
(b) On or before the 30th day following the occurrence of any Change
of Control, the Company shall mail, by first-class mail (with a copy to the
Trustee), to each Holder at such Holder's registered address a notice stating:
(i) that a Change of Control has occurred and that such Holder has the right to
require the Company to purchase all or a portion (equal to $1,000 or an integral
multiple thereof) of such Holder's Notes at a purchase price in cash equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Purchase
Date"), which shall be a business day, specified in such notice, that is not
earlier than 30 days or later than 60 days from the date such notice is mailed;
(ii) the amount of accrued and unpaid interest, if any, as of the Change of
Control Purchase Date; (iii) that any Note not tendered will continue to accrue
interest; (iv) that, unless the Company defaults in the payment of the purchase
price for the Notes payable pursuant to the Change of Control Offer, any Notes
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest on the Change of Control Purchase Date; (v) that Holders
electing to have a Note purchased pursuant to a Change of Control Offer will be
required to
<PAGE> 58
surrender the Note, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the second Business
Day prior to the Change of Control Purchase Date; (vi) that Holders will be
entitled to withdraw their election if the Paying Agent receives, not later than
the second Business Day prior to the Change of Control Purchase Date, a
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Notes the Holder delivered for purchase and a statement
that such Holder is withdrawing his election to have such Notes purchased; (vii)
that Holders whose Notes are purchased only in part will be issued new Notes in
a principal amount equal to the unpurchased portion of the Notes surrendered;
provided, however, that each Note purchased and each new Note issued shall be in
an original principal amount of $1,000 or integral multiples thereof; (viii) the
circumstances and relevant facts regarding such Change of Control; and (ix) such
other information as may be required by applicable laws and regulations.
(c) On the Change of Control Purchase Date, the Company will (x)
accept for payment all Notes or portions thereof tendered pursuant to the Change
of Control Offer, (y) deposit with the Paying Agent U.S. Legal Tender Sufficient
to pay the aggregate purchase price of all Notes or portions thereof accepted
for payment, and (z) deliver or cause to be delivered to the Trustee all Notes
tendered pursuant to the Change of Control Offer. The Paying Agent shall
promptly mail to each Holder of Notes or portions thereof accepted for payment
an amount equal to the purchase price for such Notes plus accrued and unpaid
interest, if any, thereon, and the Trustee shall promptly authenticate and mail
to each Holder of Notes accepted for payment in part a new Note equal in
principal amount to any unpurchased portion of the Notes, and any Note not
accepted for payment in whole or in part shall be promptly returned to the
Holder of such Note. On and after a Change of Control Purchase Date, interest
will cease to accrue on the Notes or portions thereof accepted for payment,
unless the Company defaults in the payment of the purchase price therefor. The
Company will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Purchase Date.
(d) The Company will comply with the applicable tender offer rules,
including the requirements of Section 14(e) and Rule 14e-1 under the Exchange
Act, and all other applicable securities laws and regulations in connection with
any Change of Control Offer and will be deemed not to be in violation of any of
the covenants under this Indenture to the extent such compliance is in conflict
with such covenants.
<PAGE> 59
SECTION 4.16. Limitation on Asset Sales.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, make any Asset Sale unless (i) the Company or such Restricted
Subsidiary, as the case may be, receives consideration at the time of such Asset
Sale at least equal to the fair market value (as evidenced by a resolution of
the Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the assets or other property sold or disposed of in the Asset Sale
and (ii) at least 75% of such consideration consists of either cash or Cash
Equivalents; provided, however, that for purposes of this Section 4.16, "cash"
shall include (x) the amount of any Indebtedness (other than any Indebtedness
that is by its terms subordinated to the Notes) of the Company or such
Restricted Subsidiary as shown on the Company's or such Restricted Subsidiary's
most recent balance sheet or in the notes thereto that is assumed by the
transferee of any such assets or other property in such Asset Sale (and
excluding any liabilities that are incurred in connection with or in
anticipation of such Asset Sale), but only to the extent that such assumption is
effected on a basis such that there is no further recourse to the Company or any
of the Restricted Subsidiaries with respect to such liabilities and (y) any
notes, obligations or securities received by the Company or such Restricted
Subsidiary from such transferee that are converted within 60 days by the Company
or such Restricted Subsidiary into cash (to the extent of the cash received).
(b) Within 270 days after any Asset Sale, the Company or the
applicable Restricted Subsidiary may elect to apply the Net Proceeds from such
Asset Sale to (a) permanently reduce any Senior Debt of the Company or any
Indebtedness of the applicable Restricted Subsidiary and/or (b) make an
investment in, or acquire assets and properties that will be used in, the
business of the Company and the Restricted Subsidiaries existing on the Issue
Date or in businesses reasonably related thereto. Pending the final application
of any such Net Proceeds, the Company or any Restricted Subsidiary may
temporarily reduce Indebtedness of the Company under the Senior Credit Facility
or temporarily invest such Net Proceeds in any Investments described under
clauses (i) through (iii) of the definition of Permitted Investments. Any Net
Proceeds from an Asset Sale not applied or invested as provided in the first
sentence of this Section 4.16(b) within 270 days of such Asset Sale will be
deemed to constitute "Excess Proceeds."
(c) Each date that the aggregate amount of Excess Proceeds in
respect of which an Asset Sale Offer (as defined below) has not been made
exceeds $5.0 million shall be deemed an "Asset Sale Offer Trigger Date." As soon
as practicable, but in no event later than 20 business days after each Asset
Sale Offer Trigger Date, the Company shall commence an offer (an "Asset Sale
Offer") to purchase the maximum principal amount of Notes that may be purchased
out of the Excess Proceeds. Any
<PAGE> 60
Notes to be purchased pursuant to an Asset Sale Offer shall be purchased pro
rata based on the aggregate principal amount of Notes outstanding, and all Notes
shall be purchased at an offer price in cash in an amount equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase. To the extent that any Excess Proceeds remain after completion of
an Asset Sale Offer, the Company may use the remaining amount for general
corporate purposes otherwise permitted by this Indenture. In the event that the
Company is prohibited under the terms of any agreement governing outstanding
Senior Debt of the Company from repurchasing Notes with Excess Proceeds pursuant
to an Asset Sale Offer as set forth in the first sentence of this Section
4.16(c), the Company shall promptly use all Excess Proceeds to permanently
reduce such outstanding Senior Debt of the Company. Upon the consummation of any
Asset Sale Offer, the amount of Excess Proceeds shall be deemed to be reset to
zero.
(d) Notice of an Asset Sale Offer shall be mailed, by first-class
mail (with a copy to the Trustee), by the Company not later than the 20th
business day after the related Asset Sale Offer Trigger Date to each Holder of
Notes at such Holder's registered address, stating: (i) that an Asset Sale Offer
Trigger Date has occurred and that the Company is offering to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
Proceeds (to the extent provided in the immediately preceding paragraph), at an
offer price in cash in an amount equal to 100% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of the purchase (the
"Asset Sale Offer Purchase Date"), which shall be a business day, specified in
such notice, that is not earlier than 30 days or later than 60 days from the
date such notice is mailed, (ii) the amount of accrued and unpaid interest, if
any, as of the Asset Sale Offer Purchase Date, (iii) that any Note not tendered
will continue to accrue interest, (iv) that, unless the Company defaults in the
payment of the purchase price for the Notes payable pursuant to the Asset Sale
Offer, any Notes accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest after the Asset Sale Offer Purchase Date, (v) that
Holders electing to have a Note purchased pursuant to a Asset Sale Offer will be
required to surrender the Note, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the third
Business Day prior to the Asset Sale Offer Purchase Date, (vi) that Holders will
be entitled to withdraw their election if the Paying Agent receives, not later
than the second Business Day prior to the Asset Sale Offer Purchase Date, a
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Notes the Holder delivered for purchase and a statement
that such Holder is withdrawing his election to have such Note purchased, (vii)
that Holders whose Notes are purchased only in part will be issued new Notes in
a principal amount equal to the
<PAGE> 61
unpurchased portion of the Notes surrendered; provided, however, that each Note
purchased and each new Note issued shall be in an original principal amount of
$1,000 or integral multiples thereof, and (viii) such other information as may
be required by applicable laws and regulations.
(e) On the Asset Sale Offer Purchase Date, the Company will (i)
accept for payment the maximum principal amount of Notes or portions thereof
tendered pursuant to the Asset Sale Offer that can be purchased out of Excess
Proceeds from such Asset Sale that are to be applied to an Asset Sale Offer,
(ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the
aggregate purchase price of all Notes or portions thereof accepted for payment,
and (iii) deliver or cause to be delivered to the Trustee all Notes tendered
pursuant to the Asset Sale Offer. If less than all Notes tendered pursuant to
the Asset Sale Offer are accepted for payment by the Company for any reason
consistent with this Indenture, selection of the Notes to be purchased by the
Company shall be in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes are
not so listed, on a pro rata basis or by lot; provided, however, that Notes
accepted for payment in part shall only be purchased in integral multiples of
$1,000. The Paying Agent shall promptly mail to each Holder of Notes or portions
thereof accepted for payment an amount equal to the purchase price for such
Notes plus accrued and unpaid interest, if any, thereon, and the Trustee shall
promptly authenticate and mail to such Holder of Notes accepted for payment in
part a new Note equal in principal amount to any unpurchased portion of the
Notes, and any Note not accepted for payment in whole or in part shall be
promptly returned to the Holder of such Note. On and after an Asset Sale Offer
Purchase Date, interest will cease to accrue on the Notes or portions thereof
accepted for payment, unless the Company defaults in the payment of the purchase
price therefor. The Company will publicly announce the results of the Asset Sale
Offer on or as soon as practicable after the Asset Sale Offer Purchase Date.
(f) This Section 4.16 will not apply to a transaction consummated in
compliance with Article Five.
(g) The Company will comply with the applicable tender offer rules,
including the requirements of Section 14(e) and Rule 14e-1 under the Exchange
Act, and all other applicable securities laws and regulations in connection with
any Asset Sale Offer and will be deemed not to be in violation of any of the
covenants under this Indenture to the extent such compliance is in conflict with
such covenants.
<PAGE> 62
SECTION 4.17. Limitation on Designation of Unrestricted
Subsidiaries.__
(a) The Company shall not designate any Subsidiary of the Company
(other than a newly created Subsidiary in which no Investment has previously
been made) as an "Unrestricted Subsidiary" under this Indenture (a
"Designation") unless:
(i) no Default shall have occurred and be continuing at the time of
or after giving effect to such Designation;
(ii) immediately after giving effect to such Designation, the Company
would be able to incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under Section 4.10(a); and
(iii) the Company would not be prohibited under this Indenture from
making an Investment at the time of Designation in an amount (the
"Designation Amount") equal to the greater of (x) the book value of such
Restricted Subsidiary on such date and (y) the Fair Market Value of such
Restricted Subsidiary on such date.
In the event of any such Designation, the Company shall be deemed to have made
an Investment constituting a Restricted Payment pursuant to Section 4.11 for all
purposes of this Indenture in an amount equal to the Designation Amount.
(b) The Company shall not designate an Unrestricted Subsidiary as a
Restricted Subsidiary (a "Redesignation"), unless:
(i) no Default shall have occurred and be continuing at the time of
and after giving effect to such Redesignation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Redesignation shall be deemed to
have been incurred at such time and shall have been permitted to be
incurred for all purposes of this Indenture.
An Unrestricted Subsidiary shall be deemed to be redesignated as a
Restricted Subsidiary at any time if (a) the Company or any other Restricted
Subsidiary (i) provides credit support for, or a guarantee of, any Indebtedness
of such Unrestricted Subsidiary (including any undertaking, agreement or
instrument evidencing such Indebtedness) or (ii) is directly or indirectly
liable for any Indebtedness of such Unrestricted Subsidiary or (b) a default
with respect to any Indebtedness of such Unrestricted Subsidiary (including any
right which the holders thereof may have to take enforcement action against it)
would permit (upon notice, lapse of time or both) any holder of any other
Indebtedness of the Company or any Restricted
<PAGE> 63
Subsidiary to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its final scheduled maturity,
except in the case of clause (a) to the extent permitted under Section 4.11.
(c) All Designations (other than with respect to the Company's
Subsidiaries in China) and Redesignations shall be evidenced by Board
Resolutions delivered to the Trustee certifying compliance with the foregoing
provisions. Subsidiaries that are not designated by the Board of Directors as
Restricted or Unrestricted Subsidiaries will be deemed to be Restricted
Subsidiaries. The Designation of a Restricted Subsidiary as an Unrestricted
Subsidiary shall be deemed a Designation of all of the Subsidiaries of such
Unrestricted Subsidiary as Unrestricted Subsidiaries.
SECTION 4.18. Limitation on Incurrence of Senior Subordinated
Indebtedness.________
The Company shall not, directly or indirectly, incur any
Indebtedness that is subordinated or junior in right of payment to any Senior
Debt of the Company and senior in any respect in right of payment to the Notes.
For purposes of this Section 4.18, no Indebtedness shall be deemed to be
subordinated in right of payment to any other Indebtedness by reason of the fact
that such other Indebtedness is secured by any Lien or is subject to a
Guarantee.
SECTION 4.19. Guarantees.
If the Company or any of its Restricted Subsidiaries transfers or
causes to be transferred, in one transaction or a series of related
transactions, any property (other than cash) to any Restricted Subsidiary that
is not a Foreign Subsidiary, or if the Company or any of its Restricted
Subsidiaries shall organize, acquire or otherwise invest in another Restricted
Subsidiary that is not a Foreign Subsidiary, then such transferee or acquired or
other Restricted Subsidiary shall (i) execute and deliver to the Trustee a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Restricted Subsidiary shall unconditionally guarantee on a senior
subordinated basis all of the Company's obligations under the Notes and this
Indenture and (ii) deliver to the Trustee an Opinion of Counsel that such
supplemental indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and enforceable
obligation of such Restricted Subsidiary. The Indebtedness represented by any
such Guarantee will be subordinated on the same basis to senior Indebtedness of
the guarantor thereof as the Notes are subordinated to Senior Debt. The
obligations of each guarantor will be limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of such
guarantor, result in the obligations of such guarantor under the Guarantee not
constituting a
<PAGE> 64
fraudulent conveyance or fraudulent transfer under federal or state law. Any
such Guarantee will be released upon the sale of all of the Capital Stock, or
all or substantially all of the assets, of the applicable guarantor if such sale
is made in compliance with this Indenture.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets.
(a) The Company shall not, in any single transaction or series of
related transactions, consolidate or merge with or into (whether or not the
Company is the Surviving Person), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets
(determined on a consolidated basis for the Company and its Restricted
Subsidiaries) in one or more related transactions to, another Person, and the
Company will not permit any Restricted Subsidiary to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the properties and assets of the Company and the Restricted Subsidiaries, taken
as a whole, to another Person, unless (i) the Surviving Person is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the Surviving Person (if other than the Company)
assumes all the obligations of the Company under the Notes, this Indenture and,
if then in effect, the Registration Rights Agreement pursuant to a supplemental
indenture or other written agreement, as the case may be, in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction, no
Default or Event of Default shall have occurred and be continuing; (iv)
immediately after giving effect to such transaction or series of related
transactions, (A) in the case of a transaction involving the Company, the
Surviving Person shall have a Consolidated Net Worth equal to or greater than
the Consolidated Net Worth of the Company immediately prior to such transaction
or series of related transactions or (B) in the case of a transaction involving
a Restricted Subsidiary of the Company, the Surviving Person shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
such Restricted Subsidiary immediately prior to such transaction or series of
related transactions; and (v) after giving pro forma effect to such transaction,
the Surviving Person would be permitted to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.10(a).
Notwithstanding clauses (iii), (iv) and (v) above, any Restricted Subsidiary
<PAGE> 65
may consolidate with, merge into or transfer all or part of its properties and
assets to the Company or another Restricted Subsidiary.
In the event of any transaction (other than a lease) described in
and complying with the conditions listed in the immediately preceding paragraph
in which the Company is not the Surviving Person, such Surviving Person shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company, and the Company shall be discharged from its obligations under,
this Indenture, the Notes and the Registration Rights Agreement.
(b) In connection with any such consolidation, merger, amalgamation,
transfer, lease or disposition, the Company or such Person shall have delivered
to the Trustee (i) an Officers' Certificate and an Opinion of Counsel, each in
form and substance reasonably satisfactory to the Trustee, stating that such
consolidation, amalgamation, merger, sale, assignment, conveyance, transfer,
lease or disposition and, if a supplemental indenture is required in connection
with such transaction, such supplemental indenture, comply with this Indenture
and that all conditions precedent therein provided for relating to such
transaction have been complied with, and (ii) if a supplemental indenture is
required in connection with such transaction, an Opinion of Counsel, in form and
substance reasonably satisfactory to the Trustee, that such supplemental
indenture constitutes the legal, valid, binding and enforceable obligation of
the Surviving Person.
(c) For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Subsidiaries, the Capital Stock of which constitutes all or substantially
all of the properties and assets of the Company, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
SECTION 5.02. Successor Corporation Substituted.
Upon any consolidation, amalgamation or merger, or any sale,
assignment, conveyance, transfer, lease or disposition of all or substantially
all of the properties and assets of the Company in accordance with Section 5.01,
the Surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of the Company under this Indenture, with the same effect
as if such successor had been named as the Company in this Indenture; and
thereafter, except in the case of a lease, the Company shall be discharged from
all obligations and covenants under this Indenture and the Notes.
<PAGE> 66
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
"Events of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(i) a default for 30 days in the payment when due of interest on, or
Liquidated Damages (if any) with respect to any Note, (whether or not
prohibited by Article Ten);
(ii) a default in the payment when due of principal on any Note
(whether or not prohibited by Article Ten), whether upon maturity,
acceleration, optional or mandatory redemption, required repurchase or
otherwise;
(iii) failure to perform or comply with any covenant, agreement or
warranty in this Indenture (other than the defaults specified in clauses
(i) and (ii) above) which failure continues for 60 days after written
notice thereof has been given to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in aggregate
principal amount of the then outstanding Notes;
(iv) the occurrence of one or more defaults under any agreements,
indentures or instruments under which the Company or any Restricted
Subsidiary then has outstanding Indebtedness in excess of $5.0 million in
the aggregate and, if not already matured at its final maturity in
accordance with its terms, such Indebtedness shall have been accelerated
and such acceleration is not rescinded, annulled or cured within 10 days
thereafter;
(v) one or more judgments, orders or decrees for the payment of
money in excess of $5.0 million, either individually or in the aggregate,
shall be entered against the Company or any Restricted Subsidiary or any
of their respective properties and which judgments, orders or decrees are
not paid, discharged, bonded or stayed or stayed pending appeal for a
period of 60 days after their entry; or
(vi) the Company or any Significant Subsidiary shall (A) commence a
voluntary case or proceeding under any Bankruptcy Law with respect to
itself, (B) consent to the entry of a judgment, decree or order for relief
against it in an involuntary case or proceeding under any Bankruptcy
<PAGE> 67
Law, (C) consent to the appointment of a Custodian of it or for
substantially all of its property, (D) consent to or acquiesce in the
institution of a bankruptcy or an insolvency proceeding against it, (E)
make a general assignment for the benefit of its creditors, (F) admit in
writing its inability to pay its debts as they become due, or (G) take any
corporate action to authorize or effect any of the foregoing; or
(vii) a court of competent jurisdiction shall enter a judgment, decree
or order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under any Bankruptcy Law
which shall (A) approve as properly filed a petition seeking
reorganization, arrangement, adjustment or composition in respect of the
Company or any Significant Subsidiary, (B) appoint a Custodian of the
Company or any Significant Subsidiary or for substantially all of its
property or (C) order the winding-up or liquidation of its affairs; and
such judgment, decree or order shall remain unstayed and in effect for a
period of 60 consecutive days.
The Company shall provide an Officers' Certificate to the Trustee
within five days of the occurrence of any Default or Event of Default (provided,
however, that pursuant to Section 4.06 hereof the Company shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
SECTION 6.02. Acceleration.
(a) If any Event of Default (other than as specified in clause (vi)
or (vii) of Section 6.01 with respect to the Company) occurs and is continuing,
the Trustee or the Holders of at least 25% in aggregate principal amount of the
then outstanding Notes may, and the Trustee at the request of such Holders
shall, declare all the Notes to be due and payable immediately by notice in
writing to the Company, and to the Company and the Trustee if by the Holders,
specifying the respective Event of Default and that such notice is a "notice of
acceleration," and the Notes shall become immediately due and payable.
Notwithstanding the foregoing, in the case of an Event of Default arising from
the events specified in clause (vi) or (vii) of Section 6.01 with respect to the
Company, the principal of, premium, if any, and any accrued interest on all
outstanding Notes shall ipso facto become immediately due and payable without
further action or notice.
(b) At any time after a declaration of acceleration, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of a majority in principal amount of the Notes outstanding,
by written notice to
<PAGE> 68
the Company and the Trustee, may rescind and annul such declaration and its
consequences if (i) the Company has paid or deposited with the Trustee a sum
sufficient to pay (A) all sums paid or advanced by the Trustee and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, (B) all overdue interest (including any interest accrued
subsequent to an Event of Default specified in clause (vi) or (vii) of Section
6.01 hereof) on all Notes, (C) the principal of and premium, if any, on any
Notes which have become due otherwise than by such declaration or occurrence of
acceleration and interest thereon at the rate borne by the Notes, and (D) to the
extent that payment of such interest is lawful, interest upon overdue interest
at the rate borne by the Notes; and (ii) all Events of Default, other than the
non-payment of principal of Notes which have become due solely by such
declaration or occurrence of acceleration, have been cured or waived; and (iii)
the rescission would not conflict with any judgment, order or decree of any
court of competent jurisdiction.
(c) The Holders of a majority in aggregate principal amount of the
Notes then outstanding by notice to the Trustee may, on behalf of the Holders of
all of the Notes, waive any existing Default or Event of Default and its
consequences under this Indenture except (i) a continuing Default or Event of
Default in the payment of the principal of, or premium, if any, or interest on,
the Notes (which may be waived only with the consent of each Holder of Notes
affected), or (ii) in respect of a covenant or provision which under this
Indenture cannot be modified or amended without the consent of the Holder of
each Note outstanding.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of the principal of or interest on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. No remedy is exclusive of any
other remedy. All available remedies are cumulative to the extent permitted by
law.
SECTION 6.04. Waiver of Past Defaults.
Subject to Sections 2.09, 6.07 and 9.02, prior to the declaration of
acceleration of the Notes, the Holders of not less than a majority in principal
amount of the outstanding
<PAGE> 69
Notes by written notice to the Trustee may on behalf of all of the Holders
waive any past Default or Event of Default and its consequences, except a
Default in the payment of principal of or interest on any Note as specified in
clauses (i) and (ii) of Section 6.01 or a Default in respect of any term or
provision of this Indenture that may not be modified or amended without the
consent of each Holder affected as provided in Section 9.02. In case of any
such waiver, the Company, the Trustee and the Holders shall be restored
to their former positions and rights hereunder and under the Notes,
respectively. This paragraph of this Section 6.04 shall be in lieu of
{316(a)(1)(B) of the TIA and such {316(a)(1)(B) of the TIA is hereby expressly
excluded from this Indenture and the Notes, as permitted by the TIA.
Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured and not to have occurred
for every purpose of this Indenture and the Notes, but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon.
SECTION 6.05. Control by Majority.
Subject to Section 2.09, the Holders of a majority in principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it, including, without limitation, any remedies provided for
in Section 6.03; provided, however, that the Trustee may take any other action
deemed proper by the Trustee which is not inconsistent with such direction.
Subject to Section 7.01, however, the Trustee may refuse to follow any
direction that the Trustee reasonably believes conflicts with any law or
this Indenture, that the Trustee determines may be unduly prejudicial to the
rights of another Holder or that exposes the Trustee to personal liability.
This Section 6.05 shall be in lieu of { 316(a)(1)(A) of the TIA, and such
{316(a)(1)(A) of the TIA is hereby expressly excluded from this Indenture and
the Notes, as permitted by the TIA.
SECTION 6.06. Limitation on Suits.
No Holder shall have any right to institute any proceeding, judicial
or otherwise with respect to this Indenture, or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless:
(a) such Holder has previously given written notice to the Trustee
of a continuing Event of Default;
(b) the Holders of not less than 25% in principal amount of the
outstanding Notes shall have made written
<PAGE> 70
request to the Trustee to institute proceedings in respect
of such Event of Default in its own name as Trustee;
(c) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the outstanding Notes.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture or of the
Notes, the right of any Holder to receive payment of the principal of and
interest on a Note, on or after the respective due dates expressed in such Note,
or to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the express prior
written consent of such Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified
in clause (i) or (ii) of Section 6.01 of this Indenture occurs and is
continuing, the Trustee may recover judgment in its own name and as trustee of
an express trust against the Company or any other obligor on the Notes for the
whole amount of the principal and accrued interest remaining unpaid, together
with interest on overdue principal and, to the extent that payment of such
interest is lawful, interest on overdue installments of interest as set forth in
Section 4.01 and such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses, taxes,
disbursements and advances of the Trustee, its agents and counsel) and the
<PAGE> 71
Holders allowed in any judicial proceedings relating to the Company or any other
obligor upon the Notes, any of their respective creditors or any of their
respective property and shall be entitled and empowered to collect and receive
any monies or other property payable or deliverable on any such claims and to
distribute the same, and any Custodian in any such judicial proceedings is
hereby authorized by each Holder to make such payments to the Trustee and, in
the event that the Trustee shall consent to the making of such payments directly
to the Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, taxes, disbursements and advances of the Trustee, its
agent and counsel, and any other amounts due the Trustee under Section 7.07. The
Company's payment obligations under this Section 6.09 shall be secured in
accordance with the provisions of Section 7.07 hereunder. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money or property pursuant to this
Article Six, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: if the Holders are forced to proceed against the Company
directly without the Trustee, to Holders for their collection costs;
Third: subject to Article Ten, to Holders for amounts due and unpaid
on the Notes for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Notes for principal and interest, respectively; and
Fourth: to the Company or any other obligor on the Notes, as their
interests may appear, or as a court of competent jurisdiction may direct.
The Trustee, upon prior notice to the Company, may fix a record date
and payment date for any payment to Holders pursuant to this Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its
<PAGE> 72
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees and expenses,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section
6.06, or a suit by a Holder or group of Holders of more than 10% in principal
amount of the outstanding Notes.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in its exercise thereof as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties as are specifically
set forth in this Indenture and no covenants or obligations shall be
implied in this Indenture that are adverse to the Trustee; and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, in the case of any such certificates or opinions that by any
provision hereof are specifically required to be furnished to the Trustee,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein contained, the
Trustee may not be relieved from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.01;
<PAGE> 73
(2) The Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.02, 6.04 or 6.05.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01 and
Section 7.02.
(f) The Trustee shall not be liable for interest on any money or
assets received by it except as the Trustee may agree in writing with the
Company. Assets held in trust by the Trustee need not be segregated from other
assets of the Trustee except to the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely and shall be fully protected in acting or
refraining from acting upon any document believed by it to be genuine and
to have been signed or presented by the proper Person. The Trustee need
not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may consult
with counsel of its selection and may require an Officers' Certificate or
an Opinion of Counsel, or both, which shall conform to Sections 11.04 and
11.05. The Trustee shall not be liable for any action it takes or omits to
take in good faith in reliance on such Officers' Certificate or Opinion of
Counsel or upon the advice of counsel.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action that it takes or
omits to take in good faith which it
<PAGE> 74
reasonably believes to be authorized or within its rights or powers.
(e) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled, upon reasonable
notice to the Company, to examine the books, records, and premises of the
Company, personally or by agent or attorney and to consult with the
officers and representatives of the Company, including the Company's
accountants and attorneys.
(f) The Trustee shall not be deemed to have knowledge of any Default
or Event of Default (except default in the payment of moneys which are
required by a provision hereof to be paid to the Trustee or in the
delivery of any certificate, opinion or other document required to be
delivered to the Trustee by any provision hereof) unless the Trustee shall
receive from the Company or any Holder notice stating that a Default or
Event of Default has occurred and specifying the same.
(g) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this
Indenture, unless such Holders shall have offered to the Trustee security
or indemnity reasonably satisfactory to the Trustee against the costs,
expenses and liabilities which may be incurred by it in compliance with
such request, order or direction.
(h) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(i) Delivery of reports, information and documents to the Trustee
under Section 4.09 hereof is for informational purposes only and the
Trustee's receipt of the foregoing shall not constitute constructive
notice of any information contained therein or determinable from
information contained therein, including the Company's compliance with any
of its covenants hereunder (as to which the Trustee is entitled to rely
exclusively on Officers' Certificates).
<PAGE> 75
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company, any
Subsidiary, or their respective Affiliates with the same rights it would have if
it were not Trustee. Any Agent may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11 hereof.
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy
of this Indenture or the Notes, and it shall not be accountable for the
Company's use of the proceeds from the Notes, and it shall not be responsible
for any statement of the Company in this Indenture or the Notes other than the
Trustee's certificate of authentication.
SECTION 7.05. Notice of Default.
If a Default or an Event of Default occurs and is continuing and if
a Trust Officer has knowledge thereof (within the meaning of paragraph (f) of
Section 7.02), the Trustee shall mail to each Holder notice of the uncured
Default or Event of Default within 90 days after such Default or Event of
Default occurs. Except in the case of a Default or an Event of Default in
payment of principal of, or interest on, any Note, including an accelerated
payment, a Default in payment on the Change of Control Payment Date pursuant to
a Change of Control Offer or on the Asset Sale Offer Purchase Date pursuant to
an Asset Sale Offer or a Default in compliance with Article Five hereof, the
Trustee may withhold the notice if and so long as its Board of Directors, the
executive committee of its Board of Directors or a committee of its directors
and/or Trust Officers in good faith determines that withholding the notice is in
the interest of the Holders. The foregoing sentence of this Section 7.05 shall
be in lieu of the proviso to { 315(b) of the TIA and such proviso to { 315(b) of
the TIA is hereby expressly excluded from this Indenture and the Notes, as
permitted by the TIA.
SECTION 7.06. Reports by Trustee to Holders.
Within 60 days after each May 15 of each year beginning with 1997,
the Trustee shall, to the extent that any of the events described in TIA
{313(a) occurred within the previous twelve months, but not otherwise, mail to
each Holder a brief report dated as of such date that complies with TIA
{313(a). The Trustee also shall comply with TIA {{ 313(b), (c) and (d).
A copy of each report at the time of its mailing to Holders shall be
mailed to the Company and filed with the
<PAGE> 76
Commission and each stock exchange, if any, on which the Notes are listed.
The Company shall promptly notify the Trustee if the Notes become
listed on any stock exchange and the Trustee shall comply with TIA { 313(d).
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee upon request for all reasonable out-of-pocket
expenses incurred or made by it in connection with the performance of its duties
under this Indenture. Such expenses shall include the reasonable fees and
expenses of the Trustee's agents and counsel.
The Company shall indemnify each of the Trustee (or any predecessor
Trustee) and its agents, employees, stockholders, Affiliates and directors and
officers for, and hold them harmless against, any and all loss, liability,
damage, claim or expense (including reasonable fees and expenses of counsel),
including taxes (other than taxes based on the income of the Trustee) incurred
by them except for such actions to the extent caused by any negligence, bad
faith or willful misconduct on their part, arising out of or in connection with
the acceptance or administration of this trust including the reasonable costs
and expenses of defending themselves against any claim (whether made by the
Company, any Holder or any other Person) or liability in connection with the
exercise or performance of any of their rights, powers or duties hereunder. The
Trustee shall notify the Company promptly of any claim asserted against the
Trustee for which it may seek indemnity. At the Trustee's sole discretion, the
Company shall defend the claim and the Trustee shall cooperate and may
participate in the defense; provided, however, that any settlement of a claim
shall be approved in writing by the Trustee. Alternatively, the Trustee may at
its option have separate counsel of its own choosing and the Company shall pay
the reasonable fees and expenses of such counsel.
To secure the Company's payment obligations in this Section 7.07,
the Trustee shall have a lien prior to the Notes on all assets or money held or
collected by the Trustee, in its capacity as Trustee, except assets or money
held in trust to pay principal of or interest on particular Notes.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(vi) or (vii) occurs, such expenses and the
compensation for such services are intended to constitute expenses of
administration under any Bankruptcy Law.
<PAGE> 77
The provisions of this Section 7.07 shall survive the termination of
this Indenture.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the outstanding Notes may remove the Trustee
by so notifying the Company and the Trustee and may appoint a successor Trustee.
The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver or other public officer takes charge of the Trustee
or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount of
the Notes may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the outstanding Notes may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding any resignation or replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
shall continue for the benefit of the retiring Trustee, and the Company shall
pay to any such
<PAGE> 78
replaced or removed Trustee all amounts owed under Section 7.07 upon such
replacement or removal.
SECTION 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee; provided, however, that
such corporation shall be otherwise qualified and eligible under this Article
Seven.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirement of TIA {{ 310(a)(1), (2) and (5). The Trustee (or, in the case of a
corporation included in a bank holding company system, the related bank holding
company) shall have a combined capital and surplus of at least $50 million as
set forth in its most recent published annual report of condition. In addition,
if the Trustee is a corporation included in a bank holding company system, the
Trustee, independently of such bank holding company, shall meet the capital
requirements of TIA { 310(a)(2). The Trustee shall comply with TIA { 310(b);
provided, however, that there shall be excluded from the operation of TIA
{ 310(b)(1) any indenture or indentures under which other securities, or
certificates of interest or participation in other securities, of the Company
are outstanding, if the requirements for such exclusion set forth in TIA
{ 310(b)(1) are met. The provisions of TIA { 310 shall apply to the Company, as
obligor of the Notes.
SECTION 7.11. Preferential Collection of Claims Against Company.___
The Trustee shall comply with TIA { 311(a), excluding any creditor
relationship listed in TIA { 311(b). A Trustee who has resigned or been removed
shall be subject to TIA { 311(a) to the extent indicated therein. The provisions
of TIA { 311 shall apply to the Company, as obligor on the Notes.
ARTICLE EIGHT
SATISFACTION AND DISCHARGE; DEFEASANCE
SECTION 8.01. Satisfaction and Discharge of Indenture.____________
(a) This Indenture shall be discharged and shall cease to be of
further effect (except as to surviving rights of
<PAGE> 79
registration of transfer or exchange of Notes herein expressly provided for) as
to all outstanding Notes and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when:
(i) either
(1) all Notes theretofore authenticated and delivered (other
than (x) Notes which have been lost, stolen or destroyed and which
have been replaced or paid as provided in Section 2.07 hereof and
(y) Notes for whose payment money has theretofore been deposited in
trust by the Company and thereafter repaid to the Company or
discharged from such trust) have been delivered to the Trustee for
cancellation; or
(2) all Notes not theretofore delivered to the Trustee for
cancellation (other than (x) Notes which have been lost, stolen or
destroyed and which have been replaced or paid as provided in
Section 2.07 hereof and (y) Notes for whose payment money has
theretofore been deposited in trust or segregated and held in trust
by the Company and thereafter repaid to the Company or discharged
from such trust) have been called for redemption pursuant to the
terms of this Indenture or have otherwise become due and payable,
and the Company, in each case, has irrevocably deposited or caused
to be deposited with the Trustee in trust for the purpose U.S. Legal
Tender sufficient to pay and discharge the entire indebtedness on
such Notes not theretofore delivered to the Trustee for
cancellation, for the principal of, premium, if any, and interest to
the date of such deposit;
(ii) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge
of this Indenture have been complied with.
(b) Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 7.07
hereof shall survive and, if money shall have been deposited with the Trustee
pursuant to clause (a)(i)(2) of this Section 8.01, the obligations of the
Trustee under Sections 8.03 and 8.04 shall survive.
<PAGE> 80
SECTION 8.02. Defeasance or Covenant Defeasance.
(a) Subject to the satisfaction of the conditions in Section 8.02(c)
hereof, the Company may, at its option by Board Resolution, at any time, with
respect to the Notes, elect to have the obligations of the Company discharged
with respect to the outstanding Notes ("defeasance"). Upon such defeasance, the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.04 hereof and the other
Sections of and matters under this Indenture referred to in (i) and (ii) below,
and to have satisfied all its other obligations under such Notes and this
Indenture, except for the following, which shall survive until otherwise
terminated or discharged hereunder: (i) the rights of Holders of Notes to
receive solely from the trust fund described in Section 8.02(c) and as more
fully set forth in such Section, payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due, (ii) the
Company's obligations under Sections 2.03, 2.05, 2.06, 2.07 and 4.02, (iii) the
rights, powers, trusts, duties and immunities of the Trustee hereunder,
including, without limitation, the Trustee's rights under Section 7.07, and (iv)
this Article Eight. Subject to compliance with this Article Eight, the Company
may exercise its option under this Section 8.02(a) notwithstanding the prior
exercise of its option under Section 8.02(b) with respect to the Notes.
(b) Subject to the satisfaction of the conditions in Section 8.02(c)
hereof, the Company may, at its option by Board Resolution, at any time, elect
to effect covenant defeasance ("covenant defeasance"). On and after the date
such conditions are satisfied, (i) the Company shall be released from its
obligations under any covenant or provision contained in Sections 4.04, 4.05,
4.06(a), 4.07 and 4.09 through 4.19, (ii) clauses (iii) through (vi) of Section
6.01 hereof shall not apply, and (iii) the provisions of Articles Five, Ten and
Eleven shall not apply, and the Notes shall thereafter be deemed to be not
"outstanding" for the purposes of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants and the provisions of Articles Five, Ten and Eleven, but shall
continue to be deemed "outstanding" for all other purposes hereunder and subject
to any mandatory requirements of the TIA. For this purpose, such covenant
defeasance means that, with respect to the Notes, the Company may omit to comply
with and shall have no liability in respect of any term, condition or limitation
set forth in any such Section or Article, whether directly or indirectly, by
reason of any reference elsewhere herein to any such Section or Article or by
reason of any reference in any such Section or Article to any other provision
herein or in any other document and such omission to comply shall not constitute
a Default or an Event of Default under clauses (iii) through
<PAGE> 81
(vi) of Section 6.01 hereof, but, except as specified above, the remainder of
this Indenture shall be unaffected thereby.
(c) In order to effect defeasance or covenant defeasance, the
following conditions must be satisfied:
(i) the Company shall have irrevocably deposited with the Trustee
(or another trustee satisfying the requirements of Section 7.10 hereof who
agrees to comply with the provisions of this Article Eight applicable to
it), as trust funds in trust, for the benefit of the Holders of such
Notes, U.S. Legal Tender, U.S. Government Obligations or a combination
thereof, in such amounts as will be sufficient (in the opinion of a
nationally recognized firm of independent public accountants or a
nationally recognized investment banking firm, as evidenced by a written
report), without consideration of reinvestment of interest of such U.S.
Government Obligations, to pay the principal of, premium, if any, and
interest on the outstanding Notes (except lost, stolen or destroyed Notes
which have been replaced or paid) to maturity or redemption, as the case
may be, and the Company shall have irrevocably instructed the Trustee (or
such other trustee) to apply such U.S. Legal Tender or U.S. Government
Obligations to said payments in respect of the Notes;
(ii) the Company shall have delivered to the Trustee one or more
Opinions of Counsel in the United States (which counsel or counsels shall
be independent of the Company) to the effect that:
(A) the Holders of the outstanding Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of
such defeasance or covenant defeasance, as the case may be, and will
be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
defeasance or covenant defeasance, as the case may be, had not
occurred (which opinion, in the case of defeasance, shall be based
upon a ruling of the Internal Revenue Service or a change in
applicable Federal income tax law occurring after the Issue Date);
(B) the trust funds will not be subject to any rights of
holders of Indebtedness of the Company (other than Holders of the
Notes); and
(C) assuming no bankruptcy of the Company occurs between the
date of deposit and the 91st day following the deposit, after the
91st day following the deposit the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency,
<PAGE> 82
reorganization or similar laws affecting creditors' rights
generally;
(iii) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or, in the case of Section 6.01(vi)
or (vii), at any time during the period ending on the 91st day after the
date of such deposit;
(iv) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any other material
agreement or instrument to which the Company is a party or by which it is
bound;
(v) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of defeating, hindering, delaying or defrauding any other creditors
of the Company or others;
(vi) no event or condition shall exist that would prevent the Company
from making payments of the principal of and interest on the Notes on the
date of such deposit or at any time during the period ending on the 91st
day after the date of such deposit; and
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent (other than conditions requiring the passage of time) to either
defeasance or covenant defeasance, as the case may be, have been complied
with and that no violations under agreements governing any other
outstanding Indebtedness of the Company would result therefrom.
Opinions required to be delivered under this Section may have
qualifications customary for opinions of the type required.
SECTION 8.03. Application of Trust Money.
The Trustee or Paying Agent shall hold in trust U.S. Legal Tender or
U.S. Government Obligations deposited with it pursuant to Section 8.01 or 8.02,
and shall apply the deposited U.S. Legal Tender and the money from U.S.
Government Obligations in accordance with this Indenture to the payment of the
principal of and interest on the Notes. The Trustee shall be under no obligation
to invest said U.S. Legal Tender or U.S. Government Obligations except as it may
agree in writing with the Company.
The Company shall pay, and indemnify the Trustee against, any tax,
fee or other charge imposed on or assessed against the Legal Tender or U.S.
Government Obligations
<PAGE> 83
deposited pursuant to Section 8.01 or 8.02 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of outstanding Notes.
SECTION 8.04. Repayment to the Company.
Subject to Sections 8.01 and 8.02, the Trustee and the Paying Agent
shall promptly pay to the Company upon request any excess U.S. Legal Tender or
U.S. Government Obligations held by them at any time and thereupon shall be
relieved from all liability with respect to such money. The Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for one year;
provided, however, that the Trustee or such Paying Agent, before being required
to make any payment, may at the expense of the Company cause to be published
once in a newspaper of general circulation in the City of New York or mail to
each Holder entitled to such money notice that such money remains unclaimed and
that after a date specified therein which shall be at least 30 days from the
date of such publication or mailing any unclaimed balance of such money then
remaining will be repaid to the Company. After payment to the Company, Holders
entitled to such money must look to the Company for payment as general creditors
unless an applicable law designates another Person.
SECTION 8.05. Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or U.S. Government Obligations in accordance with Section 8.01 or 8.02 by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.01 or 8.02, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such U.S. Legal Tender or U.S. Government
Obligations in accordance with Section 8.01 or 8.02, as the case may be;
provided, however, that if the Company has made any payment of interest on or
principal of any Notes because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the U.S. Legal Tender or U.S. Government Obligations
held by the Trustee or Paying Agent.
SECTION 8.06. Acknowledgment of Discharge by Trustee.
After (i) the conditions of Section 8.01 or 8.02(a) have been
satisfied, (ii) the Company has paid or caused to be paid all other sums payable
hereunder by the Company and (iii) the Company has delivered to the Trustee an
Officers'
<PAGE> 84
Certificate and an Opinion of Counsel, each stating that all conditions
precedent referred to in clause (i), above, relating to the satisfaction and
discharge or defeasance of this Indenture have been complied with, the Trustee
upon request shall acknowledge in writing the discharge of the Company's
obligations under this Indenture except for those surviving obligations
specified in Section 8.01 or 8.02, as the case may be.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
The Company, when authorized by a Board Resolution, and the Trustee,
together, may amend or supplement this Indenture or the Notes without notice to
or consent of any Holder:
(i) to cure any ambiguity, defect or inconsistency; provided,
however, that such amendment or supplement does not adversely affect the
rights of any Holder;
(ii) to effect the assumption by a successor Person of all
obligations of the Company under the Notes, this Indenture and, if still
in effect, the Registration Rights Agreement in the event of any
Disposition involving the Company in which the Company is not the
Surviving Person;
(iii) to provide for uncertificated Notes in addition to or in place
of certificated Notes;
(iv) to comply with any requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the TIA;
(v) to make any change that would provide any additional benefit
or rights to the Holders;
(vi) to provide for issuance of the Exchange Notes (which will have
terms substantially identical in all material respects to the Initial
Notes except that the transfer restrictions contained in the Initial Notes
will be modified or eliminated, as appropriate), and which will be treated
together with any outstanding Initial Notes, as a single issue of
securities;
(vii) to make any other change that does not adversely affect the
rights of any Holder under this Indenture; or
(viii) to release any Guarantee delivered pursuant to Section 4.19
that is permitted to be released under this Indenture;
<PAGE> 85
provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 9.01.
SECTION 9.02. With Consent of Holders.
(a) Subject to Section 6.07, the Company, when authorized by a Board
Resolution, and the Trustee, together, with the written consent of the Holder or
Holders of not less than a majority in aggregate principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for the Notes), may amend or supplement this Indenture or the
Notes without notice to any other Holder. Subject to Section 6.02 and 6.07, the
Holder or Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes may waive compliance by the Company with any
provision of this Indenture or the Notes without notice to any other Holder.
(b) Notwithstanding Section 9.02(a) hereof, no amendment, supplement
or waiver, including a waiver pursuant to Section 6.04, shall, without the prior
written consent of each Holder of each Note affected thereby:
(i) reduce the principal amount of the Notes whose Holders must
consent to an amendment, supplement or waiver;
(ii) reduce the principal of or change the fixed maturity of any
Note, or alter or waive the provisions with respect to the redemption of
the Notes in a manner adverse to the Holders of the Notes other than with
respect to a Change of Control Offer or an Asset Sale Offer;
(iii) reduce the rate of or change the time for payment of
interest on any Notes;
(iv) waive a Default or Event of Default in the payment of principal
of, premium, if any, or interest on the Notes (except that Holders of at
least a majority in aggregate principal amount of the then outstanding
Notes may (a) rescind an acceleration of the Notes that resulted from a
non-payment default and (b) waive the payment default that resulted from
such acceleration);
(v) make any Note payable in money other than that stated in the
Notes;
(vi) make any change in the provisions of this Indenture relating to
waivers of past Defaults or Events of Default or the rights of Holders to
receive payments of principal of, or premium, if any, or interest on, the
Notes;
<PAGE> 86
(vii) following the occurrence of a Change of Control, amend, change
or modify the Company's obligation to make and consummate a Change of
Control Offer in the event of a Change of Control or modify any of the
provisions or definitions with respect thereto in a manner adverse to the
Holders, or following the occurrence of an Asset Sale, amend, change or
modify the Company's obligation to make and consummate an Asset Sale Offer
or modify any of the provisions or definitions with respect thereto in a
manner adverse to the Holders; or
(viii) modify or change any of the provisions of this Indenture
relating to the subordination of the Notes in a manner adverse to the
Holders.
(c) It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
(d) After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
SECTION 9.03. Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or the Notes
shall comply with the TIA as then in effect; provided, however, that this
Section 9.03 shall not of itself require that this Indenture or the Trustee be
qualified under the TIA or constitute any admission or acknowledgment by any
party hereto that any such qualification is required prior to the time this
Indenture and the Trustee are required by the TIA to be so qualified.
SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. Subject to the following paragraph, any such Holder or subsequent Holder
may revoke the consent as to such Holder's Note or portion of such Note by
notice to the Trustee or the Company received before the date on which the
Trustee receives an Officers' Certificate certifying that the Holders of the
requisite principal amount of Notes have consented (and not theretofore revoked
such consent) to the amendment, supplement or waiver. An amendment, supplement
or waiver becomes
<PAGE> 87
effective upon receipt by the Trustee of such Officers' Certificate and evidence
of consent by the Holders of the requisite percentage in principal amount of
outstanding Notes.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the second sentence of the immediately preceding paragraph,
those Persons who were Holders at such record date (or their duly designated
proxies), and only those Persons, shall be entitled to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder, unless it makes any change described in Section 9.02(b), in
which case, the amendment, supplement or waiver shall bind only each Holder of a
Note who has consented to it and every subsequent Holder of a Note or portion of
a Note that evidences the same debt as the consenting Holder's Note; provided,
however, that any such waiver shall not impair or affect the right of any Holder
to receive payment of principal of and interest on a Note, on or after the
respective due dates expressed in such Note, or to bring suit for the
enforcement of any such payment on or after such respective dates without the
consent of such Holder.
SECTION 9.05. Notation on or Exchange of Notes.
If an amendment, supplement or waiver changes the terms of a Note,
the Trustee may require the Holder of such Note to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Note about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms.
SECTION 9.06. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; provided, however, that the Trustee
may, but shall not be obligated to, execute any such amendment, supplement or
waiver which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel and an Officers' Certificate
each stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture.
<PAGE> 88
Such Opinion of Counsel shall not be an expense of the Trustee or the Holders.
ARTICLE TEN
SUBORDINATION OF SECURITIES
SECTION 10.01. Notes Subordinate to Senior Debt.__________________
The Company covenants and agrees, and each Holder, by acceptance of
a Note likewise covenants and agrees, that, to the extent and in the manner
hereinafter set forth in this Article Ten, the Indebtedness represented by the
Notes and the payment of the principal of and interest on each and all of the
Notes are hereby expressly made subordinate and subject in right of payment as
provided in this Article Ten to the prior payment in full of all Senior Debt.
This Article Ten shall constitute a continuing offer to all Persons
who, in reliance upon such provisions, become holders of or continue to hold
Senior Debt; and such provisions are made for the benefit of the holders of
Senior Debt; and such holders are made obligees hereunder and they or each of
them may enforce such provisions.
The provisions of this Article Ten shall not be applicable from and
after the date of an effective defeasance or covenant defeasance pursuant to
Section 8.02(a) or 8.02(b), respectively, of this Indenture.
SECTION 10.02. Payment Over of Proceeds upon Dissolution, Etc.____
In the event of (a) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, or (b) any liquidation, dissolution or other winding
up of the Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshaling of assets or liabilities of the Company, then and in any
such event:
(i) the holders of Senior Debt shall be entitled to receive payment
in full of all amounts due on or in respect of all Senior Debt, or
provision shall be made for such payment, before the Holders are entitled
to receive any payment or distribution of any kind or character (other
than in Permitted Junior Securities) on account of principal of or
interest on the Notes; and
<PAGE> 89
(ii) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities (excluding Permitted
Junior Securities), by set-off or otherwise, to which the Holders or the
Trustee would be entitled but for the provisions of this Article Ten shall
be paid by the Custodian making such payment or distribution directly to
the holders of Senior Debt or their representative or representatives or
to the trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Debt may have been issued, ratably according
to the aggregate amounts remaining unpaid on account of the Senior Debt
held or represented by each, to the extent necessary to make payment in
full of all Senior Debt remaining unpaid, after giving effect to any
concurrent payment or distribution to the holders of such Senior Debt; and
(iii) in the event that, notwithstanding the foregoing provisions of
this Section 10.02, the Trustee or any Holder shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, in respect of principal of or
interest on the Notes before all Senior Debt is paid in full or payment
thereof provided for, then and in such event such payment or distribution
(excluding Permitted Junior Securities) shall be paid over or delivered
forthwith to the Custodian making payment or distribution of assets of the
Company for application to the payment of all Senior Debt remaining
unpaid, to the extent necessary to pay all Senior Debt in full, after
giving effect to any concurrent payment or distribution to or for the
holders of Senior Debt.
The consolidation of the Company with, or the merger of the Company
with or into, another Person or the liquidation or dissolution of the Company
following the conveyance, transfer or lease of its properties and assets
substantially as an entirety to another Person upon the terms and conditions set
forth in Article Five shall not be deemed a dissolution, winding up,
liquidation, reorganization, assignment for the benefit of creditors or
marshaling of assets and liabilities of the Company for the purposes of this
Section 10.02 if the Person formed by such consolidation or the surviving entity
of such merger or the Person which acquires by conveyance, transfer or lease
such properties and assets substantially as an entirety, as the case may be,
shall, as a part of such consolidation, merger, conveyance, transfer or lease,
comply with the conditions set forth in Article Five.
SECTION 10.03. Suspension of Payment When Designated Senior Debt
in Default.______________
The Company shall not make any payment upon or in respect of the
Notes (except from the trust created pursuant to
<PAGE> 90
Section 8.02) if (i) a default in the payment of the principal of, premium, if
any, or interest on any Designated Senior Debt occurs and is continuing, whether
at maturity or on a date fixed for prepayment or by declaration of acceleration
or otherwise, or (ii) the Trustee has received written notice ("Payment Blockage
Notice") from the representative of any holders of Designated Senior Debt that a
Nonpayment Default has occurred and is continuing with respect to such
Designated Senior Debt that permits such holders to accelerate the maturity of
such Designated Senior Debt. Payments on the Notes shall resume (and all past
due amounts on the Notes, with interest thereon, shall be paid) (i) in the case
of a Payment Default in respect of any Designated Senior Debt, on the date on
which such Payment Default is cured or waived or otherwise ceases to exist; and
(ii) in the case of a Nonpayment Default in respect of any Designated Senior
Debt, on the earlier of (a) the date on which such Nonpayment Default is cured
or waived, or (b) 179 days after the date on which the Payment Blockage Notice
with respect to such Nonpayment Default was received by the Trustee, in each
case, unless the maturity of any Designated Senior Debt has been accelerated and
the Company has defaulted with respect to the payment of such Designated Senior
Debt, or (c) the date on which such Payment Blockage Period shall have been
terminated by written notice to the Company or the Trustee from the
representative of the holders of Designated Senior Debt initiating such Payment
Blockage Period. During any consecutive 365-day period, the aggregate number of
days in which payments due on the Notes may not be made as a result of
nonpayment defaults on Designated Senior Debt (a "Payment Blockage Period")
shall not exceed 179 days, and there shall be a period of at least 186
consecutive days in each consecutive 365-day period during which no Payment
Blockage Period is in effect. No event or circumstance that creates a Nonpayment
Default under any Designated Senior Debt that (i) gives rise to the commencement
of a Payment Blockage Period or (ii) exists at the commencement of or during any
Payment Blockage Period shall be made the basis for the commencement of any
subsequent Payment Blockage Period unless such default has been cured or waived
for a period of not less than 90 consecutive days. In no event shall a Payment
Blockage Period extend beyond 179 days from the date of the receipt of the
notice referred to in clause (2) of this Section 10.03(b). Any number of notices
of a Nonpayment Default may be given during a Payment Blockage Period; provided,
however, that no such notice shall extend such Payment Blockage Period beyond
the 179-day limit.
(a) In the event that, notwithstanding the foregoing, the Company
shall make any payment to the Trustee or any Holder prohibited by the foregoing
provisions of this Section 10.03, then and in such event such payment shall be
paid over and delivered forthwith to the Senior Representative or other
representative of the holders of the Designated Senior Debt or the holders of
Senior Debt, as applicable, or as a court of competent jurisdiction shall
direct.
<PAGE> 91
SECTION 10.04. Payment Permitted if No Default.
Nothing contained in this Article Ten, elsewhere in this Indenture
or in any of the Notes shall prevent the Company, at any time except during the
pendency of any case, proceeding, dissolution, liquidation or other winding up,
assignment for the benefit of creditors or other marshaling of assets and
liabilities of the Company referred to in Section 10.02 or under the conditions
described in Section 10.03, from making payments at any time of principal of or
interest on the Notes.
SECTION 10.05. Subrogation to Rights of Holders of Senior Debt.___
Subject to the payment in full of all Senior Debt, the Holders of
the Notes shall be subrogated to the rights of the holders of such Senior Debt
to receive payments and distributions of cash, property and securities
applicable to the Senior Debt until the principal of and interest on the Notes
shall be paid in full. For purposes of such subrogation, no payments or
distributions to the holders of Senior Debt of any cash, property or securities
to which the Holders or the Trustee would be entitled except for the provisions
of this Article Ten, and no payments over pursuant to the provisions of this
Article Ten to the holders of Senior Debt by Holders or the Trustee shall, as
among the Company, its creditors other than holders of Senior Debt and the
Holders, be deemed to be a payment or distribution by the Company to or on
account of the Senior Debt.
SECTION 10.06. Provisions Solely to Define Relative Rights.______
The provisions of this Article Ten are intended solely for the
purpose of defining the relative rights of the Holders on the one hand and the
holders of Senior Debt on the other hand. Nothing contained in this Article Ten
or elsewhere in this Indenture or in the Notes is intended to or shall (a)
impair, as among the Company, its creditors other than holders of Senior Debt
and the Holders, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders the principal of and interest on the Notes
as and when the same shall become due and payable in accordance with their
terms; or (b) affect the relative rights against the Company of the Holders of
the Notes and creditors of the Company other than the holders of Senior Debt; or
(c) prevent the Trustee or any Holder from exercising all remedies otherwise
permitted by applicable law upon Default under this Indenture, subject to the
rights, if any, under this Article Ten of the holders of Senior Debt (1) in any
case, proceeding, dissolution, liquidation or other winding up, assignment for
the benefit of creditors or other marshaling of assets and liabilities of the
Company referred to in Section 10.02, to receive, pursuant to and in accordance
with such Section, cash, property and securities
<PAGE> 92
otherwise payable or deliverable to the Trustee or such Holder, or (2) under the
conditions specified in Section 10.03, to prevent any payment prohibited by such
Section or enforce their rights pursuant to Section 10.03(c).
SECTION 10.07. Trustee to Effectuate Subordination.
Each Holder by acceptance of a Note authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate the subordination provided in this Article Ten and appoints the
Trustee his attorney-in-fact for any and all such purposes, including, in the
event of any dissolution, winding up, liquidation or reorganization of the
Company whether in bankruptcy, insolvency, receivership proceedings, or
otherwise, the timely filing of a claim for the unpaid balance of the
indebtedness of the Company owing to such Holder in the form required in such
proceedings and the causing of such claim to be approved.
SECTION 10.08. No Waiver of Subordination Provisions._____________
(a) No right of any present or future holder of any Senior Debt to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
non-compliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
(b) Without limiting the generality of Section 10.08(a), the holders
of Senior Debt may, at any time and from time to time, without the consent of or
notice to the Trustee or the Holders, without incurring responsibility to the
Holders and without impairing or releasing the subordination provided in this
Article Ten or the obligations hereunder of the Holders to the holders of Senior
Debt, do any one or more of the following: (1) change the manner, place or terms
of payment or extend the time of payment of, or renew or alter, Senior Debt or
any instrument evidencing the same or any agreement under which Senior Debt is
outstanding; (2) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Debt; (3) release any Person
liable in any manner for the collection or payment of Senior Debt; and (4)
exercise or refrain from exercising any rights against the Company and any other
Person; provided, however, that in no event shall any such actions limit the
right of the Holders of the Notes to take any action to accelerate the maturity
of the Notes pursuant to Article Six of this Indenture or to pursue any rights
or remedies hereunder or under applicable laws if the taking of such action does
not otherwise violate the terms of this Article Ten.
<PAGE> 93
SECTION 10.09. Notice to Trustee.
(a) The Company shall give prompt written notice to the Trustee of
any fact known to the Company which would prohibit the making of any payment to
or by the Trustee in respect of the Notes. Notwithstanding the provisions of
this Article or any provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Notes, unless and
until the Trustee shall have received written notice thereof from the Company or
a holder of Senior Debt or from any trustee, fiduciary or agent therefor; and,
prior to the receipt of any such written notice, the Trustee shall be entitled
in all respects to assume that no such facts exist; provided, however, that if
the Trustee shall not have received the notice provided for in this Section
10.09 at least three Business Days prior to the date upon which by the terms
hereof any money may become payable for any purpose (including, without
limitation, the payment of the principal of or interest on any Note), then,
anything herein contained to the contrary notwithstanding but without limiting
the rights and remedies of the holders of Senior Debt or any trustee, fiduciary
or agent therefor, the Trustee shall have full power and authority to receive
such money and to apply the same to the purpose for which such money was
received and shall not be affected by any notice to the contrary which may be
received by it within three Business Days prior to such date; nor shall the
Trustee be charged with knowledge of the curing of any such default or the
elimination of the act or condition preventing any such payment unless and until
the Trustee shall have received an Officers' Certificate to such effect.
(b) The Trustee shall be entitled to rely on the delivery to it of a
written notice to the Trustee and the Company by a Person representing himself
to be a holder of Senior Debt (or a trustee, fiduciary or agent therefor) to
establish that such notice has been given by a holder of Senior Debt (or a
trustee, fiduciary or agent therefor); provided, however, that failure to give
such notice to the Company shall not affect in any way the ability of the
Trustee to rely on such notice. In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any Person
as a holder of Senior Debt to participate in any payment or distribution
pursuant to this Article, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Debt held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article, and if such evidence is not furnished,
the Trustee may defer any payment to such Person pending judicial determination
as to the right of such Person to receive such payment.
<PAGE> 94
SECTION 10.10. Reliance on Judicial Order or Certificate of
Liquidating Agent.
Upon any payment or distribution of assets of the Company referred
to in this Article, the Trustee and the Holders of the Notes shall be entitled
to rely upon any order or decree entered by any court of competent jurisdiction
in which such insolvency, bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending, or a
certificate of the Custodian making such payment or distribution, delivered to
the Trustee or to the Holders, for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the holders of Senior
Debt and other Indebtedness of the Company, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article Ten; provided, however, that the foregoing
shall apply only if such court has been fully apprised of the provisions of this
Article Ten.
SECTION 10.11. Rights of Trustee as a Holder of Senior Debt;
Preservation of Trustee's Rights.______________
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article Ten with respect to any Senior Debt which may
at any time be held by it, to the same extent as any other holder of Senior
Debt, and nothing in this Indenture shall deprive the Trustee of any of its
rights as such holder. Nothing in this Article Ten shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 7.07 hereof.
SECTION 10.12. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall
have been appointed by the Company and be then acting under this Indenture, the
term "Trustee" as used in this Article Ten shall in such case (unless the
context otherwise requires) be construed as extending to and including such
Paying Agent within its meaning as fully for all intents and purposes as if such
Paying Agent were named in this Article in addition to or in place of the
Trustee; provided, however, that Section 10.11 hereof shall not apply to the
Company or any Affiliate of the Company if it or such Affiliate acts as Paying
Agent.
SECTION 10.13. No Suspension of Remedies.
Nothing continued in this Article Ten shall limit the right of the
Trustee or the Holders to take any action to accelerate the maturity of the
Notes pursuant to Article Six of this Indenture or to pursue any rights or
remedies hereunder or
<PAGE> 95
under applicable law, subject to the rights, if any, under this Article Ten of
the holders, from time to time, of Senior Debt.
SECTION 10.14. Trustee's Relation to Holders of Senior Debt.______
With respect to the holders of Senior Debt, the Trustee undertakes
to perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article Ten, and no implied covenants or
obligations with respect to the holders of Senior Debt shall be read into this
Article against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Debt and the Trustee shall not be liable
to any holder of Senior Debt if it shall mistakenly pay over or deliver to
Holders, the Company or any other Person moneys or assets to which any holder of
Senior Debt shall be entitled by virtue of this Article or otherwise.
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts
with another provision which is required to be included in this Indenture by the
TIA, the required provision shall control; provided, however, that this Section
11.01 shall not of itself require that this Indenture or the Trustee be
qualified under the TIA or constitute any admission or acknowledgment by any
party hereto that any such qualification is required prior to the time this
Indenture and the Trustee are required by the TIA to be so qualified.
SECTION 11.02. Notices.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telecopier or registered or certified mail, postage prepaid, return receipt
requested, addressed as follows:
if to the Company:
International Knife & Saw, Inc.
P.O. Box 752006
Cincinnati, OH 45275-2006
Telecopier No.: (606) 283-7209
Attn: Chief Executive Officer
<PAGE> 96
if to the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Attention: Corporate Trust Division
Telecopier Number: (212) 852-1625/1626
Each of the Company and the Trustee by written notice to the other
may designate additional or different addresses for notices to such Person. Any
notice or communication to the Company or the Trustee shall be deemed to have
been given or made as of the date so delivered if personally delivered; when
answered back, if telexed; when receipt is acknowledged, if faxed; and five (5)
calendar days after mailing if sent by registered or certified mail, postage
prepaid (except that a notice of change of address shall not be deemed to have
been given until actually received by the addressee).
Any notice or communication mailed to a Holder shall be mailed to
him by first class mail or other equivalent means at his address as it appears
on the registration books of the Registrar and shall be sufficiently given to
him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders. If a
notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
SECTION 11.03. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA { 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and any other Person shall have the protection of TIA
{312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate, in form and substance satisfactory to
the Trustee, stating that, in the opinion of the signers, all conditions
precedent to be performed by the Company, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
<PAGE> 97
(b) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent to be performed by the Company, if
any, provided for in this Indenture relating to the proposed action have
been complied with.
SECTION 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.06 shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(d) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with.
SECTION 11.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules in accordance with the
Trustee's customary practices for action by or at a meeting of Holders. The
Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 11.07. Legal Holidays.
A "Legal Holiday" as used with respect to a particular place of
payment, is a Saturday, a Sunday or a day on which banking institutions in New
York, New York or at such place of payment are not required to be open. If a
payment date is a Legal Holiday at such place, payment may be made at such place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
SECTION 11.08. Governing Law.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
<PAGE> 98
AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO ITS PRINCIPLES OF CONFLICT OF LAWS. Each of the parties hereto agrees
to submit to the jurisdiction of the courts of the State of New York in any
action or proceeding arising out of or relating to this Indenture.
SECTION 11.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of the Company or any of the Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 11.10. No Recourse Against Others.
A director, officer, employee, stockholder or incorporator, as such,
of the Company or of the Trustee shall not have any liability for any
obligations of the Company under the Notes or this Indenture or for any claim
based on, in respect of or by reason of such obligations or their creations.
Each Holder by accepting a Note waives and releases all such liability. Such
waiver and release are part of the consideration for the issuance of the Notes.
SECTION 11.11. Successors.
All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
SECTION 11.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together shall represent the
same agreement.
SECTION 11.13. Severability.
In case any one or more of the provisions in this Indenture or in
the Notes shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
SECTION 11.14. Independence of Covenants.
All covenants and agreements in this Indenture and the Notes shall
be given independent effect so that if any particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception
<PAGE> 99
to, or otherwise be within the limitations of, another covenant shall not avoid
the occurrence of a Default or an Event of Default if such action is taken or
condition exists.
[Remainder of Page Intentionally Left Blank]
<PAGE> 100
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.
INTERNATIONAL KNIFE & SAW, INC.
By:
Name:
Title:
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By:
Name:
Title:
<PAGE> 101
EXHIBIT A
INTERNATIONAL KNIFE & SAW, INC.
11-3/8% SENIOR SUBORDINATED NOTE DUE 2006
CUSIP No.: 459733 AA 9
No. $
INTERNATIONAL KNIFE & SAW, INC., a Delaware corporation (the
"Company", which term includes any successor entity), for value received
promises to pay to or registered assigns, the principal sum of Dollars, on
November 6, 2006.
Interest Payment Dates: May 15 and November 15, commencing on May
15, 1997
Record Dates: May 1 and November 1
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
INTERNATIONAL KNIFE & SAW, INC.
By:
Name:
Title:
By:
Name:
Title:
Certificate of Authentication
This is one of the 11-3/8% Senior Subordinated Notes due 2006
referred to in the within-mentioned Indenture.
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By:
Authorized Signatory
Date of Authentication:
<PAGE> 102
(REVERSE OF SECURITY)
11-3/8% Senior Subordinated Note due 2006
1. Interest. INTERNATIONAL KNIFE & SAW, INC., a Delaware corporation
(the "Company"), promises to pay interest on the principal amount of this Note
at the rate per annum shown above. Interest on the Notes will accrue from the
most recent date on which interest has been paid or, if no interest has been
paid, from November 6, 1996. The Company will pay interest semi-annually in
arrears on each Interest Payment Date. Interest will be computed on the basis of
a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and on overdue
installments of interest (without regard to any applicable grace periods) to the
extent lawful, from time to time on demand at the rate borne by the Notes.
2. Method of Payment. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are the registered Holders at the
close of business on the Record Date immediately preceding the Interest Payment
Date even if the Notes are cancelled on registration of transfer or registration
of exchange after such Record Date. Holders must surrender Notes to a Paying
Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by its check payable in such U.S.
Legal Tender. The Company may deliver any such interest payment to the Paying
Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, United States Trust
Company of New York (the "Trustee") will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-Registrar without notice to
the Holders.
4. Indenture. The Company issued the Notes under an Indenture, dated
as of November 6, 1996 (the "Indenture"), between the Company and the Trustee.
This Note is one of a duly authorized issue of Initial Notes of the Company
designated as its 11-3/8% Senior Subordinated Notes due 2006 (the "Initial
Notes"). The Notes are limited in aggregate principal amount to $90,000,000. The
Notes include the Initial Notes and the Exchange Notes, as defined below, issued
in exchange for the Initial Notes pursuant to the Indenture. The Initial Notes
and the Exchange Notes are treated as a single class of securities under the
Indenture. Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code {{ 77aaa-77bbbb) (the
<PAGE> 103
"TIA"), as in effect on the date of the Indenture. Notwithstanding anything to
the contrary herein, the Notes are subject to all such terms, and Holders of
Notes are referred to the Indenture and the TIA for a statement of them. The
Notes are general unsecured obligations of the Company. Each Holder, by
accepting a Note, agrees to be bound by all of the terms and provisions of the
Indenture, as the same may be amended from time to time in accordance with its
terms.
5. Subordination. The Notes are subordinated in right of payment, in
the manner and to the extent set forth in the Indenture, to the prior payment in
full of all Senior Debt of the Company, whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by
his acceptance hereof agrees to be bound by such provisions and authorizes and
expressly directs the Trustee, on his behalf, to take such action as may be
necessary or appropriate to effectuate the subordination provided for in the
Indenture and appoints the Trustee his attorney-in-fact for such purposes.
6. Redemption. (a) Optional Redemption. The Notes are redeemable, at
the Company's option, in whole or in part, at any time on and after November 15,
2001 at the redemption prices (expressed as percentages of the principal
amount of the Notes) if redeemed during the twelve-month period commencing on
November 15 of the year set forth below, plus, in each case, accrued and unpaid
interest thereon, if any, to the Redemption Date:
Year Percentage
2001............................. 105.688%
2002............................. 103.792
2003............................. 101.896
2004 and thereafter.............. 100.000
(b) Optional Redemption Upon Public Equity Offerings. At any time or
from time to time on or prior to November 15, 1999, the Company may, at its
option, redeem up to $30 million aggregate principal amount of the Notes with
the net proceeds of one or more Public Equity Offerings, at a redemption price
equal to 111-3/8% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of redemption; provided, however, that (x) not
less than $60 million aggregate principal amount of the Notes is outstanding
immediately after giving effect to any such redemption (other than any Notes
owned by the Company or any of its Affiliates) and (y) such redemption is
effected within 90 days after the consummation of any such Public Equity
Offering.
The Notes are not entitled to the benefit of any sinking fund.
<PAGE> 104
7. Notice of Redemption. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the Redemption Date to each
Holder of Notes to be redeemed at such Holder's registered address. Notes in
denominations larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the redemption
of the Notes called for redemption shall have been deposited with the Paying
Agent for redemption on such Redemption Date, then, unless the Company defaults
in the payment of such Redemption Price plus accrued interest, if any, the Notes
called for redemption will cease to bear interest from and after such Redemption
Date and the only right of the Holders of such Notes will be to receive payment
of the Redemption Price plus accrued interest, if any.
8. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture
provide that, after certain Asset Sales (as defined in the Indenture) and upon
the occurrence of a Change of Control (as defined in the Indenture), and subject
to further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
9. Registration Rights. Pursuant to the Registration Rights
Agreement dated as of the date of the Indenture, among the Company and Schroder
Wertheim & Co. Incorporated and Smith Barney Inc., as initial purchasers of the
Initial Notes, the Company is obligated to consummate an exchange offer pursuant
to which the Holder of this Note shall have the right to exchange this Note for
the Company's Series B 11-3/8% Senior Subordinated Notes due 2006 (the "Exchange
Notes"), which shall have been registered under the Securities Act, in like
principal amount and having terms identical in all material respects as the
Initial Notes. The Holders of the Initial Notes shall be entitled to receive
certain additional interest payments in the event such exchange offer is not
consummated and upon certain other conditions, all pursuant to and in accordance
with the terms of the Registration Rights Agreement.
10. Denominations; Transfer; Exchange. The Notes are in registered
form, without coupons, and in denominations of $1,000 and integral multiples of
$1,000. A Holder shall register the transfer of or exchange Notes in accordance
with the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay certain
transfer taxes or similar governmental charges payable in connection therewith
as permitted by the Indenture. The Registrar need not register the transfer of
or exchange of any Notes or portions thereof selected for redemption.
11. Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes,
<PAGE> 105
subject to the provisions of the Indenture with respect to record dates for the
payment of interest.
12. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for one year, the Trustee and the Paying Agent will
pay the money back to the Company. After that, all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
13. Discharge Prior to Redemption or Maturity. If the Company at any
time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and complies with the other provisions of the Indenture relating
thereto, the Company will be discharged from certain provisions of the Indenture
and the Notes (including certain covenants, but excluding its obligation to pay
the principal of and interest on the Notes).
14. Amendment; Supplement; Waiver. Subject to certain exceptions set
forth in the Indenture, the Indenture or the Notes may be amended or
supplemented with the written consent of the Holders of not less than a majority
in aggregate principal amount of the Notes then outstanding, and any past
Default or Event of Default or noncompliance with any provision may be waived
with the written consent of the Holders of not less than a majority in aggregate
principal amount of the Notes then outstanding. Without notice to or consent of
any Holder, the parties thereto may amend or supplement the Indenture or the
Notes to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Notes in addition to or in place of certificated
Notes, or comply with Article Five of the Indenture or make any other change
that does not adversely affect the rights of any Holder of a Note.
15. Restrictive Covenants. The Indenture imposes certain limitations
on the ability of the Company and the Subsidiaries to, among other things, incur
additional Indebtedness, make Restricted Payments or Restricted Investments,
create or incur Liens, enter into transactions with Affiliates, create dividend
or other payment restrictions affecting Subsidiaries and issue Preferred Stock
of Subsidiaries, and on the ability of the Company and the Subsidiaries to merge
or consolidate with any other Person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company and
the Subsidiaries. Such limitations are subject to a number of important
qualifications and exceptions. Pursuant to Section 4.06 of the Indenture, the
Company must annually report to the Trustee on compliance with such limitations.
16. Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its
<PAGE> 106
predecessor under the Notes and the Indenture, the predecessor, subject to
certain exceptions, will be released from those obligations.
17. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of Notes then outstanding may declare all the Notes to be due
and payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee is not obligated to enforce the Indenture
or the Notes unless it has received indemnity reasonably satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders of a
majority in aggregate principal amount of the Notes then outstanding to direct
the Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Notes notice of any continuing Default or Event of Default (except a
Default in payment of principal or interest when due, for any reason or a
Default in compliance with Article Five of the Indenture) if it determines that
withholding notice is in their interest.
18. Trustee Dealings with Company. The Trustee under the Indenture,
in its individual or any other capacity, may become the owner or pledgee of
Notes and may otherwise deal with the Company, the Subsidiaries or their
respective Affiliates as if it were not the Trustee.
19. No Recourse Against Others. No stockholder, director, officer,
employee or incorporator, as such, of the Company shall have any liability for
any obligation of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Note by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
20. Authentication. This Note shall not be valid until the Trustee
or Authenticating Agent manually signs the certificate of authentication on this
Note.
21. Governing Law. This Note and the Indenture shall be governed by
and construed in accordance with the laws of the State of New York, as applied
to contracts made and performed within the State of New York, without regard to
principles of conflict of laws.
22. Abbreviations and Defined Terms. Customary abbreviations may be
used in the name of a Holder of a Note or an assignee, such as: TEN COM (=
tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
<PAGE> 107
23. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture, which has the text of this
Note in larger type. Requests may be made to: International Knife & Saw, Inc.,
P.O. Box 752006, Cincinnati, OH 45275-2006, Attn: Chief Executive Officer.
<PAGE> 108
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below
and have your signature guaranteed:
I or we assign and transfer this Note to:
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint, agent to transfer this Note on the books of the
Company. The agent may substitute another to act for him.
Dated: Signed:
------------------ ----------------------------
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:
----------------------------
(Signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the Exchange
Act.)
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date of the declaration by the Commission
of the effectiveness of a registration statement under the Securities Act of
1933, as amended (the "Securities Act") covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) November 6, 1999, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer:
<PAGE> 109
[Check One]
(1) __ to the Company or a subsidiary thereof; or
(2) __ pursuant to and in compliance with Rule 144A under the Securities
Act of 1933, as amended ("Rule 144A"); or
(3) __ to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as
amended) that has furnished to the Trustee a signed letter
containing certain representations and agreements (the form of
which letter is attached to the Indenture as Exhibit C and can be
obtained from the Trustee); or
(4) __ outside the United States to a "foreign person" in compliance
with Rule 904 of Regulation S under the Securities Act of 1933, as
amended; or
(5) __ pursuant to the exemption from registration provided by Rule 144
under the Securities Act of 1933, as amended, if available; or
(6) __ pursuant to an effective registration statement under the
Securities Act of 1933, as amended; or
(7) __ pursuant to another available exemption from the registration
requirements of the Securities Act of 1933, as amended.
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
/__/ The transferee is an Affiliate of the Company.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Notes evidenced by this certificate in the name of any person other than the
registered Holder thereof; provided, however, that if box (3), (4), (5) or (7)
is checked, the Company or the Trustee may require, prior to registering any
such transfer of the Notes, in its sole discretion, such written legal opinions,
certifications (including an investment letter in the case of box (3) or (4))
and other information as the Trustee or the Company has reasonably requested to
confirm that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
of 1933, as amended.
<PAGE> 110
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Note in the name of any person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 2.17 of the Indenture shall have been satisfied.
Dated: Signed:
------------------ ----------------------------
(Sign exactly as name
appears on the other side
of this Security)
Signature Guarantee:
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A and is aware that the sale
to it is being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Company as the undersigned has requested
pursuant to Rule 144A or has determined not to request such information and that
it is aware that the transferor is relying upon the undersigned's foregoing
representations in order to claim the exemption from registration provided by
Rule 144A.
Dated:
------------------ ----------------------------
NOTICE: To be executed by
an executive officer
<PAGE> 111
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate
box:
Section 4.15 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the
amount you elect to have purchased:
$
-------------------
Dated:
------------------ -------------------------------------
NOTICE: The signature on this
assignment must correspond with
the name as it appears upon the
face of the within Note in
every particular without alteration
or enlargement or any change
whatsoever and be guaranteed.
Signature Guarantee:
-----------------------------------------
(Signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the Exchange
Act.)
<PAGE> 112
EXHIBIT B
INTERNATIONAL KNIFE & SAW, INC.
SERIES B 11-3/8% SENIOR SUBORDINATED NOTE DUE 2006
CUSIP No.:
No. $
INTERNATIONAL KNIFE & SAW, INC., a Delaware corporation (the
"Company", which term includes any successor entity), for value received
promises to pay to or registered assigns, the principal sum of Dollars, on
November 6, 2006.
Interest Payment Dates: May 15 and November 15, commencing on May
15, 1997
Record Dates: May 1 and November 1
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
INTERNATIONAL KNIFE & SAW, INC.
By:
Name:
Title:
By:
Name:
Title:
Certificate of Authentication
This is one of the Series B 11-3/8% Senior Subordinated Notes due
2006 referred to in the within-mentioned Indenture.
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By:
Authorized Signatory
Date of Authentication:
<PAGE> 113
(REVERSE OF SECURITY)
Series B 11-3/8% Senior Subordinated Note due 2006
1. Interest. INTERNATIONAL KNIFE & SAW, INC., a Delaware corporation
(the "Company"), promises to pay interest on the principal amount of this Note
at the rate per annum shown above. Interest on the Notes will accrue from the
most recent date on which interest has been paid or, if no interest has been
paid, from November 6, 1996. The Company will pay interest semi-annually in
arrears on each Interest Payment Date. Interest will be computed on the basis of
a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and on overdue
installments of interest (without regard to any applicable grace periods) to the
extent lawful, from time to time on demand at the rate borne by the Notes.
2. Method of Payment. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are the registered Holders at the
close of business on the Record Date immediately preceding the Interest Payment
Date even if the Notes are cancelled on registration of transfer or registration
of exchange after such Record Date. Holders must surrender Notes to a Paying
Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by its check payable in such U.S.
Legal Tender. The Company may deliver any such interest payment to the Paying
Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, United States Trust
Company of New York (the "Trustee") will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-Registrar without notice to
the Holders.
4. Indenture. The Company issued the Notes under an Indenture, dated
as of November 6, 1996 (the "Indenture"), between the Company and the Trustee.
This Note is one of a duly authorized issue of Exchange Notes of the Company
designated as its Series B 11-3/8% Senior Subordinated Notes due 2006 (the
"Exchange Notes"). The Notes are limited in aggregate principal amount to
$90,000,000. The Notes include the Exchange Notes and the Initial Notes in
exchange for which the Exchange Notes were issued pursuant to the Indenture. The
Initial Notes and the Exchange Notes are treated as a single class of securities
under the Indenture. Capitalized terms herein are used as defined in the
Indenture unless otherwise defined herein. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S. Code {{ 77aaa-77bbbb)
<PAGE> 114
(the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything
to the contrary herein, the Notes are subject to all such terms, and Holders of
Notes are referred to the Indenture and the TIA for a statement of them. The
Notes are general unsecured obligations of the Company. Each Holder, by
accepting a Note, agrees to be bound by all of the terms and provisions of the
Indenture, as the same may be amended from time to time in accordance with its
terms.
5. Subordination. The Notes are subordinated in right of payment, in
the manner and to the extent set forth in the Indenture, to the prior payment in
full of all Senior Debt of the Company, whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by
his acceptance hereof agrees to be bound by such provisions and authorizes and
expressly directs the Trustee, on his behalf, to take such action as may be
necessary or appropriate to effectuate the subordination provided for in the
Indenture and appoints the Trustee his attorney-in-fact for such purposes.
6. Redemption. (a) Optional Redemption. The Notes are redeemable, at
the Company's option, in whole or in part, at any time on and after November 15,
2001 at the redemption prices (expressed as percentages of the principal amount
of the Notes) if redeemed during the twelve-month period commencing on November
15 of the year set forth below, plus, in each case, accrued and unpaid interest
thereon, if any, to the Redemption Date:
Year Percentage
2001............................. 105.688%
2002............................. 103.792
2003............................. 101.896
2004 and thereafter.............. 100.000
(b) Optional Redemption Upon Public Equity Offerings. At any time or
from time to time on or prior to November 15, 1999, the Company may, at its
option, redeem up to $30 million aggregate principal amount of the Notes with
the net proceeds of one or more Public Equity Offerings, at a redemption price
equal to 111-3/8% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of redemption; provided, however, that (x) not
less than $60 million aggregate principal amount of the Notes is outstanding
immediately after giving effect to any such redemption (other than any Notes
owned by the Company or any of its Affiliates) and (y) such redemption is
effected within 90 days after the consummation of any such Public Equity
Offering.
The Notes are not entitled to the benefit of any sinking fund.
<PAGE> 115
7. Notice of Redemption. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the Redemption Date to each
Holder of Notes to be redeemed at such Holder's registered address. Notes in
denominations larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the redemption
of the Notes called for redemption shall have been deposited with the Paying
Agent for redemption on such Redemption Date, then, unless the Company defaults
in the payment of such Redemption Price plus accrued interest, if any, the Notes
called for redemption will cease to bear interest from and after such Redemption
Date and the only right of the Holders of such Notes will be to receive payment
of the Redemption Price plus accrued interest, if any.
8. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture
provide that, after certain Asset Sales (as defined in the Indenture) and upon
the occurrence of a Change of Control (as defined in the Indenture), and subject
to further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
9. Denominations; Transfer; Exchange. The Notes are in registered
form, without coupons, and in denominations of $1,000 and integral multiples of
$1,000. A Holder shall register the transfer of or exchange Notes in accordance
with the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay certain
transfer taxes or similar governmental charges payable in connection therewith
as permitted by the Indenture. The Registrar need not register the transfer of
or exchange of any Notes or portions thereof selected for redemption.
10. Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes, subject to the provisions of the
Indenture with respect to record dates for the payment of interest.
11. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for one year, the Trustee and the Paying Agent will
pay the money back to the Company. After that, all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity. If the Company at any
time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
matur- ity and complies with the other provisions of the Indenture relating
thereto, the Company will be discharged from certain provisions of the Indenture
and the Notes (including certain
<PAGE> 116
covenants, but excluding its obligation to pay the principal of and interest on
the Notes).
13. Amendment; Supplement; Waiver. Subject to certain exceptions set
forth in the Indenture, the Indenture or the Notes may be amended or
supplemented with the written consent of the Holders of not less than a majority
in aggregate principal amount of the Notes then outstanding, and any past
Default or Event of Default or noncompliance with any provision may be waived
with the written consent of the Holders of not less than a majority in aggregate
principal amount of the Notes then outstanding. Without notice to or consent of
any Holder, the parties thereto may amend or supplement the Indenture or the
Notes to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Notes in addition to or in place of certificated
Notes, or comply with Article Five of the Indenture or make any other change
that does not adversely affect the rights of any Holder of a Note.
14. Restrictive Covenants. The Indenture imposes certain limitations
on the ability of the Company and the Subsidiaries to, among other things, incur
additional Indebtedness, make Restricted Payments or Restricted Investments,
create or incur Liens, enter into transactions with Affiliates, create dividend
or other payment restrictions affecting Subsidiaries and issue Preferred Stock
of Subsidiaries, and on the ability of the Company and the Subsidiaries to merge
or consolidate with any other Person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company and
the Subsidiaries. Such limitations are subject to a number of important
qualifications and exceptions. Pursuant to Section 4.06 of the Indenture, the
Company must annually report to the Trustee on compliance with such limitations.
15. Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released
from those obligations.
16. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of Notes then outstanding may declare all the Notes to be due
and payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee is not obligated to enforce the Indenture
or the Notes unless it has received indemnity reasonably satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders of a
majority in aggregate principal amount of the Notes then outstanding to direct
the Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Notes notice of any continuing Default or Event of Default
<PAGE> 117
(except a Default in payment of principal or interest when due, for any reason
or a Default in compliance with Article Five of the Indenture) if it determines
that withholding notice is in their interest.
17. Trustee Dealings with Company. The Trustee under the Indenture,
in its individual or any other capacity, may become the owner or pledgee of
Notes and may otherwise deal with the Company, the Subsidiaries or their
respective Affiliates as if it were not the Trustee.
18. No Recourse Against Others. No stockholder, director, officer,
employee or incorporator, as such, of the Company shall have any liability for
any obligation of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Note by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
19. Authentication. This Note shall not be valid until the Trustee
or Authenticating Agent manually signs the certificate of authentication on this
Note.
20. Governing Law. This Note and the Indenture shall be governed by
and construed in accordance with the laws of the State of New York, as applied
to contracts made and performed within the State of New York, without regard to
principles of conflict of laws.
21. Abbreviations and Defined Terms. Customary abbreviations may be
used in the name of a Holder of a Note or an assignee, such as: TEN COM (=
tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
22. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture, which has the text of this
Note in larger type. Requests may be made to: International Knife & Saw, Inc.,
P.O. Box 752006, Cincinnati, OH 45275-2006, Attn: Chief Executive Officer.
<PAGE> 118
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below
and have your signature guaranteed:
I or we assign and transfer this Note to:
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint , agent to transfer this Note on the books of the
Company. The agent may substitute another to act for him.
Dated: Signed:
------------------ -------------------------
(Sign exactly as name appears
on the other side of this Note)
Signature Guarantee:
(Signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the Exchange
Act.)
<PAGE> 119
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate
box:
Section 4.15 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the
amount you elect to have purchased:
$
-------------------
Dated:
----------------- -------------------------------------
NOTICE: The signature on this
assignment must correspond with
the name as it appears upon the
face of the within Note in
every particular without alteration
or enlargement or any change
whatsoever and be guaranteed.
Signature Guarantee:
(Signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the Exchange
Act.)
<PAGE> 120
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
-----------, ----
United States Trust Company
of New York
114 West 47th Street
New York, New York 10036
Attention: Corporate Trust Division
Re: International Knife & Saw, Inc. (the "Company") 11-3/8%
Senior Subordinated Notes due 2006 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed purchase of $_______ aggregate
principal amount of the Notes, we confirm that:
1. We have received a copy of the Offering Memorandum (the "Offering
Memorandum"), dated October 31, 1996, relating to the Notes and such other
information as we deem necessary in order to make our investment decision.
We acknowledge that we have read and agreed to the matters stated in the
section entitled "Notice to Investors" of the Offering Memorandum.
2. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the Indenture
dated as of November 6, 1996 relating to the Notes (the "Indenture") and
the undersigned agrees to be bound by, and not to resell, pledge or
otherwise transfer the Notes except in compliance with, such restrictions
and conditions and the Securities Act of 1933, as amended (the "Securities
Act").
3. We understand that the Notes have not been registered under the
Securities Act, and that the Notes may not be offered or sold except as
permitted in the following sentence. We agree, on our own behalf and on
behalf of any accounts for which we are acting as hereinafter stated, that
if we should sell any Notes within three years after the original issuance
of the Notes, we will do so only (A) to the Company or any subsidiary
thereof, (B) inside the United States in accordance with Rule 144A under
the Securities Act to a "qualified institutional buyer" (as defined
therein), (C) inside the United States to an institutional "accredited
investor" (as defined in
<PAGE> 121
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
that, prior to such transfer, furnishes (or has furnished on its behalf by
a U.S. broker-dealer) to you a signed letter substantially in the form of
this letter, (D) outside the United States in accordance with Regulation S
under the Securities Act, (E) pursuant to the exemption from registration
provided by Rule 144 under the Securities Act (if available), or (F)
pursuant to an effective registration statement under the Securities Act,
and we further agree to provide to any person purchasing any of the Notes
from us a notice advising such purchaser that resales of the Notes are
restricted as stated herein.
4. We understand that, on any proposed resale of any Notes, we will
be required to furnish to you and the Company such certification, written
legal opinions and other information as you and the Company may reasonably
require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Notes purchased by us will
bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the
Notes, and we and any accounts for which we are acting are each able to
bear the economic risk of our or its investment, as the case may be.
6. We are acquiring the Notes purchased by us for our own account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
<PAGE> 122
You, the Company and counsel for the Company are entitled to rely
upon this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
Authorized Signature
<PAGE> 123
EXHIBIT D
Form of Certificate To Be Delivered
in Connection with Transfers
______Pursuant to Regulation S_____
--------------, ----
United States Trust Company
of New York
114 West 47th Street
New York, New York 10036
Attention: Corporate Trust Division
Re: International Knife & Saw, Inc. (the "Company") 11-3/8%
Senior Subordinated Notes due 2006 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed sale of $___________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
<PAGE> 124
(5) we have advised the transferee of the transfer restrictions
applicable to the Notes.
You, the Company and counsel for the Company are entitled to rely
upon this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby. Terms used in this
certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
Authorized Signature
<PAGE> 1
EXHIBIT 4.2
---------------------------------------------------------------
---------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated as of November 6, 1996
By and Between
INTERNATIONAL KNIFE & SAW, INC.
and
SCHRODER WERTHEIM & CO. INCORPORATED
and
SMITH BARNEY INC.,
as Initial Purchasers
11-3/8% Senior Subordinated Notes due 2006
---------------------------------------------------------------
---------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
<TABLE>
<S> <C> <C>
1. Definitions................................................. 1
2. Exchange Offer.............................................. 5
3. Shelf Registration.......................................... 10
4. Additional Interest......................................... 12
5. Registration Procedures..................................... 14
6. Registration Expenses....................................... 25
7. Indemnification............................................. 26
8. Rules 144 and 144A.......................................... 30
9. Underwritten Registrations.................................. 31
10. Miscellaneous............................................... 31
(a) No Inconsistent Agreements............................ 31
(b) Adjustments Affecting Registrable
Notes............................................... 31
(c) Amendments and Waivers................................ 32
(d) Notices............................................... 32
(e) Successors and Assigns................................ 33
(f) Counterparts.......................................... 33
(g) Headings.............................................. 33
(h) Governing Law; Jurisdiction........................... 33
(i) Severability.......................................... 34
(j) Securities Held by the Company or
Its Affiliates...................................... 34
(k) Third Party Beneficiaries............................. 34
(l) Attorneys' Fees....................................... 34
(m) Entire Agreement...................................... 34
</TABLE>
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of
November 6, 1996, by and between INTERNATIONAL KNIFE & SAW, INC., a Delaware
corporation (the "Company"), on the one hand, and SCHRODER WERTHEIM & CO.
INCORPORATED and SMITH BARNEY INC. (the "Initial Purchasers"), on the other
hand.
This Agreement is entered into in connection with the Purchase
Agreement, dated as of October 31, 1996, between the Company and the Initial
Purchasers (the "Purchase Agreement"), which provides for the sale by the
Company to the Initial Purchasers of $90,000,000 aggregate principal amount of
the Company's 11-3/8% Senior Subordinated Notes due 2006 (the "Notes"). In order
to induce the Initial Purchasers to enter into the Purchase Agreement, the
Company has agreed to provide the registration rights set forth in this
Agreement for the benefit of the Initial Purchasers and any subsequent holder or
holders of the Notes. The execution and delivery of this Agreement is a
condition to the Initial Purchasers' obligation to purchase the Notes under the
Purchase Agreement.
The parties hereby agree as follows:
Section 1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
"Additional Interest" shall have the meaning set forth in Section
4 hereof.
"Advice" shall have the meaning set forth in Section 5 hereof.
"Agreement" shall have the meaning set forth in the introductory
paragraphs hereto.
"Applicable Period" shall have the meaning set forth in Section 2
hereof.
"Business Day" shall mean a day that is not a Legal Holiday.
"Company" shall have the meaning set forth in the preamble of this
Agreement and shall also include the Company's permitted successors and assigns.
"Commission" shall mean the Securities and Exchange Commission.
<PAGE> 4
"Effectiveness Date" shall mean, (i) with respect to the Exchange
Offer Registration Statement, the 150th day after the Issue Date and (ii) with
respect to any other Registration Statement, the 120th day after the Filing Date
with respect thereto.
"Effectiveness Period" shall have the meaning set forth in Section
3 hereof.
"Event Date" shall have the meaning set forth in Section 4 hereof.
"Exchange Act" shall mean Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
"Exchange Notes" shall have the meaning set forth in Section 2
hereof.
"Exchange Offer" shall have the meaning set forth in Section 2
hereof.
"Exchange Offer Registration Statement" shall have the meaning set
forth in Section 2 hereof.
"Filing Date" shall mean, (A) if no Registration Statement has been
filed by the Company pursuant to this Agreement, the 30th day after the Issue
Date; provided, however, that if a Shelf Filing Event shall have occurred within
10 days of the Filing Date, then the Filing Date with respect to the Initial
Shelf Registration shall be the 15th calendar day after the occurrence of the
Shelf Filing Event; and (B) in each other case (which may be applicable
notwithstanding the consummation of the Exchange Offer), the 30th day after the
occurrence of the Shelf Filing Event.
"Holder" shall mean any holder of a Registrable Note or Registrable
Notes.
"Indemnified Person" shall have the meaning set forth in Section
7(c) hereof.
"Indemnifying Person" shall have the meaning set forth in Section
7(c) hereof.
"Indenture" shall mean the Indenture, dated as of November 6, 1996,
by and between the Company and United States Trust Company of New York, as
trustee, pursuant to which the Notes are being issued, as amended or
supplemented from time to time in accordance with the terms thereof.
"Initial Purchasers" shall have the meaning set forth in the
preamble hereof.
<PAGE> 5
"Initial Shelf Registration" shall have the meaning set forth in
Section 3(a) hereof.
"Inspectors" shall have the meaning set forth in Section 5(o)
hereof.
"Issue Date" shall mean November 6, 1996, the date of original
issuance of the Notes.
"Legal Holiday" shall mean a Saturday, a Sunday or a day on which
banking institutions in New York, New York are required by law, regulation or
executive order to remain closed.
"NASD" shall have the meaning set forth in Section 5(t) hereof.
"Participant" shall have the meaning set forth in Section 7(a)
hereof.
"Participating Broker-Dealer" shall mean any broker-dealer that is
the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of
Exchange Notes received by such broker-dealer in the Exchange Offer or any other
person with similar prospectus delivery requirements for use in connection with
any resale of Exchange Notes.
"Person" shall mean an individual, trustee, corporation,
partnership, joint stock company, trust, unincorporated association, union,
business association, firm, government or agency or political subdivision
thereofor other legal entity.
"Private Exchange" shall have the meaning set forth in Section 2
hereof.
"Private Exchange Notes" shall have the meaning set forth in Section
2 hereof.
"Prospectus" shall mean the prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
"Purchase Agreement" shall have the meaning set forth in the
introductory paragraphs hereof.
<PAGE> 6
"Records" shall have the meaning set forth in Section 5(o) hereof.
"Registrable Notes" shall mean each Note upon its original issuance
and at all times subsequent thereto, each Exchange Note as to which Section
2(c)(iv) hereof is applicable upon original issuance and at all times subsequent
thereto and each Private Exchange Note upon original issuance thereof and at all
times subsequent thereto, until (i) a Registration Statement (other than, with
respect to any Exchange Note as to which Section 2(c)(iv) hereof is applicable,
the Exchange Offer Registration Statement) covering such Note, Exchange Note or
Private Exchange Note has been declared effective by the Commission and such
Note, Exchange Note or such Private Exchange Note, as the case may be, has been
disposed of in accordance with such effective Registration Statement, (ii) such
Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or
Exchange Notes that may be resold without restriction under state and federal
securities laws, or (iii) such Note, Exchange Note or Private Exchange Note, as
the case may be, ceases to be outstanding for purposes of the Indenture.
"Registration Statement" shall mean any appropriate registration
statement of the Company covering any of the Registrable Notes pursuant to the
provisions of this Agreement, including, but not limited to, the Exchange Offer
Registration Statement, filed with the Commission under the Securities Act, and
all amendments and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule (other than
Rule 144A) or regulation hereafter adopted by the Commission providing for
offers and sales of securities made in compliance therewith resulting in offers
and sales by subsequent holders that are not affiliates of an issuer of such
securities being free of the registration and prospectus delivery requirements
of the Securities Act.
"Rule 144A" shall mean Rule 144A promulgated under the Securities
Act, as such Rule may be amended from time to time, or any similar rule (other
than Rule 144) or regulation hereafter adopted by the Commission.
"Rule 415" shall mean Rule 415 promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission.
<PAGE> 7
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Shelf Filing Event" shall have the meaning set forth in Section 2
hereof.
"Shelf Registration" shall have the meaning set forth in Section
3(b) hereof.
"Subsequent Shelf Registration" shall have the meaning set forth in
Section 3(b) hereof.
"TIA" shall mean the Trust Indenture Act of 1939, as amended.
"Trustee" shall mean the trustee under the Indenture and the trustee
(if any) under any indenture governing the Exchange Notes and Private Exchange
Notes.
"Underwritten registration or underwritten offering" shall mean a
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
Section 2. Exchange Offer
(a) The Company shall file with the Commission, no later than the
Filing Date, a Registration Statement (the "Exchange Offer Registration
Statement") on an appropriate registration form with respect to a registered
offer (the "Exchange Offer") to exchange any and all of the Registrable Notes
for a like aggregate principal amount of notes (the "Exchange Notes") of the
Company that are identical in all material respects to the Notes except that the
Exchange Notes shall contain no restrictive legend thereon. The Exchange Offer
shall comply with all applicable tender offer rules and regulations under the
Exchange Act and other applicable law. The Company shall use its best efforts to
(x) cause the Exchange Offer Registration Statement to be declared effective
under the Securities Act on or before the Effectiveness Date; (y) keep the
Exchange Offer open for at least 20 Business Days (or longer if required by
applicable law) after the date on which the Exchange Offer Registration
Statement is declared effective; and (z) on or prior to the 45th day following
the date on which the Exchange Offer Registration Statement is declared
effective by the Commission, issue Exchange Notes for Notes tendered in the
Exchange Offer. For purposes of this Section 2(a) only, if after the Exchange
Offer Registration Statement is initially declared effective by the Commission,
the Exchange Offer or the issuance of the Exchange Notes thereunder is
interfered with by any stop order, injunction or other order or requirement of
the Commission or any other governmental agency or court, the Exchange Offer
Registration
<PAGE> 8
Statement shall be deemed not to have become effective for purposes of this
Agreement.
Each Holder that participates in the Exchange Offer will be required
to represent to the Company in writing that (i) any Exchange Notes to be
received by it will be acquired in the ordinary course of its business, (ii)
such Holder will have no arrangement or understanding with any Person to
participate in the distribution of the Exchange Notes in violation of the
provisions of the Securities Act, (iii) that such Holder is not an affiliate of
the Company within the meaning of the Securities Act or, if such Holder is such
an affiliate, that it will comply with the registration and prospectus delivery
requirements of the Securities Act applicable to it, (iv) if such Holder is not
a broker-dealer, that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes and (v) if such Holder is a broker-dealer that
will receive Exchange Notes for its own account in exchange for Notes that were
accquired as a result of market-making or other trading activities, that it will
deliver a prospectus in connection with any resale of such Exchange Notes.
Upon consummation of the Exchange Offer in accordance with this
Section 2, the provisions of this Agreement shall continue to apply, mutatis
mutandis, solely with respect to Registrable Notes that are Private Exchange
Notes, Exchange Notes as to which Section 2(c)(iv) is applicable and Exchange
Notes held by Participating Broker-Dealers (as defined), and the Company shall
have no further obligation to register Registrable Notes (other than Private
Exchange Notes and other than in respect of any Exchange Notes as to which
clause 2(c)(iv) hereof applies) pursuant to Section 3 hereof.
No securities other than the Exchange Notes shall be included in the
Exchange Offer Registration Statement.
(b) The Company and the Initial Purchasers acknowledge that the
staff of the Commission has taken the position that any broker-dealer that
elects to exchange Notes that were acquired by such broker-dealer for its own
account as a result of market-making or other trading activities for Exchange
Notes in the Exchange Offer (a "Participating Broker-Dealer") may be deemed to
be an "underwriter" within the meaning of the Securities Act and must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes (other than a resale of an unsold allotment
resulting from the original offering of the Notes).
The Company and the Initial Purchasers also acknowledge that it is
the SEC staff's position that if the Prospectus contained in the Exchange Offer
Registration Statement includes a plan of distribution containing a statement to
the above effect and the means by which
<PAGE> 9
Participating Broker-Dealers may resell the Exchange Notes, without naming the
Participating Broker-Dealers or specifying the amount of Exchange Notes owned by
them, such Prospectus may be delivered by Participating Broker-Dealers to
satisfy their prospectus delivery obligations under the Securities Act in
connection with resales of Exchange Notes for their own accounts, so long as the
Prospectus otherwise meets the requirements of the Securities Act.
In light of the foregoing, if requested by a Participating
Broker-Dealer (a "Requesting Participating Broker-Dealer"), the Company agrees
to use its best efforts to keep the Exchange Offer Registration Statement
continuously effective for a period of up to 180 days after the date on which
the Exchange Registration Statement is declared effective, or such longer period
if extended pursuant to the last paragraph of Section 5 hereof (such period, the
"Applicable Period"), or such earlier date as each Requesting Participating
Broker-Dealer shall have notified the Company in writing that such Requesting
Participating Broker-Dealer has resold all Exchange Notes acquired in the
Exchange Offer. The Company shall include a plan of distribution in such
Exchange Offer Registration Statement that meets the requirements set forth in
the preceding paragraph.
If, prior to consummation of the Exchange Offer, any Holder holds
any Notes acquired by it that have, or that are reasonably likely to be
determined to have, the status of an unsold allotment in an initial
distribution, or if any Holder is not entitled to participate in the Exchange
Offer, the Company upon the request of any such Holder shall simultaneously with
the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to
any such Holder, in exchange (the "Private Exchange") for such Notes held by any
such Holder, a like principal amount of notes (the "Private Exchange Notes") of
the Company that are identical in all material respects to the Exchange Notes.
The Private Exchange Notes shall be issued pursuant to the same indenture as the
Exchange Notes and bear the same CUSIP number as the Exchange Notes.
In connection with the Exchange Offer, the Company shall:
(1) mail to each Holder entitled to participate in the Exchange
Offer a copy of the Prospectus forming part of the Exchange Offer
Registration Statement, together with an appropriate letter of transmittal
and related documents;
(2) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York;
<PAGE> 10
(3) permit Holders to withdraw tendered Notes at any time prior to
the close of business, New York time, on the last Business Day on which
the Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all applicable
laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer and the
Private Exchange, if any, the Company shall:
(1) accept for exchange all Notes validly tendered and not validly
withdrawn pursuant to the Exchange Offer and the Private Exchange;
(2) deliver to the Trustee for cancellation all Notes so accepted
for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder of Notes, Exchange Notes or Private Exchange Notes, as the case may
be, equal in principal amount to the Notes of such Holder so accepted for
exchange.
The Exchange Offer and the Private Exchange shall not be subject to
any conditions, other than that (i) the Exchange Offer or Private Exchange, as
the case may be, does not violate applicable law or any applicable
interpretation of the staff of the Commission, (ii) no action or proceeding
shall have been instituted or threatened in any court or by any governmental
agency which might materially impair the ability of the Company to proceed with
the Exchange Offer or the Private Exchange, and no material adverse development
shall have occurred in any existing action or proceeding with respect to the
Company and (iii) all governmental approvals shall have been obtained, which
approvals the Company deems necessary for the consummation of the Exchange Offer
or Private Exchange.
The Exchange Notes and the Private Exchange Notes shall be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture (in either case, with such changes as are necessary to comply
with any requirements of the Commission to effect or maintain the qualification
thereof under the TIA) and which, in either case, has been qualified under the
TIA and shall provide that the Exchange Notes shall not be subject to the
transfer restrictions set forth in the Indenture. The Indenture or such
indenture shall provide that the Exchange Notes, the Private Exchange Notes and
the Notes shall vote and consent together on all matters as one class and that
none of the Exchange Notes, the Private Exchange Notes or the Notes will have
the right to vote or consent as a separate class on any matter.
<PAGE> 11
(c) If, (i) because of any applicable interpretations of the staff
of the Commission, the Company is not permitted to effect the Exchange Offer,
(ii) the Exchange Offer is not consummated within 180 days of the Issue Date,
(iii) any of the Initial Purchasers so requests with respect to Notes not
eligible to be exchanged for Exchange Notes in the Exchange Offer, or (iv) any
Holder is not eligible to participate in the Exchange Offer or does not receive
Exchange Notes on the date of the exchange that may be sold without restriction
under state and federal securities laws (other than due solely to the status of
such Holder as an affiliate of any of the Company within the meaning of the
Securities Act) (each such event referred to in clauses (i) through (iv) of this
sentence, a "Shelf Filing Event"), then the Company (x) shall promptly deliver
to the Holders and the Trustee written notice thereof in the case of clause (i)
or (ii) and (y) shall file a Shelf Registration pursuant to Section 3 hereof.
Section 3. Shelf Registration
If at any time a Shelf Filing Event shall occur, then:
(a) Shelf Registration. The Company shall file with the Commission a
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415 covering all of the Registrable Notes not exchanged in the Exchange
Offer, Private Exchange Notes and Exchange Notes as to which Section 2(c)(iv) is
applicable (the "Initial Shelf Registration"). The Company shall use its best
efforts to file with the Commission the Initial Shelf Registration as promptly
as practicable. The Initial Shelf Registration shall be on Form S-1 or another
appropriate form permitting registration of such Registrable Notes for resale by
Holders in the manner or manners designated by them (including, without
limitation, one or more underwritten offerings). The Company shall not permit
any securities other than the Registrable Notes to be included in the Initial
Shelf Registration or any Subsequent Shelf Registration (as defined below).
The Company shall use its best efforts to cause the Initial Shelf
Registration to be declared effective under the Securities Act on or prior to
the Effectiveness Date and to keep the Initial Shelf Registration continuously
effective under the Securities Act for the period ending on the date which is
three years from the Issue Date, subject to extension pursuant to the last
paragraph of Section 5 hereof (the "Effectiveness Period"), or such shorter
period ending when (i) all Registrable Notes covered by the Initial Shelf
Registration have been sold in the manner set forth and as contemplated in the
Initial Shelf Registration or (ii) a Subsequent Shelf Registration covering all
of the Registrable Notes covered by and not sold under the Initial Shelf
Registration or an earlier Subsequent Shelf Registration has
<PAGE> 12
been declared effective under the Securities Act; provided, however, that the
Effectiveness Period in respect of the Initial Shelf Registration shall be
extended to the extent required to permit dealers to comply with the applicable
prospectus delivery requirements of Rule 174 under the Securities Act and as
otherwise provided herein; provided, further, that the Company may suspend the
effectiveness of a Shelf Registration Statement by written notice to the Holders
for a period not to exceed 45 days in any calendar year if, (i) an event occurs
and is continuing as a result of which the Shelf Registration Statement would,
in the Company's good faith judgment, contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein not misleading and (ii) (a) the Company determines in good faith that
the disclosure of such event at such time would have a material adverse effect
on the business, operations or prospects of the Company and its subsidiaries,
taken as a whole, or (b) the disclosure otherwise relates to a previously
undisclosed pending material business transaction, the disclosure of which would
impede the Company's ability to consummate such transaction.
(b) Subsequent Shelf Registrations. If the Initial Shelf
Registration or any Subsequent Shelf Registration ceases to be effective for any
reason at any time during the Effectiveness Period (other than because of the
sale of all of the securities registered thereunder), the Company shall use its
best efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof, and in any event shall as soon as practicable after such
cessation amend the Initial Shelf Registration in a manner to obtain the
withdrawal of the order suspending the effectiveness thereof, or file an
additional "shelf" Registration Statement pursuant to Rule 415 covering all of
the Registrable Notes covered by and not sold under the Initial Shelf
Registration or an earlier Subsequent Shelf Registration (each, a "Subsequent
Shelf Registration"). If a Subsequent Shelf Registration is filed, the Company
shall use its best efforts to cause the Subsequent Shelf Registration to be
declared effective under the Securities Act as soon as practicable after such
filing and to keep such Registration Statement continuously effective for a
period equal to the number of days in the Effectiveness Period less the
aggregate number of days during which the Initial Shelf Registration or any
Subsequent Shelf Registration was previously continuously effective. As used
herein the term "Shelf Registration" means the Initial Shelf Registration and
any Subsequent Shelf Registration.
(c) Supplements and Amendments. The Company shall promptly
supplement and amend the Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested by the Holders of a majority in aggregate principal amount of the
<PAGE> 13
Registrable Notes covered by such Registration Statement or by any underwriter
of such Registrable Notes.
Section 4. Additional Interest
(a) The Company and the Initial Purchasers agree that the Holders
will suffer damages if the Company fails to fulfill its obligations under
Section 2 or Section 3 hereof and that it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, the Company agrees to pay,
as liquidated damages, additional interest on the Notes ("Additional Interest")
under the circumstances and to the extent set forth below (each of which shall
be given independent effect):
(i) if (A) neither the Exchange Offer Registration Statement nor the
Initial Shelf Registration has been filed on or prior to the applicable
Filing Date or (B) notwithstanding that the Company has consummated or
will consummate the Exchange Offer, the Company is required to file a
Shelf Registration and such Shelf Registration is not filed on or prior to
the Filing Date applicable thereto, then, commencing on the day after any
such Filing Date, Additional Interest shall accrue on the principal amount
of the Notes at a rate of 0.50% per annum for the first 90 days
immediately following each such Filing Date, and such Additional Interest
rate shall increase by an additional 0.25% per annum at the beginning of
each subsequent 90-day period; or
(ii) if (A) neither the Exchange Offer Registration Statement nor the
Initial Shelf Registration is declared effective by the Commission on or
prior to the relevant Effectiveness Date or (B) notwithstanding that the
Company has consummated or will consummate the Exchange Offer, the Company
is required to file a Shelf Registration and such Shelf Registration is
not declared effective by the Commission on or prior to the Effectiveness
Date in respect of such Shelf Registration, then, commencing on the day
after such Effectiveness Date, Additional Interest shall accrue on the
principal amount of the Notes at a rate of 0.50% per annum for the first
90 days immediately following the day after such Effectiveness Date, and
such Additional Interest rate shall increase by an additional 0.25% per
annum at the beginning of each subsequent 90-day period; or
(iii) if (A) the Company has not exchanged Exchange Notes for all
Notes validly tendered in accordance with the terms of the Exchange Offer
on or prior to the 180th day following the Issue Date or (B) the Exchange
Offer Registration Statement or the Shelf Registration is declared
effective but thereafter ceases to be effective at any time during the
Effectiveness Period (except as
<PAGE> 14
permitted by Section 10(a) hereof) for a period of 15 consecutive days
without being succeeded immediately by an additional Exchange Offer
Registration Statement or Shelf Registration Statement, as the case may
be, filed and declared effective, then Additional Interest shall accrue on
the principal amount of the Notes at a rate of 0.50% per annum for the
first 90 days commencing on the (x) 181st day after the Issue Date, in the
case of (A) above, or (y) the 16th day after such Shelf Registration
ceases to be effective in the case of (B) above, and such Additional
Interest rate shall increase by an additional 0.25% per annum at the
beginning of each such subsequent 90-day period;
provided, however, that the Additional Interest rate on the Notes may not exceed
at any one time in the aggregate 1.0% per annum; provided, further, however,
that (1) upon the filing of the applicable Exchange Offer Registration Statement
or the applicable Shelf Registration as required hereunder (in the case of
clause (i) above of this Section 4), (2) upon the effectiveness of the Exchange
Offer Registration Statement or the applicable Shelf Registration Statement as
required hereunder (in the case of clause (ii) of this Section 4), or (3) upon
the exchange of the applicable Exchange Notes for all Notes tendered (in the
case of clause (iii)(A) of this Section 4), or upon the effectiveness of the
applicable Exchange Offer Registration Statement or Shelf Registration Statement
which had ceased to remain effective (in the case of (iii)(B) of this Section
4), Additional Interest on the Notes in respect of which such events relate as a
result of such clause (or the relevant subclause thereof), as the case may be,
shall cease to accrue.
(b) The Company shall notify the Trustee within one Business Day
after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). Any amounts of
Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section
4 will be payable in cash semi-annually on the interest payment dates specified
in the Indenture (to the holders of record as specified in the Indenture),
commencing with the first such interest payment date occurring after any such
Additional Interest commences to accrue. The amount of Additional Interest will
be determined by multiplying the applicable Additional Interest rate by the
principal amount of the Registrable Notes, multiplied by a fraction, the
numerator of which is the number of days such Additional Interest rate was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months and, in the case of a partial month, the
actual number of days elapsed), and the denominator of which is 360.
<PAGE> 15
Section 5. Registration Procedures
In connection with the filing of any Registration Statement pursuant
to Sections 2 or 3 hereof, the Company shall effect such registrations to permit
the sale of the securities covered thereby in accordance with the intended
method or methods of disposition thereof, and pursuant thereto and in connection
with any Registration Statement filed by the Company hereunder the Company
shall:
(a) Prepare and file with the Commission prior to the applicable
Filing Date, a Registration Statement or Registration Statements as
prescribed by Sections 2 or 3 hereof, and use its best efforts to cause
each such Registration Statement to become effective and remain effective
as provided herein; provided, however, that, if (1) such filing is
pursuant to Section 3 hereof, or (2) a Prospectus contained in the
Exchange Offer Registration Statement filed pursuant to Section 2 hereof
is required to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period relating thereto, before filing any Registration Statement or
Prospectus or any amendments or supplements thereto, the Company shall
furnish to and afford the Holders of the Registrable Notes covered by such
Registration Statement or each such Participating Broker-Dealer, as the
case may be, their counsel and the managing underwriters, if any, a
reasonable opportunity to review copies of all such documents (including
copies of any documents to be incorporated by reference therein and all
exhibits thereto) proposed to be filed (in each case at least five
Business Days prior to such filing). The Company shall not file any
Registration Statement or Prospectus or any amendments or supplements
thereto if the Holders of a majority in aggregate principal amount of the
Registrable Notes covered by such Registration Statement, or any such
Participating Broker-Dealer, as the case may be, their counsel, or the
managing underwriters, if any, shall reasonably object.
(b) Prepare and file with the Commission such amendments and
post-effective amendments to each Shelf Registration Statement or Exchange
Offer Registration Statement, as the case may be, as may be necessary to
keep such Registration Statement continuously effective for the
Effectiveness Period or the Applicable Period, as the case may be; cause
the related Prospectus to be supplemented by any Prospectus supplement
required by applicable law, and as so supplemented to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; and comply with the provisions of the Securities Act and
the Exchange Act applicable to each of them with respect to the
disposition of all securities
<PAGE> 16
covered by such Registration Statement as so amended or in such Prospectus
as so supplemented and with respect to the subsequent resale of any
securities being sold by a Participating Broker-Dealer covered by any such
Prospectus, in each case, in accordance with the intended methods of
distribution set forth in such Registration Statement or Prospectus, as so
amended. The Company shall be deemed not to have used its best efforts to
keep a Registration Statement effective during the Effective Period or the
Applicable Period, as the case may be, relating thereto if the Company
voluntarily takes any action that would result in selling Holders of the
Registrable Notes covered thereby or Participating Broker-Dealers seeking
to sell Exchange Notes not being able to sell such Registrable Notes or
such Exchange Notes during that period unless such action is required by
applicable law.
(c) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period relating thereto, notify
the selling Holders of Registrable Notes, or each such Participating
Broker-Dealer, as the case may be, their counsel and the managing
underwriters, if any, as promptly as possible, and, if requested by any
such Person, confirm such notice in writing, (i) when a Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and,
with respect to a Registration Statement or any post-effective amendment,
when the same has become effective under the Securities Act (including in
such notice a written statement that any Holder may, upon request, obtain,
at the sole expense of the Company, one conformed copy of such
Registration Statement or post-effective amendment including financial
statements and schedules, documents incorporated or deemed to be
incorporated by reference and exhibits), (ii) of the issuance by the
Commission of any stop order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending the use of
any preliminary prospectus or the initiation of any proceedings for that
purpose, (iii) if at any time when a prospectus is required by the
Securities Act to be delivered in connection with sales of the Registrable
Notes or resales of Exchange Notes by Participating Broker-Dealers the
representations and warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated by Section 5(m) hereof
cease to be true and correct in all material respects, (iv) of the receipt
by the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of a
<PAGE> 17
Registration Statement or any of the Registrable Notes or the Exchange
Notes to be sold by any Participating Broker-Dealer for offer or sale in
any jurisdiction, or the initiation or threatening of any proceeding for
such purpose, (v) of the happening of any event, the existence of any
condition or any information becoming known to the Company that makes any
statement made in such Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any changes
in or amendments or supplements to such Registration Statement, Prospectus
or documents so that, in the case of the Registration Statement, it will
not contain 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 that in the case of the Prospectus,
it will not contain 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, in light of the circumstances under which they
were made, not misleading, and (vi) of the Company's determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, use its best efforts to
prevent the issuance of any order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending the use of
a Prospectus or suspending the qualification (or exemption from
qualification) of any of the Registrable Notes or the Exchange Notes to be
sold by any Participating Broker-Dealer, for sale in any jurisdiction,
and, if any such order is issued, to use its best efforts to obtain the
withdrawal of any such order at the earliest practicable moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriter or underwriters (if any), the
Holders of a majority in aggregate principal amount of the Registrable
Notes being sold in connection with an underwritten offering or any
Participating Broker-Dealer, (i) promptly incorporate in a prospectus
supplement or post-effective amendment such information as the managing
underwriter or underwriters (if any), such Holders or any Participating
Broker-Dealer (based upon advice of counsel) determine is reasonably
necessary to be included therein, (ii) make all required filings of such
prospectus supplement or such post-
<PAGE> 18
effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment; provided, however, that the
Company shall not be required to take any action hereunder that would, in
the written opinion of counsel to the Company, violate applicable laws,
and (iii) supplement or make amendments to such Registration Statement
(based upon advice of counsel).
(f) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, furnish to each selling
Holder of Registrable Notes and to each such Participating Broker-Dealer
who so requests and to counsel and each managing underwriter, if any, at
the sole expense of the Company, one conformed copy of the Registration
Statement or Registration Statements and each post-effective amendment
thereto, including financial statements and schedules, and, if requested,
all documents incorporated or deemed to be incorporated therein by
reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, deliver to each selling
Holder of Registrable Notes, or each such Participating Broker-Dealer, as
the case may be, their respective counsel, and the underwriters, if any,
at the sole expense of the Company, as many copies of the Prospectus or
Prospectuses (including each form of preliminary prospectus) and each
amendment or supplement thereto and any documents incorporated by
reference therein as such Persons may reasonably request; and, subject to
the last paragraph of this Section 5, the Company hereby consents to the
use of such Prospectus and each amendment or supplement thereto by each of
the selling Holders of Registrable Notes or each such Participating
Broker-Dealer, as the case may be, and the underwriters or agents, if any,
and dealers (if any), in connection with the offering and sale of the
Registrable Notes covered by, or the sale by Participating Broker-Dealers
of the Exchange Notes pursuant to, such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Notes or any
delivery of a Prospectus contained in the Exchange Offer Registration
Statement by any Participating
<PAGE> 19
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period, use its best efforts to register or qualify, and to cooperate with
the selling Holders of Registrable Notes or each such Participating
Broker-Dealer, as the case may be, the managing underwriter or
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of, such Registrable Notes for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States
as any selling Holder, Participating Broker-Dealer, or the managing
underwriter or underwriters reasonably request; provided, however, that
where Exchange Notes held by Participating Broker-Dealers or Registrable
Notes are offered other than through an underwritten offering, the Company
agrees to cause the Company's counsel to perform Blue Sky investigations
and file registrations and qualifications required to be filed pursuant to
this Section 5(h); keep each such registration or qualification (or
exemption therefrom) effective during the period such Registration
Statement is required to be kept effective and do any and all other acts
or things reasonably necessary or advisable to enable the disposition in
such jurisdictions of the Exchange Notes held by Participating
Broker-Dealers or the Registrable Notes covered by the applicable
Registration Statement; provided, however, that the Company shall not be
required to (A) qualify generally to do business in any jurisdiction where
it is not then so qualified, (B) take any action that would subject it to
general service of process in any such jurisdiction where it is not then
so subject or (C) subject itself to taxation in excess of a nominal dollar
amount in any such jurisdiction where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Notes and the managing
underwriter or underwriters, if any, to facilitate the timely preparation
and delivery of certificates representing Registrable Notes to be sold,
which certificates shall not bear any restrictive legends and shall be in
a form eligible for deposit with The Depository Trust Company; and enable
such Registrable Notes to be in such denominations and registered in such
names as the managing underwriter or underwriters, if any, or Holders may
request at least two Business Days prior to any sale of such Registrable
Notes.
(j) Use its best efforts to cause the Registrable Notes covered by
the Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be reasonably necessary to
enable the seller or sellers thereof or the underwriter or underwriters,
if any, to consummate the disposition of
<PAGE> 20
such Registrable Notes, except as may be required solely as a consequence
of the nature of such selling Holder's business, in which case the Company
will cooperate in all reasonable respects with the filing of such
Registration Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, upon the occurrence of
any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as
promptly as practicable prepare and (subject to Section 5(a) hereof) file
with the Commission, at the sole expense of the Company, a supplement or
post-effective amendment to the Registration Statement or a supplement to
the related Prospectus or any document incorporated or deemed to be
incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Notes
being sold thereunder or to the purchasers of the Exchange Notes to whom
such Prospectus will be delivered by a Participating Broker-Dealer, any
such Prospectus will not contain an 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, in the light of the circumstances under
which they were made, not misleading.
(l) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with
certificates for the Registrable Notes in a form eligible for deposit with
The Depository Trust Company and (ii) provide a CUSIP number for the
Registrable Notes.
(m) In connection with any underwritten offering of Registrable
Notes pursuant to a Shelf Registration, enter into an underwriting
agreement as is customary in underwritten offerings of debt securities
similar to the Notes and take all such other actions as are reasonably
requested by the managing underwriter or underwriters in order to expedite
or facilitate the registration or the disposition of such Registrable
Notes and, in such connection, (i) make such representations and
warranties to, and covenants with, the underwriters with respect to the
business of the Company and its subsidiaries (including any acquired
business, properties or entity, if applicable) and the Registration
Statement, Prospectus and documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, as are customarily made
by issuers to underwriters in underwritten offerings of debt securities
similar to the
<PAGE> 21
Notes, and confirm the same in writing if and when requested; (ii) use its
best efforts to obtain the written opinions of counsel to the Company and
written updates thereof in form, scope and substance reasonably
satisfactory to the managing underwriter or underwriters, addressed to the
underwriters covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be
reasonably requested by the managing underwriter or underwriters; (iii)
use its best efforts to obtain "cold comfort" letters and updates thereof
in form, scope and substance reasonably satisfactory to the managing
underwriter or underwriters from the independent certified public
accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and
financial data are, or are required to be, included or incorporated by
reference in the Registration Statement), addressed to each of the
underwriters, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings; and (iv) if an underwriting agreement is entered
into, the same shall contain indemnification provisions and procedures no
less favorable than those set forth in Section 7 hereof (or such other
provisions and procedures acceptable to Holders of a majority in aggregate
principal amount of Registrable Notes covered by such Registration
Statement and the managing underwriter or underwriters or agents) with
respect to all parties to be indemnified pursuant to said Section. The
above shall be done at each closing under such underwriting agreement, or
as and to the extent required thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, make available for
inspection by any selling Holder of such Registrable Notes being sold, or
each such Participating Broker-Dealer, as the case may be, any underwriter
participating in any such disposition of Registrable Notes, if any, and
any attorney, accountant or other agent retained by any such selling
Holder or each such Participating Broker-Dealer, as the case may be, or
underwriter (collectively, the "Inspectors"), at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and instruments of the Company and
its subsidiaries (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the
<PAGE> 22
officers, directors and employees of the Company and its subsidiaries to
supply all information reasonably requested by any such Inspector in
connection with such Registration Statement and Prospectus. Each Inspector
shall agree in writing that it will not disclose any records that the
Company determines, in good faith, to be confidential and that it notifies
the Inspectors in writing are confidential unless (i) the disclosure of
such Records is necessary to avoid or correct a misstatement or omission
in such Registration Statement or Prospectus, (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction, (iii) disclosure of such information is necessary
or advisable in connection with any action, claim, suit or proceeding,
directly or indirectly, involving or potentially involving such Inspector
and arising out of, based upon, relating to, or involving this Agreement
or the Purchase Agreement, or any transactions contemplated hereby or
thereby or arising hereunder or thereunder, or (iv) the information in
such Records has been made generally available to the public; provided,
however, that such Inspector shall take such actions as are reasonably
necessary to protect the confidentiality of such information (if
practicable) to the extent such action is otherwise not inconsistent with,
an impairment of or in derogation of the rights and interests of the
Holder or any Inspector.
(o) Provide an indenture trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a) hereof, as the case may be, to be
qualified under the TIA not later than the effective date of the first
Registration Statement relating to the Registrable Notes; and in
connection therewith, cooperate with the trustee under any such indenture
and the Holders of the Registrable Notes, to effect such changes to such
indenture as may be required for such indenture to be so qualified in
accordance with the terms of the TIA; and execute, and use its best
efforts to cause such trustee to execute, all documents as may be required
to effect such changes, and all other forms and documents required to be
filed with the Commission to enable such indenture to be so qualified in a
timely manner.
(p) Comply with all applicable rules and regulations of the
Commission and make generally available to its securityholders earnings
statements satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder (or any similar rule promulgated under the
Securities Act) no later than 45 days after the end of any 12-month period
(or 90 days after the end of any 12-month period if such period is a
fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Notes
<PAGE> 23
are sold to underwriters in a firm commitment or best efforts underwritten
offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company
after the effective date of a Registration Statement, which statements
shall cover said 12-month periods.
(q) Upon consummation of the Exchange Offer or a Private Exchange,
use its best efforts to obtain an opinion of counsel to the Company, in a
form customary for underwritten transactions, addressed to the Trustee for
the benefit of all Holders of Registrable Notes participating in the
Exchange Offer or the Private Exchange, as the case may be, that the
Exchange Notes or Private Exchange Notes, as the case may be, and the
related indenture constitute legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with its respective
terms, subject to customary exceptions and qualifications.
(r) If the Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Notes by Holders to the
Company (or to such other Person as directed by the Company) in exchange
for the Exchange Notes or the Private Exchange Notes, as the case may be,
mark, or cause to be marked, on such Registrable Notes that such
Registrable Notes are being cancelled in exchange for the Exchange Notes
or the Private Exchange Notes, as the case may be; in no event shall such
Registrable Notes be marked as paid or otherwise satisfied.
(s) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in
connection with any filings required to be made with the National
Association of Securities Dealers, Inc. (the "NASD").
(t) Use its best efforts to take all other steps necessary or
advisable to effect the registration of the Exchange Notes and/or
Registrable Notes covered by a Registration Statement contemplated hereby.
The Company may require each seller of Registrable Notes as to which
any registration is being effected to furnish to the Company such information
regarding such seller and the distribution of such Registrable Notes as the
Company may, from time to time, reasonably request. The Company may exclude from
such registration the Registrable Notes of any seller so long as such seller
fails to furnish such information within a reasonable time after receiving such
request. Each seller as to which any Shelf Registration is being effected agrees
to
<PAGE> 24
furnish promptly to the Company all information required to be disclosed in
order to make the information previously furnished to the Company by such seller
not materially misleading.
If any such Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (i) the insertion therein of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the holding
by such Holder of such securities is not to be construed as a recommendation by
such Holder of the investment quality of the securities covered thereby and that
such holding does not imply that such Holder will assist in meeting any future
financial requirements of the Company, or (ii) in the event that such reference
to such Holder by name or otherwise is not required by the Securities Act or any
similar federal statute then in force, the deletion of the reference to such
Holder in any amendment or supplement to the Registration Statement filed or
prepared subsequent to the time that such reference ceases to be required.
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes
to be sold by such Participating Broker-Dealer, as the case may be, that, upon
actual receipt of any notice from the Company of the happening of any event of
the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof,
such Holder will forthwith discontinue disposition of such Registrable Notes
covered by such Registration Statement or Prospectus or Exchange Notes to be
sold by such Holder or Participating Broker-Dealer, as the case may be, until
such Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until
it is advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any amendments
or supplements thereto. In the event that the Company shall give any such
notice, each of the Effectiveness Period and the Applicable Period shall be
extended by the number of days during such periods from and including the date
of the giving of such notice to and including the date when each seller of
Registrable Notes covered by such Registration Statement or Exchange Notes to be
sold by such Participating Broker-Dealer, as the case may be, shall have
received (x) the copies of the supplemented or amended Prospectus contemplated
by Section 5(k) hereof or (y) the Advice.
Section 6. Registration Expenses
All fees and expenses incident to the performance of or compliance
with this Agreement by the Company shall be borne by the Company, whether or not
the Exchange Offer Registration Statement or any Shelf Registration is filed or
becomes
<PAGE> 25
effective or the Exchange Offer is consummated, including, without limitation,
(i) all registration and filing fees (including, without limitation, (A) fees
with respect to filings required to be made with the NASD in connection with an
underwritten offering and (B) fees and expenses of compliance with state
securities or Blue Sky laws (including, without limitation, reasonable fees and
disbursements of counsel in connection with Blue Sky qualifications of the
Registrable Notes or Exchange Notes and determination of the eligibility of the
Registrable Notes or Exchange Notes for investment under the laws of such
jurisdictions (x) where the holders of Registrable Notes are located, in the
case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, in the
case of Registrable Notes or Exchange Notes to be sold by a Participating
Broker-Dealer during the Applicable Period)), (ii) printing expenses, including,
without limitation, expenses of printing certificates for Registrable Notes or
Exchange Notes in a form eligible for deposit with The Depository Trust Company
and of printing prospectuses if the printing of prospectuses is requested by the
managing underwriter or underwriters, if any, by the Holders of a majority in
aggregate principal amount of the Registrable Notes included in any Registration
Statement or in respect of Registrable Notes or Exchange Notes to be sold by any
Participating Broker-Dealer during the Applicable Period, as the case may be,
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company and reasonable fees and disbursements of one special
counsel for all of the sellers of Registrable Notes (exclusive of any counsel
retained pursuant to Section 7 hereof), (v) fees and disbursements of all
independent certified public accountants referred to in Section 5(n)(iii) hereof
(including, without limitation, the expenses of any special audit and "cold
comfort" letters required by or incident to such performance), (vi) Securities
Act liability insurance, if the Company desires such insurance, (vii) fees and
expenses of all other Persons retained by the Company, (viii) internal expenses
of the Company (including, without limitation, all salaries and expenses of
officers and employees of the Company performing legal or accounting duties),
(ix) the expense of any annual audit, (x) the fees and expenses incurred in
connection with the listing of the securities to be registered on any securities
exchange, and the obtaining of a rating of the securities, in each case, if
applicable, and (xi) the expenses relating to printing, word processing and
distributing all Registration Statements, underwriting agreements, indentures
and any other documents necessary in order to comply with this Agreement.
Notwithstanding the foregoing or anything to the contrary, each Holder shall pay
all underwriting discounts and commissions of any underwriters with respect to
any Registrable Notes sold by or on behalf of it.
<PAGE> 26
Section 7. Indemnification
(a) The Company agrees to indemnify and hold harmless each Holder of
Registrable Notes and each Participating Broker-Dealer selling Exchange Notes
during the Applicable Period, the officers and directors of each such Person,
and each Person, if any, who controls any such Person within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act (each,
a "Participant"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, the reasonable legal fees and other
expenses actually incurred in connection with any suit, action or proceeding or
any claim asserted) caused by, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) or Prospectus (as amended or supplemented
if the Company shall have furnished any amendments or supplements thereto) or
any preliminary prospectus, or caused by, arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the case of the
Prospectus in light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information relating to
any Participant furnished to the Company in writing by or on behalf of such
Participant expressly for use therein; provided, however, that the foregoing
indemnity with respect to any preliminary prospectus shall not inure to the
benefit of any Participant from whom the Person asserting such losses, claims,
damages or liabilities purchased Registrable Notes if (x) it is established in
the related proceeding that such Participant failed to send or give a copy of
the Prospectus (as amended or supplemented if such amendment or supplement was
furnished to such Participant prior to the written confirmation of such sale) to
such Person with or prior to the written confirmation of such sale, if required
by applicable law, and (y) the untrue statement or omission or alleged untrue
statement or omission was completely corrected in the Prospectus (as amended or
supplemented if amended or supplemented as aforesaid) and such Prospectus does
not contain any other untrue statement or omission or alleged untrue statement
or omission that was the subject matter of the related proceeding.
(b) Each Participant agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers and each Person who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent (but on a several, and not
joint, basis) as the foregoing indemnity from the Company to each Participant,
but only with reference to information relating to such Participant furnished to
the
<PAGE> 27
Company in writing by such Participant expressly for use in any Registration
Statement or Prospectus, any amendment or supplement thereto, or any preliminary
prospectus.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "Indemnified Person") shall promptly
notify the Persons against whom such indemnity may be sought (the "Indemnifying
Persons") in writing, and the Indemnifying Persons, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Persons may reasonably designate in such proceeding and shall pay
the fees and expenses actually incurred by such counsel related to such
proceeding; provided, however, that the failure to so notify the Indemnifying
Persons shall not relieve any of them of any obligation or liability which any
of them may have hereunder or otherwise. In any such proceeding, any Indemnified
Person shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Person unless (i)
the Indemnifying Persons and the Indemnified Person shall have mutually agreed
to the contrary, (ii) the Indemnifying Persons shall have failed within a
reasonable period of time to retain counsel reasonably satisfactory to the
Indemnified Person or (iii) the named parties in any such proceeding (including
any impleaded parties) include both any Indemnifying Person and the Indemnified
Person or any affiliate thereof and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. It is understood that, unless there exists a conflict among
Indemnified Persons, the Indemnifying Persons shall not, in connection with any
one such proceeding or separate but substantially similar related proceeding in
the same jurisdiction arising out of the same general allegations, be liable for
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and that all such fees and expenses shall
be reimbursed promptly as they are incurred. Any such separate firm for the
Participants and such control Persons of Participants shall be designated in
writing by Participants who sold a majority in interest of Registrable Notes and
Exchange Notes sold by all such Participants and shall be reasonably acceptable
to the Company and any such separate firm for the Company, their respective
directors, their respective officers and such control Persons of the Company
shall be designated in writing by the Company and shall be reasonably acceptable
to the Holders. The Indemnifying Persons shall not be liable for any settlement
of any proceeding effected without its prior written consent (which consent
shall not be unreasonably withheld or delayed), but if settled with such consent
or if there be a final judgment for the plaintiff for which the
<PAGE> 28
Indemnified Person is entitled to indemnification pursuant to this Agreement,
each of the Indemnifying Persons agrees to indemnify and hold harmless each
Indemnified Person from and against any loss or liability by reason of such
settlement or judgment. No Indemnifying Person shall, without the prior written
consent of the Indemnified Persons (which consent shall not be unreasonably
withheld or delayed), effect any settlement or compromise of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement (A) includes an unconditional written
release of such Indemnified Person, in form and substance reasonably
satisfactory to such Indemnified Person, from all liability on claims that are
the subject matter of such proceeding and (B) does not include any statement as
to an admission of fault, culpability or failure to act by or on behalf of such
Indemnified Person.
(d) If the indemnification provided for in the first and second
paragraphs of this Section 7 is for any reason unavailable to, or insufficient
to hold harmless, an Indemnified Person in respect of any losses, claims,
damages or liabilities referred to therein, then each Indemnifying Person under
such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and
in order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Indemnifying Person or Persons on the
one hand and the Indemnified Person or Persons on the other from the offering of
the Notes or (ii) if the allocation provided by the foregoing clause (i) is not
permitted by applicable law, not only such relative benefits but also the
relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Participants on the other shall be deemed to be
in the same proportion as the total proceeds from the offering (net of discounts
and commissions but before deducting expenses) of the Notes received by the
Company bears to the total proceeds received by such Participant from the sale
of Registrable Notes or Exchange Notes, as the case may be. The relative fault
of the parties 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 on the one hand or such Participant or such other Indemnified Person, as
the case may be, on the other, the parties' relative intent, knowledge, access
to information and opportunity to correct or
<PAGE> 29
prevent such statement or omission, and any other equitable considerations
appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes, as the case may be, exceeds the amount of any damages that such
Participant has otherwise been required to pay or has paid 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 Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
(f) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the Indemnifying Party to the Indemnified Party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Holder or any person who controls a
Holder, any Company, their respective directors or officers or any person
controlling any Company, and (ii) any termination of this Agreement.
(g) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
Section 8. Rules 144 and 144A
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the Commission thereunder in a timely manner in
accordance with the requirements of the Securities Act and the Exchange Act and,
if
<PAGE> 30
at any time the Company is not required to file such reports, it will, upon the
request of any Holder or beneficial owner of Registrable Notes, make available
such information necessary to permit sales pursuant to Rule 144A under the
Securities Act. The Company further covenants that it will take such further
action as any Holder of Registrable Notes may reasonably request, all to the
extent required from time to time to enable such holder to sell Registrable
Notes without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities Act,
as such Rules may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Notwithstanding the foregoing,
nothing in this Section 8 shall be deemed to require the Company to register any
of its securities pursuant to the Exchange Act.
Section 9. Underwritten Registrations
If any of the Registrable Notes covered by any Shelf Registration
are to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the Holders of a majority in aggregate principal amount of such Registrable
Notes included in such offering and shall be reasonably acceptable to the
Company.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
Section 10. Miscellaneous
(a) No Inconsistent Agreements. The Company has not, as of the date
hereof, and the Company shall not, after the date of this Agreement, enter into
any agreement with respect to any of its securities that is inconsistent with
the rights granted to the Holders of Registrable Notes in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not conflict with and are not inconsistent with, in any
material respect, the rights granted to the holders of the Company's other
issued and outstanding securities under any such agreements. The Company has not
entered and will not enter into any agreement with respect to any of its
securities which will grant to any Person piggy-back registration rights with
respect to any Registration Statement.
<PAGE> 31
(b) Adjustments Affecting Registrable Notes. The Company shall not,
directly or indirectly, take any action with respect to the Registrable Notes as
a class that would adversely affect the ability of the Holders of Registrable
Notes to include such Registrable Notes in a registration undertaken pursuant to
this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given except pursuant to a written agreement
duly signed and delivered by (I) the Company and (II)(A) the Holders of not less
than a majority in aggregate principal amount of the then outstanding
Registrable Notes and (B) in circumstances that would adversely affect the
Participating Broker-Dealers, the Participating Broker-Dealers holding not less
than a majority in aggregate principal amount of the Exchange Notes held by all
Participating Broker-Dealers; provided, however, that Section 7 and this Section
10(c) may not be amended, modified or supplemented except pursuant to a written
agreement duly signed and delivered by each Holder and each Participating
Broker-Dealer (including any person who was a Holder or Participating
Broker-Dealer of Registrable Notes or Exchange Notes, as the case may be,
disposed of pursuant to any Registration Statement) affected by any such
amendment, modification or supplement. Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders of Registrable Notes whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect, impair, limit or compromise the rights of other
Holders of Registrable Notes may be given by Holders of at least a majority in
aggregate principal amount of the Registrable Notes being sold pursuant to such
Registration Statement.
(d) Notices. All notices and other communications (including,
without limitation, any notices or other communications to the Trustee) provided
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or telecopier:
(i) if to a Holder of the Registrable Notes or any Participating
Broker-Dealer, at the most current address of such Holder or Participating
Broker-Dealer, as the case may be, set forth on the records of the
registrar under the Indenture.
<PAGE> 32
(ii) if to the Company, at the address as follows:
P.O. Box 752006
Cincinnati, OH 45275-2006
Facsimile No.: (606) 283-7209
Attention: Chief Executive Officer
(iii) if to the Initial Purchasers, as provided in the Purchase
Agreement.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; five Business Days
after being deposited in the mail, postage prepaid, if mailed; when receipt is
acknowledged by the recipient's telecopier machine, if telecopied; and on the
next Business Day, if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto, the Holders and the Participating Broker-Dealers; provided, however,
that this Agreement shall not inure to the benefit of or be binding upon a
successor or assign of a Holder unless and to the extent such successor or
assign holds Registrable Notes.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
(i) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired
<PAGE> 33
or invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid, illegal,
void or unenforceable.
(j) Securities Held by the Company or their Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable Notes is
required hereunder, Registrable Notes held by the Company or any of its
affiliates (as such term is defined in Rule 405 under the Securities Act) shall
not be counted in determining whether such consent or approval was given by the
Holders of such required percentage.
(k) Third Party Beneficiaries. Holders and beneficial owners of
Registrable Notes and Participating Broker-Dealers are intended third party
beneficiaries of this Agreement, and this Agreement may be enforced by such
Persons.
(l) Attorneys' Fees. As between the parties to this Agreement, in
any action or proceeding brought to enforce any provision of this Agreement, or
where any provision hereof is validly asserted as a defense, the successful
party shall be entitled to recover reasonable attorneys' fees in addition to its
costs and expenses and any other available remedy.
(m) Entire Agreement. This Agreement, together with the Purchase
Agreement and the Indenture, is intended by the parties as a final and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein and any and all prior oral or
written agreements, representations, or warranties, contracts, understandings,
correspondence, conversations and memoranda between the Holders on the one hand
and the Company on the other, or between or among any agents, representatives,
parents, subsidiaries, affiliates, predecessors in interest or successors in
interest with respect to the subject matter hereof and thereof are merged herein
and replaced hereby.
<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
INTERNATIONAL KNIFE & SAW, INC.
By:
Name:
Title:
SCHRODER WERTHEIM & CO. INCORPORATED
By:
Name:
Title:
SMITH BARNEY INC.
By:
Name:
Title:
<PAGE> 1
EXHIBIT 10.1
INTERNATIONAL KNIFE & SAW, INC.
$90,000,000 Aggregate Principal Amount of
11-3/8% Senior Subordinated Notes due 2006
PURCHASE AGREEMENT
New York, New York
October 31, 1996
SCHRODER WERTHEIM & CO. INCORPORATED
SMITH BARNEY INC.
c/o SCHRODER WERTHEIM & CO. INCORPORATED
Equitable Center
787 Seventh Avenue
New York, New York 10019-6016
Ladies and Gentlemen:
International Knife & Saw, Inc., a Delaware corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell to you (the "Initial Purchasers") $90,000,000 aggregate principal
amount of 11-3/8% Senior Subordinated Notes due 2006 (the "Notes"), to be issued
pursuant to the provisions of an Indenture (the "Indenture") to be entered into
between the Company and United States Trust Company of New York, as trustee (the
"Trustee").
The Notes will be offered without being registered under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance on
exemptions therefrom provided by Section 4(2) of the Securities Act and Rule
144A promulgated thereunder.
In connection with the offering and sale of the Notes (the
"Offering"), the Company has prepared a preliminary offering memorandum (the
"Preliminary Offering Memorandum") and will prepare a final offering memorandum
(the "Final Offering Memorandum" and, together with the Preliminary Offering
Memorandum, each a "Memorandum") setting forth or including a description of the
terms of the Notes, the terms of the Offering, a description of the Company and
any material developments relating to the Company occurring after the date of
the most recent financial statements included therein.
<PAGE> 2
You and your direct and indirect transferees will be entitled to the
benefits of a Registration Rights Agreement to be entered into between the
Company and the Initial Purchasers substantially in the form attached hereto as
Exhibit A (the "Registration Rights Agreement"), pursuant to which the Company
will agree to use its best efforts to file and have declared effective a
registration statement (an "Exchange Offer Registration Statement") with the
Securities and Exchange Commission (the "Commission") registering the offer and
sale of the Notes, Private Exchange Notes or the Exchange Notes (each as defined
in the Registration Rights Agreement) under the Securities Act. This Agreement,
the Notes, the Indenture and the Registration Rights Agreement are referred to
herein as the "Offering Documents."
The Offering is being made in connection with a recapitalization of
the Company (the "Recapitalization") under that certain Agreement and Plan of
Recapitalization dated September 17, 1996 (the "Recapitalization Agreement") by
and among Citicorp Venture Capital Ltd., The Klingelnberg Corporation ("IKS
Holdings") and certain stockholders of IKS Holdings and of the Company.
In connection with the Offering and the Recapitalization, the
Company will repay approximately $5.3 million of its existing indebtedness and
enter into a new $20.0 million revolving credit facility, and a German
subsidiary of the Company will repay approximately $9.3 million of its existing
indebtedness and enter into a new $5.0 million revolving credit facility
(together, the "New Credit Facilities").
The Recapitalization Agreement (including the agreements attached as
exhibits thereto), the agreements evidencing the New Credit Facilities and the
Offering Documents are referred to herein as the "Transaction Documents." The
Offering and the application of the proceeds therefrom, the Recapitalization and
the entering into the New Credit Facilities are referred to herein as the
"Transactions".
This is to confirm the agreement concerning the purchase by you of
the Notes from the Company.
1. The Company represents and warrants to and agrees with you that:
(a) The Preliminary Offering Memorandum, as of its date, did not
contain any untrue statement of a material fact or omit to state a
material fact (except for pricing terms and other financial terms
intentionally left blank) necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, and
the Final Offering Memorandum, as of its date did not, and as of the
Delivery Date will not,
<PAGE> 3
contain any untrue statement of a material fact or omit to state a
material fact necessary, in the light of the circumstances under which
they were made, not misleading, except that the representations and
warranties set forth in this Section 1(a) do not apply to statements or
omissions contained in any Memorandum made in reliance upon and in
conformity with information relating to the Initial Purchasers furnished
by the Initial Purchasers to the Company in writing expressly for use in
either Memorandum or any amendment or supplement thereto.
(b) Neither the Company nor any of the Subsidiaries (as defined
below) has sustained, since the date of the most recent financial
statements included in the Final Offering Memorandum, any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, which loss or
interference is material to the Company and the Subsidiaries, taken as a
whole. Since the respective dates as of which information is given in the
Final Offering Memorandum there has not been any change in the capital
stock or short-term debt (other than in the ordinary course of business)
or long-term debt of the Company or any of the Subsidiaries, or any change
or development which could reasonably be expected to have a material
adverse effect upon the business, operations, assets, condition (financial
or otherwise) or prospects of the Company and the Subsidiaries, taken as a
whole, or an adverse effect on the ability of the Company to perform its
obligations under the Offering Documents (a "Material Adverse Effect"),
otherwise than as set forth or contemplated in the Final Offering
Memorandum.
(c) The Company and the Subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them, in each case, free and clear of all
liens, adverse claims, encumbrances, security interests (collectively,
"Liens") and defects except those that are described or contemplated by
the Final Offering Memorandum or those that do not materially affect the
value of such property and do not interfere with the use made or proposed
to be made (as described in the Final Offering Memorandum) of such
property by the Company and the Subsidiaries. Any real property and
buildings held under lease by the Company and the Subsidiaries are held by
them under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made or proposed to
be made (as described in the Final Offering Memorandum) of such real
property and buildings by the Company and the Subsidiaries.
<PAGE> 4
(d) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
with all necessary corporate power and authority to own its properties and
to conduct its business as described in the Final Offering Memorandum. The
Company has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each
other jurisdiction in which it owns or leases property, or conducts any
business, so as to require such qualification (except where the failure to
so qualify, singly or in the aggregate with all other such failures, would
not have a Material Adverse Effect). Each of the Company's subsidiaries
(the "Subsidiaries") is listed on Schedule I hereto. Except as described
in the Final Offering Memorandum, each of the Subsidiaries is wholly owned
directly or indirectly by the Company. Each of the Subsidiaries has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation, with all
necessary corporate power and authority to own its properties and conduct
its business as described in the Final Offering Memorandum.
(e) The Company had at the date indicated in the Final Offering
Memorandum the capitalization set forth in the column entitled "Actual"
under the caption "Capitalization" as set forth in the Final Offering
Memorandum and, based on the assumptions stated in the Final Offering
Memorandum, the Company would have had on the date indicated the adjusted
capitalization as set forth in the column entitled "Pro Forma" under the
caption "Capitalization" as set forth in the Final Offering Memorandum.
Except as described in the Final Offering Memorandum, all of the issued
and outstanding shares of capital stock of each Subsidiary have been duly
and validly authorized and issued, are fully paid and non-assessable and
are owned by the Company free and clear of all Liens. There are no
outstanding options, warrants or other rights to acquire, or instruments
convertible into or options to acquire, or instruments convertible into or
exchangeable for, any shares of capital stock of any Subsidiary.
(f) This Agreement has been duly authorized, executed and
delivered by the Company.
(g) The Indenture has been duly authorized by the Company and, when
executed and delivered by the Company on the Delivery Date (assuming due
authorization, execution and delivery by, and enforceability against, the
Trustee), will be a legally valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except that
(i) the enforceability thereof
<PAGE> 5
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws relating to or
affecting creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability (regardless of whether in a proceeding in equity or at law).
The Indenture will conform in all material respects to the description
thereof in the Final Offering Memorandum.
(h) The Notes have been duly and validly authorized by the Company,
and, when executed and authenticated in accordance with the terms of the
Indenture and delivered to and paid for by the Initial Purchasers in
accordance with the terms of this Agreement, will be legally valid and
binding obligations of the Company, entitled to the benefits of the
Indenture and enforceable against the Company in accordance with their
terms, except that (i) the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other similar laws relating to or affecting creditors' rights
generally and (ii) the availability of equitable remedies may be limited
by equitable principles of general applicability (regardless of whether
considered in a proceeding in equity or at law). The Notes will conform in
all material respects to the description thereof contained in the Final
Offering Memorandum.
(i) The Exchange Notes and the Private Exchange Notes have been duly
and validly authorized by the Company, and, when executed, authenticated
and delivered in accordance with the terms of the Indenture and the
Registration Rights Agreement, will be legally valid and binding
obligations of the Company, entitled to the benefits of the Indenture and
enforceable against the Company in accordance with their terms, except
that (i) the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other similar laws relating to or affecting creditors' rights generally
and (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability (regardless of whether
considered in a proceeding in equity or at law).
(j) The Registration Rights Agreement has been duly and validly
authorized by the Company and, when executed and delivered by the Company
on the Delivery Date (assuming due authorization, execution and delivery
by, and enforceability against, the Initial Purchasers), will be a legally
valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except that (i) the enforceability
thereof may be
<PAGE> 6
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other similar laws relating to or affecting
creditors' rights generally, (ii) the availability of equitable remedies
may be limited by equitable principles of general applicability
(regardless of whether considered in a proceeding in equity or at law) and
(iii) rights to indemnity may be limited by state or federal laws relating
to securities or by policies underlying such laws. The Registration Rights
Agreement will conform in all material respects to the description thereof
contained in the Final Offering Memorandum.
(k) The Recapitalization Agreement has been duly and validly
authorized by each of the parties thereto and is a legally valid and
binding agreement of each such party, enforceable against each such party
in accordance with its terms, except that (i) the enforceability thereof
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws relating to or
affecting creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability (regardless of whether in a proceeding in equity or at law).
The representations and warranties set forth in Article II of the
Recapitalization Agreement are true and correct in all material respects
as of the date of such agreement and will be true and correct in all
material respects on the Delivery Date.
(l) The execution, delivery and performance by the Company of the
Offering Documents and the consummation of the Transactions and the other
transactions contemplated thereby will not (i) conflict with, or result in
a breach or violation of, any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, license, permit,
loan agreement, lease or other material agreement or instrument to which
the Company or any of the Subsidiaries is a party or by which any of them
or any of their respective properties or assets is bound or or is subject,
(ii) violate any provision of the certificate of incorporation or the
by-laws of the Company or any of the Subsidiaries or any material statute
or any material order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or any of the
Subsidiaries or any of their properties or assets, or (iii) result in or
require the creation or imposition of any Lien, upon or with respect to
any of the properties of the Company or any of the Subsidiaries, except as
permitted by the terms of the Indenture. No consent, approval,
authorization, order, registration or qualification of or with any court
of governmental agency or body is required for the issue and sale of the
Notes or the consummation of the other
<PAGE> 7
Transactions, except such consents, approvals, authorizations,
registrations or qualifications as (x) may be required under state
securities or Blue Sky laws in connection with the offer and sale of the
Notes, (y) have been obtained and are in full force and effect or (z) as
may be required by the National Association of Securities Dealers, Inc.
(m) Except as set forth in the Final Offering Memorandum, there are
no legal or governmental proceedings pending to which the Company or any
of the Subsidiaries is a party or of which any of their respective
properties or assets is the subject which, if determined adversely, would
singly or in the aggregate have a Material Adverse Effect. To the
Company's best knowledge, no such proceedings are threatened or
contemplated by any governmental agency or body or any other person.
(n) The Company and the Subsidiaries have all material licenses,
permits and other approvals or authorizations of and from governmental
agencies and bodies ("Permits") as are necessary under applicable law to
own their respective properties and to conduct their respective businesses
in the manner now being conducted as described in the Final Offering
Memorandum. The Company and the Subsidiaries have fulfilled and performed
in all material respects all of their respective obligations with respect
to such material Permits, and no event has occurred which allows, or after
notice or lapse of time would allow, revocation or termination thereof or
result in any other material impairment of the rights of the holder of any
such material Permits.
(o) Ernst & Young LLP, who have certified certain financial
statements of the Company, are independent public accountants under rule
101 of AICPA's Code of Professional Conduct and its interpretation and
rulings.
(p) The consolidated financial statements of the Company and the
Subsidiaries included in the Final Offering Memorandum present fairly the
financial condition, the results of operations and the cash flows of the
Company and the Subsidiaries as of the dates and for the periods therein
specified in conformity with generally accepted accounting principles
consistently applied throughout the periods involved, except as otherwise
stated therein. The unaudited pro forma financial statements included in
the Final Offering Memorandum have been prepared in accordance with the
rules and guidelines of the Commission with respect to pro forma financial
statements and in the Company's opinion, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred
to therein.
<PAGE> 8
(q) Except as set forth in the Final Offering Memorandum, there is
no presently existing dispute or controversy between the Company or any of
the Subsidiaries and any of their respective employees which has had or is
likely to have, and the Company has no reason to believe that the
relationship of the Company and the Subsidiaries with their unions or
employees is likely to have, a Material Adverse Effect.
(r) To the Company's best knowledge, the Company and the
Subsidiaries own or possess adequate patents, patent rights, inventions,
trademarks, service marks, trade names and copyrights necessary to conduct
their business as presently conducted as described in the Final Offering
Memorandum. Neither the Company nor any of the Subsidiaries has received
any notice of infringement of or conflict with asserted rights of others
with respect to any material patent, patent rights, inventions,
trademarks, service marks, trade names or copyrights.
(s) Neither the Company nor any of the Subsidiaries is in violation
of any provision of their respective certificate of incorporation or
by-laws. Except as described in the Final Offering Memorandum, the Company
and each of the Subsidiaries is in compliance with all laws, rules,
regulations, orders, judgments, writs and decrees applicable to them other
than those which, singly or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
(t) No default exists, and no event has occurred which with notice
or lapse of time, or both, would constitute a default in the due
performance and observance of any term, covenant or condition of any
indenture, mortgage, deed of trust, license, permit, loan agreement, lease
or other agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which any of them or any of their respective
properties or assets is bound or is subject, which default, singly or in
the aggregate, could reasonably be expected to have a Material Adverse
Effect.
(u) The Company and the Subsidiaries have timely filed all federal
income and other material tax returns and notices. The Company has no
knowledge of any tax deficiencies which would have a Material Adverse
Effect. The Company and its Subsidiaries have paid all federal, state,
local and foreign taxes of any nature which are shown on its returns to be
due, in each case except as may be set forth or adequately reserved for in
the financial statements included in the Final Offering Memorandum in
accordance with GAAP. The amounts currently set up as provisions for taxes
or otherwise by the Company and the Subsidiaries on their books and
records are sufficient for
<PAGE> 9
the payment of all their unpaid federal, foreign, state, county and local
taxes accrued through the dates as of which they relate, and for which the
Company and the Subsidiaries may be liable in their own right, or as a
transferee of the assets of, or as successor to any other corporation,
association, partnership, joint venture or other entity.
(v) Since the date as of which information is given in the
Preliminary Offering Memorandum through the date hereof, and except as may
otherwise be disclosed in the Final Offering Memorandum, neither the
Company nor any of the Subsidiaries has sold or otherwise disposed of any
capital stock of the Company or the Subsidiaries, directly or indirectly.
(w) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of 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 authorization; 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.
(x) The Company, immediately before and after the consummation of
the Transactions, will be Solvent. As used herein, the term "Solvent"
means, with respect to any such entity on a particular date (i) the fair
market value of the assets of such entity is greater than the total amount
of liabilities (including contingent liabilities) of such entity, (ii) the
present fair saleable value of the assets of such entity is greater than
the amount that will be required to pay the probable liabilities of such
entity on its debts as they become absolute and matured, (iii) such entity
is able to realize upon its assets and pay its debts and other
liabilities, including contingent obligations, as they mature and (iv)
such entity does not have an unreasonably small capital.
(y) Neither the Company nor any of its affiliates (as defined in
Rule 501(b) of Regulation D under the Securities Act, an "Affiliate") has
directly, or through any agent, (i) sold, offered for sale, solicited
offers to buy or otherwise negotiated in respect of, any security (as
defined in the Securities Act) which is or will be integrated with the
sale of the Notes in a manner that would require the registration under
the Securities Act of the Notes or (ii) engaged in any form of general
<PAGE> 10
solicitation or general advertising in connection with the offering of the
Notes (as those terms are used in Regulation D under the Securities Act)
or in any manner involving a public offering within the meaning of Section
4(2) of the Securities Act.
(z) Neither the Company nor any of the Subsidiaries is, or will be
after giving effect to the Offering and the application of the proceeds
therefrom and the other transactions contemplated by the Documents, an
"investment company" or an entity "controlled" by an "investment company,"
as such terms are defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act").
(aa) Assuming the representations and warranties of the Initial
Purchasers are true and correct, it is not necessary in connection with
the offer, sale and delivery of the Notes to the Initial Purchasers in the
manner contemplated by this Agreement to register the Notes under the
Securities Act or to qualify the Indenture under the Trust Indenture Act
of 1939, as amended.
(bb) The Company and the Subsidiaries (i) are in compliance with all
applicable foreign, federal, state and local laws and regulations relating
to the protection of human health and safety, the environment or hazardous
or toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), (ii) have received all permits, licenses or other approvals
required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the terms
and conditions of such permits, licenses or approvals would not
individually or in the aggregate result in a Material Adverse Effect.
(cc) When the Notes are issued and delivered pursuant to this
Agreement, the Notes will not be of the same class (within the meaning of
Rule 144A under the Securities Act) as securities of the Company which are
listed on a national securities exchange registered under Section 6 of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
of the Commission promulgated thereunder (collectively, the "Exchange
Act"), or quoted in a U.S. automated interdealer quotation system.
(dd) The Company and each of its subsidiaries maintains insurance
covering their properties, operations, personnel and businesses. Such
insurance insures against such losses and risks as are adequate in
accordance with
<PAGE> 11
customary industry practice to protect the Company and the
Subsidiaries and their businesses.
2. On the basis of the representations and warranties contained in
this Agreement, and subject to the terms and conditions herein set forth, the
Company agrees to issue and sell to the several Initial Purchasers, and the
Initial Purchasers agree, severally, to purchase from the Company, at a purchase
price of 97.0% of the principal amount thereof, (i) $54,000,000 aggregate
principal amount of Notes, in the case of Schroder Wertheim & Co. Incorporated,
and (ii) $36,000,000 aggregate principal amount of Notes, in the case of Smith
Barney Inc.
3. Certificates in definitive form for the Notes to be purchased by
you hereunder shall be delivered by or on behalf of the Company to you for your
account against payment by you of the purchase price therefor by wire transfer
of immediately available funds to an account specified by the Company by written
notice to the Initial Purchasers (given at least two business days prior to the
Delivery Date), for the purchase price of the Notes being sold by the Company in
New York, New York, at 9:30 A.M., New York City time, on November 6, 1996, or at
such other time, date and place as you and the Company may agree upon in
writing, such time and date being herein called the "Delivery Date."
Certificates for the Notes so to be delivered will be in good
delivery form, and in such denominations and registered in such names as you may
request not less than 48 hours prior to the Delivery Date. Such certificates
will be made available for checking and packaging in New York, New York, at
least 24 hours prior to the Delivery Date.
4. The Initial Purchasers acknowledge that the Notes have not been
registered under the Securities Act and may not be sold except pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act or pursuant to an effective registration
statement under the Securities Act. Accordingly, the Initial Purchasers propose
to offer the Notes for resale only to certain investors (as further described in
subparagraph (a) of this Paragraph 4) upon the terms and conditions set forth in
this Agreement and the Final Offering Memorandum at the purchase price initially
set forth on the cover page of the Final Offering Memorandum. Each of the
Initial Purchasers hereby severally represents and warrants to, and agrees with
the Company, that:
(a) It is an institutional "accredited investor" (as defined in
501(a)(1), (2), (3) or (7) under the Securities Act) and will offer or
sell the Notes only (i) inside the United States, to persons who it
reasonably believes are "qualified institutional buyers" within the
meaning of
<PAGE> 12
Rule 144A in transactions meeting the requirements of Rule 144A and (ii)
inside the United States, to a limited number of institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) that, prior to their purchase of the Notes, deliver to the
Initial Purchasers and the Company a letter substantially in the form
attached to each Memorandum as Annex A; and
(b) It has not and will not offer or sell the Notes by any form of
general solicitation or general advertising, including but not limited to,
the methods described in Rule 502(c) under the Securities Act.
5. In consideration of the agreements of the several Initial
Purchasers contained in this Agreement, the Company covenants and agrees as
follows:
(a) The Company will furnish to you, without charge, as many copies
of the Final Offering Memorandum and any supplements and amendments
thereto as you may reasonably request.
(b) Before amending or supplementing the Final Offering Memorandum
subsequent to the execution of this Agreement, the Company will furnish to
you a copy of each such proposed amendment or supplement and not to use
any such proposed amendment or supplement to which you reasonably object.
(c) If, at any time prior to the completion of the distribution of
the Notes to persons that are not your affiliates (as determined by you),
any event occurs as a result of which the Final Offering Memorandum as
then amended or supplemented would include any untrue statement of a
material fact, or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, or if for any other reason it is necessary at
any time to amend or supplement the Final Offering Memorandum to comply
with applicable law, the Company will notify you thereof and will prepare,
at the expense of the Company, an amendment or supplement to the Final
Offering Memorandum that corrects such statement or omission or effects
such compliance.
(d) The Company will endeavor to qualify the Notes for offer and
sale under the securities or Blue Sky laws of such jurisdictions in the
United States as you shall reasonably request; provided, however, that the
Company shall not be obligated to file any general consent to service of
process or to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in
<PAGE> 13
respect of doing business in any jurisdiction in which it is not otherwise
so subject. The Company will file such statements and reports as may be
required by the laws of each jurisdiction in which the Notes have been
qualified as above provided. The Company will also supply you with such
information as is necessary for the determination of the legality of the
Notes in such jurisdictions as you may request.
(e) The Company will not, and will not permit any of its Affiliates
to, sell, offer for sale or solicit offers to buy or otherwise negotiate
in respect of any security (as defined in the Securities Act) which could
be integrated with the sale of the Notes in a manner which would require
the registration under the Securities Act of the Notes.
(f) Except following the effectiveness of the Exchange Offer
Registration Statement, the Company will not solicit any offer to buy or
offer to sell the Notes by means of any form of general solicitation or
general advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act.
(g) While any of the Notes remain outstanding and are "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities Act,
to make available, upon request, to any holder or beneficial owner of
outstanding Notes the information specified in Rule 144A(d)(4) under the
Securities Act, unless the Company is then subject to Section 13 or 15(d)
of the Exchange Act.
(h) The Company will use its best efforts to permit the Notes to be
designated PORTAL securities in accordance with the rules and regulations
adopted by the National Association of Securities Dealers, Inc. relating
to trading in the PORTAL Market and to permit the Notes to be eligible for
clearance and settlement through the Depository Trust Company.
(i) For a period of five years following the Delivery Date, the
Company will furnish to the Initial Purchasers copies of any annual
reports, quarterly reports and current reports filed with the Commission
on Forms 10-K, 10-Q and 8-K, or such other similar forms as may be
designated by the Commission, and such other documents, reports and
information as shall be furnished by the Company to the Trustee or to the
holders of the Notes pursuant to the Indenture.
(j) During the period of three years following the Delivery Date,
the Company will not, and will not permit
<PAGE> 14
any of its Affiliates to, resell any Notes that have been acquired by any
of them, except for any such Note resold in a transaction registered under
the Securities Act.
(k) The Company will use the proceeds from the sale of the Notes in
the manner set forth in the Final Offering Memorandum and in a manner that
will not result in the Company becoming an investment company within the
meaning of the Investment Company Act, and the rules and regulations of
the Commission thereunder.
(l) The Company will not, and will cause each of the Subsidiaries
not to, offer, sell, contract to sell or grant any option to purchase or
otherwise transfer or dispose of any debt security, or any security
convertible into or in exchange for, any such debt security of the Company
or any such Subsidiary (other than (x) any private loan, credit or
financing agreement with a bank or similar institution and (y) the Notes,
the Exchange Notes and the Private Exchange Notes), for a period of 180
days after the date of this Agreement, without your prior written consent.
6. The Company covenants and agrees that the Company will pay or
cause to be paid: (i) the fees, disbursements and expenses of counsel and
accountants for the Company and the Trustee and its counsel, and all other
expenses, in connection with the preparation and printing of each Memorandum and
amendments and supplements thereto and the furnishing of copies thereof,
including charges for mailing, air freight and delivery and counting and
packaging thereof to the Initial Purchasers and dealers; (ii) all expenses in
connection with the qualification of the Notes for offering and sale under state
securities laws as provided in Section 5(d) hereof, including disbursements and
expenses for counsel for the Initial Purchasers in connection with such
qualification and in connection with Blue Sky surveys; (iii) any fees charged by
rating agencies for the rating of the Notes; (iv) the costs and expenses in
connection with the preparation and delivery of the Notes; and (v) all other
costs and expenses incident to the performance of its obligations hereunder
which are not otherwise specifically provided for in this Section 6, including
the fees, if any, incurred in connection with the admission of the Notes for
trading in any appropriate market systems, the cost of the Company's personnel
and other internal costs, the cost of printing and engraving the certificates
representing the Notes and all expenses and property, excise and similar taxes
incident to the sale and delivery of the Notes to be sold by the Company to the
Initial Purchasers hereunder.
7. Your obligations hereunder shall be subject, in your
discretion, to the following additional conditions:
<PAGE> 15
(a) The representations and warranties of the Company contained in
this Agreement shall be true and correct as of the date hereof and as of
the Delivery Date. The Company shall have performed in all material
respects all covenants and agreements and satisfied in all material
respects all conditions on its part to be performed or satisfied hereunder
at or prior to the Delivery Date.
(b) The sale of the Notes by the Company hereunder shall not be
enjoined (temporarily or permanently) on the Delivery Date.
(c) Subsequent to the date as of which information is given in the
Final Offering Memorandum, except in each case as described in or as
contemplated by the Final Offering Memorandum, the Company and the
Subsidiaries shall not have incurred any liabilities or obligations,
direct or contingent that are material to the Company and the Subsidiaries
taken as a whole or entered into any transactions that are material to the
business, condition (financial or other), results of operations or
prospects of the Company and the Subsidiaries taken as a whole.
(d) Subsequent to the date of this Agreement and prior to the
Delivery Date, there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction of
the possible change, in the rating accorded any of the Company's
securities, including the Notes, by any "nationally recognized statistical
rating organization" as such term is defined for purposes of Rule
436(g)(2) under the Securities Act.
(e) You shall have received on the Delivery Date a certificate of
the Company dated the Delivery Date and signed by its Chief Executive
Officer, President or any Vice President and by the Vice
President-Finance, to the effect set forth in clauses (a), (b), (c) and
(d) above.
(f) Dechert Price & Rhoads, counsel to the Company, shall have
furnished to you their written letters, each dated the Delivery Date, in
substantially the forms attached hereto as Exhibits B-1 and B-2,
respectively.
(g) Cahill Gordon & Reindel, counsel to the Initial Purchasers,
shall have furnished to the Initial Purchasers a written opinion, dated
the Delivery Date, in form and substance satisfactory to you, and such
counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon the matters covered by such
opinion.
<PAGE> 16
(h) You shall have received on each of the date hereof and the
Delivery Date a letter, dated the date hereof or the Delivery Date, as the
case may be, in form and substance reasonably satisfactory to you, from
Ernst & Young LLP, the Company's independent public accountants.
(i) (i) Since the date of this Agreement, neither the Company nor
any of the Subsidiaries shall have sustained any loss or interference with
its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree; and (ii) since the respective dates as of which
information is given in the Final Offering Memorandum, there shall not
have been any change in the capital stock or short-term debt (other than
in the ordinary course of business) or long-term debt of the Company or
any of the Subsidiaries nor any change which could reasonably be expected
to have a Material Adverse Effect otherwise than as set forth or
contemplated in the Final Offering Memorandum, the effect of which, in any
such case described in clause (i) or (ii), is in your judgment so material
and adverse as to make it impracticable or inadvisable to proceed with the
Offering or the delivery of the Notes on the terms and in the manner
contemplated in the Final Offering Memorandum.
(j) Subsequent to the execution and delivery of this Agreement, (i)
there shall have been no declaration of war by the Government of the
United States, (ii) there shall not have occurred any material adverse
change in the financial or securities markets in the United States or in
political, financial or economic conditions in the United States or any
outbreak or material escalation of hostilities or other calamity or
crisis, the effect of which is such as to make it, in the judgment of the
Initial Purchasers, impracticable to market the Notes or to enforce
contracts for the resale of Notes and (iii) no event shall have occurred
resulting in (A) trading in securities generally on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market being
suspended or limited or minimum or maximum prices being generally
established on such exchange or market, or (B) additional material
governmental restrictions, not in force on the date of this Agreement,
being imposed upon trading in securities generally by such exchange or by
order of the Commission or any court or other governmental authority or
(C) a general banking moratorium being declared by either Federal or New
York authorities.
(k) The Company shall have furnished or caused to be furnished to
you at the Delivery Date any additional certificates signed by officers of
the Company, satisfactory to you as to such matters as you may reasonably
request.
<PAGE> 17
(l) The Company and the Initial Purchasers shall have entered into
the Registration Rights Agreement.
(m) All of the Transactions (other than the Offering and the
application of the proceeds therefrom) shall have been consummated in
accordance with the Transaction Documents.
8. (a) The Company agrees to indemnify and hold harmless the
Initial Purchasers against any losses, claims, damages or liabilities
("Losses"), joint or several, to which any of the Initial Purchasers may become
subject, under the Securities Act, the Exchange Act, any other federal or state
statutory law or regulation, at common law or otherwise, insofar as such Losses
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Memorandum, or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and will reimburse the Initial Purchasers for any legal or other
expenses reasonably incurred by the Initial Purchasers in connection with
investigating, preparing to defend, defending or appearing as a third-party
witness in connection with any such action or claim; provided, however, that
the Company shall not be liable to any Initial Purchaser in any such case to
the extent that any such Loss arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission relating
to such Initial Purchaser made in any Memorandum, or such amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such Initial Purchaser expressly
for use therein; provided, however, that the foregoing indemnity with respect
to the Preliminary Offering Memorandum shall not inure to the benefit of any
Initial Purchaser from whom the person asserting such losses, claims, damages
or liabilities purchased Notes if (x) it is established in the related
proceeding that such Initial Purchaser failed to send or give a copy of the
Final Offering Memorandum to such person with or prior to the written
confirmation of such sale and (y) the untrue statement or omission or alleged
untrue statement or omission was completely corrected in the Final Offering
Memorandum and the Final Offering Memorandum does not contain any other untrue
statement or omission or alleged untrue statement or omission that was the
subject matter of the related proceeding.
(b) In addition to any obligations of the Company under Section
8(a), the Company agrees that it shall perform its indemnification obligations
under Section 8(a) (as modified by the last paragraph of this Section 8(b)),
with respect to counsel fees and expenses and other expenses reasonably incurred
by making payments within 45 days to the Initial
<PAGE> 18
Purchasers in the amount of the statements of the Initial Purchasers' counsel or
other statements which shall be forwarded by the Initial Purchasers, and that
they shall make such payments notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligation to
reimburse the Initial Purchasers for such expenses and the possibility that such
payments might later be held to have been improper by a court and a court orders
return of such payments.
The indemnity agreement in Section 8(a) shall be in addition to any
liability which the Company may otherwise have and shall extend upon the same
terms and conditions to each person, if any, who controls any of the Initial
Purchasers within the meaning of the Securities Act or the Exchange Act, and to
the officers, directors, partners, employees, representatives and agents of any
of the Initial Purchasers or any such control person.
(c) Each of the Initial Purchasers will, severally and not jointly,
indemnify and hold harmless the Company against any Losses to which the Company
may become subject, under the Securities Act, the Exchange Act, any federal or
state statutory law or regulation, at common law or otherwise, insofar as such
Losses (or actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in any
Memorandum, or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, 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 any Memorandum or such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such Initial Purchaser relating to such Initial Purchaser expressly for use
therein, and will reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating, preparing
to defend, defending or appearing as a third-party witness in connection with
any such action or claim.
The indemnity agreement in this Section 8(c) shall be in addition to
any liability which the Initial Purchasers may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls the
Company within the meaning of the Securities Act or the Exchange Act, and to the
officers, directors, partners, employees, representatives and agents of the
Company or any such control person.
(d) Promptly after receipt by an indemnified party under Section
8(a) or 8(c) of notice of the commencement of any
<PAGE> 19
action (including any governmental investigation), such indemnified party shall,
if a claim in respect thereof is to be made against the indemnifying party under
such subsection, notify the indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party shall not relieve
it from any liability which it may have to any indemnified party under Section
8(a) or 8(c) except to the extent it was unaware of such action and has been
prejudiced in any material respect by such failure or from any liability which
it may have to any indemnified party otherwise than under such Section 8(a) or
8(c). In case any such action shall be brought against any indemnified party and
it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. If, however, (i) the indemnifying party has not
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party or (ii) an indemnified party shall have reasonably
concluded that representation of such indemnified party and the indemnifying
party by the same counsel would be inappropriate under applicable standards of
professional conduct due to actual or potential differing interests between them
and the indemnified party so notifies the indemnifying party, then the
indemnified party shall be entitled to employ counsel different from counsel for
the indemnifying party at the expense of the indemnifying party and the
indemnifying party shall not have the right to assume the defense of such
indemnified party. In no event shall the indemnifying parties be liable for fees
and expenses or more than one counsel (in addition to local counsel) for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same set of
allegations or circumstances. The counsel with respect to which fees and
expenses shall be so reimbursed shall be designated in writing by Schroder
Wertheim & Co. Incorporated in the case of parties indemnified pursuant to
Section 8(a) and by the Company in the case of parties indemnified pursuant to
Section 8(c).
The Company shall not be liable for any settlement of any such
action or proceeding effected without its prior written consent (not to be
unreasonably withheld) and if settled with its written consent or if there is a
final judgment for the plaintiff, the Company agrees to indemnify and hold
harmless the Initial Purchaser and each other person referred to in Section 8(b)
to the extent provided herein.
<PAGE> 20
Without limiting the generality of the foregoing, no indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any such
indemnified party is or has been threatened to be made a party and to which the
indemnity herein is applicable; provided, however, that an indemnifying party
may effect such a settlement without the consent of the indemnified party if
such settlement includes an unconditional release of such indemnified party from
all liability for claims that are the subject matter of such proceeding or the
indemnifying party indemnifies the indemnified party in writing and posts a bond
for an amount equal to the maximum liability for all such claims as contemplated
above.
(e) In the event that the indemnity provided by Section 8(a) or 8(c)
is unavailable or insufficient to hold harmless an indemnified party for any
reason, the Company and the Initial Purchasers, severally and not jointly, shall
contribute to the aggregate Losses to which they may be subject as an
indemnifying party hereunder (after contribution from others) in such proportion
so that the Initial Purchasers are responsible for the portion represented by
the percentage that the total discounts and commissions paid to the Initial
Purchasers appearing on the cover page of the Final Offering Memorandum bears to
the total proceeds to the Company (net of discounts and commissions of the
Initial Purchasers) appearing thereon and the Company is responsible for the
remaining portion; provided, however, that, in any such case, (x) no Initial
Purchaser shall be required to contribute any amount in excess of such Initial
Purchaser's discount and commission applicable to the Notes and (y) no person
guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to a contribution from any person who was
not guilty of such fraudulent misrepresentation. The amount paid or payable by
the Initial Purchasers as result of this Section 8(e) shall be deemed to include
any legal or other expenses reasonably incurred preparing to defend or defending
any such claim.
9. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the Initial Purchasers, as
set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation (or any statement as to the results thereof) made by or on
behalf of the Initial Purchasers or any controlling person of the Initial
Purchasers, the Company or an officer or director or controlling person of the
Company and shall survive delivery of and payment for the Notes.
10. The obligations of the Initial Purchasers
hereunder may be terminated by the Initial Purchasers by notice
given to and received by the Company prior to delivery of and
<PAGE> 21
payment for the Notes, if, prior to that time, any of the events described in
Section 7(d), 7(i), or 7(j) shall have occurred or if the Initial Purchasers
shall decline to purchase the Notes for any other reason permitted under this
Agreement.
11. If (a) the Company shall fail to tender the Notes for delivery
to the Initial Purchasers (other than by reason of a default by the Initial
Purchasers) or (b) the Initial Purchasers shall decline to purchase the Notes
for any reason permitted under this Agreement (including the termination of this
Agreement pursuant to Section 10), the Company shall reimburse the Initial
Purchasers for the reasonable fees and expenses of their counsel and for such
other reasonable out-of-pocket expenses as shall have been incurred by them in
connection with this Agreement and the proposed purchase of the Notes, and upon
demand the Company shall pay the full amount thereof to the Initial Purchasers.
12. If either of the Initial Purchasers shall fail to purchase and
pay for any of the Notes agreed to be purchased by such Initial Purchaser
hereunder and such failure to purchase shall constitute a default in the
performance of its obligations under this Agreement, the non-defaulting Initial
Purchaser shall be obligated to take up and pay for the Notes which the
defaulting Initial Purchaser agreed but failed to purchase; provided, however,
that in the event that the aggregate principal amount of Notes which the
defaulting Initial Purchaser agreed but failed to purchase shall exceed 10% of
the aggregate principal amount of Notes set forth in Section 2 hereof, the
non-defaulting Initial Purchaser shall have the right to purchase all, but shall
not be under any obligation to purchase any, of the Notes as to which such
default occurred, and if such non-defaulting Initial Purchaser does not purchase
all the Notes as to which such default occurred, this Agreement will terminate
without liability to the non-defaulting Initial Purchaser or the Company. In the
event of a default by any Initial Purchaser as set forth in this Section 12, the
Delivery Date shall be postponed for such period, not exceeding seven days, as
the Initial Purchaser shall determine in order that the required changes in the
Final Offering Memorandum or in any other documents or arrangement may be
effected. Nothing contained in this Agreement shall relieve any defaulting
Initial Purchaser of its liability, if any, to the Company or any non-defaulting
Initial Purchaser for damages occasioned by its default hereunder.
13. All statements, requests, notices and agreements hereunder
shall be in writing or by written telecommunication, and shall be sufficient in
all respects if delivered or sent by registered mail, if to the Initial
Purchasers, to Schroder Wertheim & Co. Incorporated at 787 Seventh Avenue, New
York, New York 10019, Attention: High Yield Department; and if to the Company
to International Knife & Saw, Inc., 1299 Cox
<PAGE> 22
Avenue, Erlanger, Kentucky 41018, Attention: Chief Executive Officer.
14. This Agreement shall be binding upon, and inure solely to the
benefit of, you, the Company and, to the extent provided in Section 8 hereof,
controlling persons, officers, directors, partners, employees, representatives
and agents referred to in Section 8, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Notes from the Initial Purchasers shall be deemed a successor or assign by
reason merely of such purchase.
15. Time shall be of the essence of this Agreement.
16. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York (without giving effect to principles of
conflicts of law).
17. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
<PAGE> 23
[SIGNATURE PAGE]
If the foregoing is in accordance with your understanding, please
sign and return to us a counterpart hereof, and upon the acceptance hereof by
you, this letter and such acceptance hereof shall constitute a binding agreement
between you and the Company.
Very truly yours,
INTERNATIONAL KNIFE & SAW, INC.
By:
--------------------------------
Name:
Title:
Accepted as of the date hereof:
SCHRODER WERTHEIM & CO.
INCORPORATED
By:
----------------------------
Name:
Title:
SMITH BARNEY INC.
By:
----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.4
AGREEMENT AND PLAN OF RECAPITALIZATION
AMONG
CITICORP VENTURE CAPITAL LTD.,
THE KLINGELNBERG CORPORATION,
THE STOCKHOLDERS OF
THE KLINGELNBERG CORPORATION
AND
CERTAIN STOCKHOLDERS OF
INTERNATIONAL KNIFE & SAW, INC.
DATED SEPTEMBER 17, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ARTICLE I PLAN OF RECAPITALIZATION 1
1.1. Amendment of Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Exchange of Holding Company Stock; Purchase of Securities by CVC . . . . . . . . . . . . . 2
1.3. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4. Estimated Net Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.5. Closing Balance Sheet; Adjustment to Recapitalization Distribution . . . . . . . . . . . . 5
1.6. Company Stockholders' Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.7. Default by any Company Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY STOCKHOLDERS 9
2.1. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3. IKS Subsidiaries; Chinese Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.4. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.5. Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.6. Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.7. Real Property; Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.8. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.9. KRELP Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.10. Patents, Trademarks, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.11. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.12. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.13. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.14. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.15. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.16. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.17. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.18. Authority; Effect of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.19. Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.20. Products Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.21. Transactions with Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.22. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.23. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
ARTICLE III REPRESENTATIONS AND WARRANTIES OF CVC 30
3.1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.2. Corporate Power and Authority; Effect of Agreement . . . . . . . . . . . . . . . . . . . . 30
3.3. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.4. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.5. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.6. Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE IV COVENANTS OF COMPANY STOCKHOLDERS 31
4.1. Cooperation by Company Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.2. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.3. Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.4. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.5. Estoppel Certificates and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE V COVENANTS OF CVC AND THE HOLDING COMPANY 33
5.1. Cooperation by CVC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.2. Books and Records; Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.3. Change of Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.4. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VI CONDITIONS TO CVC'S OBLIGATIONS 35
6.1. Representations, Warranties and Covenants of Company Stockholders . . . . . . . . . . . . . 35
6.2. No Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.3. Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.4. Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.5. Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.6. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.7. Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.8. Exchange of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.9. Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.10. Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.11. Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.12. FIRPTA Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.13. Affiliate Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
ARTICLE VII CONDITIONS TO COMPANY STOCKHOLDERS' OBLIGATIONS 38
7.1. Representations, Warranties and Covenants of CVC . . . . . . . . . . . . . . . . . . . . . 38
7.2. No Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.3. Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.4. Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.5. Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.6. Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.7. Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.8. Affiliate Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VIII TERMINATION PRIOR TO CLOSING 40
8.1. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.2. Effect on Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE IX SURVIVAL 41
9.1. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.2. General Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE X MISCELLANEOUS 50
10.1. Interpretive Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
10.2. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
10.3. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
10.4. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
10.5. Modification and Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
10.6. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
10.7. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
10.8. Governing Law; Consent to Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.9. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.10. No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.11. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
(iii)
<PAGE> 5
EXHIBITS
1.1-A Restated Charter
1.1-B Debentures
1.3 Escrow Agreement
6.9 Form of Stockholders Agreement
DISCLOSURE SCHEDULES
1.2 Company Stockholders; Exchange of Securities
2.1 Capitalization of the Holding Company and IKS
2.2 Organization
2.3 IKS Subsidiaries
2.4 Unaudited Pro Forma Interim Balance Sheet; Disclosed Liabilities
2.5 Changes or Events Since December 31, 1995
2.6 Real Property; Encumbrances
2.7 Real Property; Plant and Equipment
2.8 Leases
2.9 KRELP Property
2.10 Patent and Trademark Rights
2.11 Commitments
2.12 Litigation
2.13 Compliance with Laws
2.14 Environmental Matters
2.15 Employee Benefit Plans
2.16 Tax Matters
2.17 Required Consents
2.19 Employee Relations
2.20 Products Liability
2.21 Transactions with Related Parties
2.22 Insurance
9.2(a)(v) Certain Environmental Matters
(iv)
<PAGE> 6
DEFINED TERMS
<TABLE>
<CAPTION>
Page
<S> <C>
Annex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Arbiter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Canadian Bank Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
CERCLIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Chinese Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Claim Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Claim Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Closing Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Company Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Company Stockholders' Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Confidentiality Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Consolidated Net Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
CVC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Defense Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Dispute Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Environmental Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Environmental Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ERISA Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Escrow Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
</TABLE>
(v)
<PAGE> 7
<TABLE>
<S> <C>
Estimated Net Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Excess Commitment Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Foreign Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
German Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Hazardous Material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Holding Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Holding Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
IKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
IKS Management Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
IKS Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
IKS Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Indemnitee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Indemnitor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
KRELP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
KRELP Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Leased Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Lessor Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Management Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Money Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
NPL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Owned Real Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Owned U.S Real Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Patent and Trademark Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Permitted Fee Title Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Pre-Closing Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Pro Forma Interim Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Recapitalization Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
(vi)
<PAGE> 8
<TABLE>
<S> <C>
Remediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Response Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Restated Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Retained Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Tax Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Taxing Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Title Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Title Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Title Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
TKC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
TKC Management Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
TKC Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Voluntary Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Warranty Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
(vii)
<PAGE> 9
AGREEMENT AND PLAN OF RECAPITALIZATION
This Agreement and Plan of Recapitalization is made this 17th day of
September, 1996, by and among CITICORP VENTURE CAPITAL LTD., a New York
corporation ("CVC"), the undersigned stockholders (the "TKC Stockholders") of
THE KLINGELNBERG CORPORATION, a Delaware corporation ("TKC" or the "Holding
Company"), and the undersigned stockholders (the "Management Stockholders" and,
together with the TKC Stockholders, "Company Stockholders") of INTERNATIONAL
KNIFE & SAW, INC., a Delaware corporation ("IKS"; and collectively with TKC and
the IKS Subsidiaries, the "Companies"), under the following circumstances:
A. The Holding Company has issued and outstanding 90,210 shares of
its Common Stock (the "Holding Company Stock"), no par value, all of which are
owned by the TKC Stockholders. The Holding Company and the Management
Stockholders are the owners of all the issued and outstanding capital stock of
IKS. Prior to the Closing (as hereinafter defined), the Management
Stockholders will exchange all of the issued and outstanding capital stock of
IKS not owned by the Holding Company (the "IKS Management Stock") for 2,997.51
shares of Holding Company Stock (the "TKC Management Stock").
B. The Board of Directors of the Holding Company deems it advisable
and in the best interest of the Holding Company, and its stockholders, that the
Holding Company adopt a plan of recapitalization pursuant to which the Holding
Company will amend its certificate of incorporation, the Company Stockholders
will exchange shares of common stock of the Holding Company for cash and
certain securities of the Holding Company and CVC will purchase certain
securities of the Holding Company, all on the terms and conditions set forth
herein.
C. It is intended that the transactions contemplated hereby be
recorded as a recapitalization for financial reporting purposes.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, and agreements, and upon the terms and subject to the
conditions, hereinafter set forth, the parties do hereby agree as follows:
ARTICLE I
PLAN OF RECAPITALIZATION
1.1. Amendment of Certificate of Incorporation. On or prior to the
Closing Date (as hereinafter defined), the amended and restated certificate of
incorporation of
<PAGE> 10
the Holding Company in the form attached hereto as Exhibit 1.1-A (the "Restated
Charter") shall have been approved and filed with the Secretary of State of the
State of Delaware as required by the Delaware General Corporation Law and the
issuance by the Holding Company of $12 million principal amount of Junior
Subordinated Debentures substantially in the form attached hereto as Exhibit
1.1-B (the "Debentures") shall have been authorized by the Board of Directors
of the Holding Company. The Restated Charter shall, among other things,
reflect the change of the name of the Holding Company to "IKS Corporation."
1.2. Exchange of Holding Company Stock; Purchase of Securities by
CVC. (a) On the Closing Date, after the Restated Charter has become
effective, each Company Stockholder shall exchange such Company Stockholder's
shares of Holding Company Stock for such Company Stockholder's (i) Aggregate
Cash Payment, if any, (ii) shares of Class A Common Stock of the Holding
Company ("Class A Stock"), if any, and shares of Preferred Stock of the Holding
Company ("Preferred Stock"), if any, and (iii) the principal amount of
Debentures, if any, all as set forth on Schedule 1.2, less the product of
Estimated Net Debt and such Company Stockholder's Ownership Percentage set
forth on Schedule 1.2. Each Company Stockholder's proportionate amount of
Estimated Net Debt (i) shall reduce such Company Stockholder's Aggregate Cash
Payment and (ii) to the extent such Company Stockholder's proportionate amount
of Estimated Net Debt exceeds such Company Stockholder's Aggregate Cash
Payment, shall reduce the number of shares of Class A Stock, shares of
Preferred Stock and principal amount of Debentures to be received by such
Company Stockholder on a pro rata basis based on a purchase price of $10 per
share of Class A Stock, $1,000 per share of Preferred Stock and $1 for each $1
principal amount of the Debentures. The Aggregate Cash Payment, Escrow Share
(if cash), shares of Class A Stock, shares of Preferred Stock and principal
amount of Debentures set forth on Schedule 1.2 for each Company Stockholder is
sometimes referred to herein as such Company Stockholder's "Recapitalization
Distribution". The aggregate value of the Recapitalization Distribution to be
received by Company Stockholders (assuming a value of $10 per share of Class A
Stock, $1,000 per share of Preferred Stock and $1 per $1 principal amount of
Debentures) in such exchange shall be equal to $110 million less the Estimated
Net Debt. In addition to the adjustment described in this Section 1.2(a), the
Recapitalization Distribution shall be subject to adjustment after the Closing
in the manner provided in Section 1.5.
(b) On the Closing Date, after the Restated Charter has become
effective, the Holding Company shall sell and CVC shall purchase 49,000 shares
of Class A Stock at a purchase price of $10 per share, 7,000 shares of Class B
Common Stock of the Holding Company at a purchase price of $10 per share,
10,800 shares of Preferred
2
<PAGE> 11
Stock at a purchase price of $1,000 per share and $2,640,000 principal amount
of Debentures at a purchase price equal to the principal amount of such
Debentures.
1.3. The Closing. (a) The closing of the transactions contemplated
hereby (the "Closing") shall take place at the New York offices of Dechert
Price & Rhoads, commencing at 9:00 a.m., local time, on October 31, 1996, or at
such other time and/or place and/or on such other date as the parties may
mutually agree (the "Closing Date"), which, in any event, shall not be later
than November 20, 1996. The effective time of the transactions contemplated
hereby shall be deemed to be the opening of business on the Closing Date.
(b) At the Closing, Company Stockholders shall deliver
certificates representing their shares of Holding Company Stock to the Holding
Company, duly endorsed for transfer or accompanied by duly executed stock
transfer powers, free and clear of all liens, claims, security interests,
pledges, charges, equities, options, restrictions and encumbrances of whatever
nature and the Holding Company: (i) shall pay to a commercial bank with a
minimum capital and surplus of at least $200 million designated prior to
Closing by Company Stockholders' Agent, as escrow agent (the "Escrow Agent"),
each Company Stockholders' Escrow Share as set forth opposite such Company
Stockholder's name on Schedule 1.2 (which equals $4,948,130.06 in aggregate
cash and shares of the Class A Stock and, if necessary, shares of the Preferred
Stock with an aggregate value of $51,870.15) to hold in escrow pursuant to an
Escrow Agreement in the form of Exhibit 1.3 hereto (the "Escrow Agreement")
which shall be executed at the Closing by the Holding Company, Company
Stockholders and the Escrow Agent, (ii) shall pay to each Company Stockholder
the cash to be received by such Company Stockholder pursuant to Section 1.2, by
wire transfer of immediately available funds to an account which shall be
designated by each such Company Stockholder to the Holding Company at least
three business days prior to the Closing Date, and (iii) shall deliver
certificates representing the Class A Stock, Preferred Stock and Debentures to
be received by such Company Stockholder pursuant to Section 1.2 (less such
Company Stockholder's Escrow Share if such Escrow Share is in stock).
(c) At the Closing, the Holding Company will deliver to CVC
against payment therefor, certificates representing the Class A Stock, Class B
Stock, Preferred Stock and Debentures being purchased by CVC pursuant to
Section 1.2(b).
1.4. Estimated Net Debt. At least ten (10) days prior to Closing,
Company Stockholders' Agent shall deliver to CVC and the Holding Company a good
faith estimate of Consolidated Net Debt as of the Closing Date ("Estimated Net
Debt")
3
<PAGE> 12
accompanied by a certificate of Company Stockholders' Agent setting forth the
calculation of Estimated Net Debt, which estimate shall be reasonably
satisfactory to CVC. As used in this Agreement, "Consolidated Net Debt" means
the excess of Indebtedness over Cash; "Indebtedness" means (a) all indebtedness
of any of the Companies for borrowed money, (b) all obligations of any of the
Companies for the deferred purchase price of property or services (including
the bonus obligations of the Companies described in item (c) on Schedule 2.5
but excluding the bonus obligations of the Companies described in item (g)(15)
on Schedule 2.11 and excluding trade payables incurred in the ordinary course
of business), (c) all obligations of any of the Companies evidenced by notes,
bonds, debentures or other similar instruments, (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by any of the Companies (even though the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (e) all
obligations of any of the Companies as lessee under leases that have been or
should be, in accordance with generally accepted accounting principles,
recorded as capital leases, (f) all obligations, contingent or otherwise, of
any of the Companies under bankers acceptance, letter of credit or similar
facilities (other than the standby letter of credit described in item (a)(16)
on Schedule 2.11) but excluding documentary letters of credit issued in
connection with the purchase of goods in the ordinary course of business, (g)
all obligations of any of the Companies to purchase, redeem, retire, defease or
otherwise acquire for value any capital stock of any of the Companies or any
warrants, rights or options to acquire such capital stock, valued, in the case
of redeemable preferred stock, at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends, but excluding any
such obligations to Company Stockholders created by this Agreement, (h) all
Indebtedness of the type referred to in clauses (a) through (g) above
guaranteed directly or indirectly in any manner by any of the Companies, or in
effect guaranteed directly or indirectly by any of the Companies through an
agreement (i) to pay or purchase such Indebtedness or to advance or supply
funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell
or lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss, (iii)
to supply funds to or in any other manner invest in the debtor (including any
agreement to pay for property or services irrespective of whether such property
is received or such services are rendered) or (iv) otherwise to assure a
creditor against loss, (i) all Indebtedness of the type referred to in clauses
(a) through (g) above secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any lien on
property (including, without limitation, accounts and contract rights) owned by
any of the Companies, even though such Company has not assumed or become liable
for the
4
<PAGE> 13
payment of such Indebtedness, but excluding trade and other accounts payable in
the ordinary course of business in accordance with customary trade terms and
which are not overdue for more than 90 days, or as to which a dispute exists
and adequate reserves in conformity with generally accepted accounting
principles have been established on the books of the Companies, (j) all accrued
but unpaid interest (or interest equivalent) to the date of determination, and
all prepayment premiums or penalties, related to any items of Indebtedness of
the type referred to in clauses (a) through (i) above; and (k) any obligations
of the Companies in respect of legal fees incurred by any of the Companies or
the Company Stockholders in connection with the transactions contemplated by
this Agreement; provided, however, that Indebtedness shall not include any
Indebtedness incurred in connection with the Financing; and "Cash" means (a)
cash and cash equivalents available to the Companies for the repayment of
Indebtedness, but shall not include customer deposits or cash or cash
equivalents subject to other similar restrictions and (b) the amount of refunds
due to the Companies on claims for state Tax refunds with respect to state Tax
Returns filed prior to the date hereof with any Taxing Authority (which are
estimated to total approximately $100,000), to the extent such refunds have not
been paid prior to the Closing Date. The aggregate Recapitalization
Distribution shall be decreased by the amount of Consolidated Net Debt and the
Recapitalization Distribution made to each Company Stockholder at Closing shall
be decreased by an amount equal to the product of the Ownership Percentage set
forth opposite such Company Stockholder's name on Schedule 1.2 and Estimated
Net Debt.
1.5. Closing Balance Sheet; Adjustment to Recapitalization
Distribution. (a) Within 60 days after the Closing Date, Company Stockholders
shall cause to be prepared and shall deliver to the Holding Company a pro forma
consolidated balance sheet of the Holding Company and its consolidated
subsidiaries (including IKS) as of the opening of business on the Closing Date
(the "Closing Balance Sheet") and an annex (the "Annex") setting forth in
reasonable detail the computation of Consolidated Net Debt. The Closing
Balance Sheet shall be accompanied by a written report of Ernst & Young, LLP to
the effect that the Closing Balance Sheet and the computation of Consolidated
Net Debt as shown on the Annex have been prepared in accordance with the
requirements of Section 1.4, Section 1.5(b) and Section 1.5(e) of this Article
I (the "Auditor's Report").
(b) The Closing Balance Sheet shall be prepared in accordance
with generally accepted accounting principles consistently applied; subject,
however, to the same exceptions and using the same accounting methods,
policies, practices, and procedures (including, without limitation, pro forma
adjustments with respect to TKC), with consistent classification, judgments,
and estimation methodology, as have been
5
<PAGE> 14
used in preparing the Pro Forma Interim Balance Sheet (as defined in Section
2.4) and as are described in the Notes to the Pro Forma Interim Balance Sheet.
The Closing Balance Sheet shall not take into account any changes in
circumstances or events occurring after the opening of business on the Closing
Date. In preparing the Closing Balance Sheet, the respective amounts included
for litigation reserves and for any other reserves which were determined for
the Pro Forma Interim Balance Sheet by subjective estimates shall not be
reduced from the amounts included in the Pro Forma Interim Balance Sheet except
to reflect (i) cash payments made subsequent to the date of the Pro Forma
Interim Balance Sheet, and (ii) changes in circumstances or events occurring
between the date of the Pro Forma Interim Balance Sheet and the Closing Date,
but only if such changes either definitively resolve or otherwise conclusively
establish the amount of the liability exposure with respect to which the
reserve in question has been established.
(c) The Closing Balance Sheet delivered by Company
Stockholders to the Holding Company and the calculation of Consolidated Net
Debt as shown on the Annex shall be conclusive and binding upon the parties
unless the Holding Company, within 15 days after receipt of the Closing Balance
Sheet, notifies Company Stockholders' Agent (as hereinafter defined) in writing
(a "Dispute Notice") that the Holding Company disputes any of the amounts set
forth therein, specifying the nature of the dispute and the basis therefor.
The parties shall in good faith attempt to resolve any such dispute and, if the
dispute is resolved in such manner, the Closing Balance Sheet and Consolidated
Net Debt, as modified to the extent necessary to reflect the resolution of the
dispute, shall be conclusive and binding upon the parties. If the parties do
not reach agreement resolving the dispute within 10 days after the Dispute
Notice is given, the parties shall submit the dispute for resolution to a
nationally recognized independent accounting firm mutually agreeable to the
parties (the "Arbiter") which has not had a material relationship with Company
Stockholders, the Holding Company or IKS or any of their respective affiliates
within the two years preceding the appointment. If the parties cannot agree on
the selection of the independent accounting firm to act as Arbiter, the parties
shall request the Cincinnati, Ohio, office of the American Arbitration
Association to appoint such a firm, and such appointment shall be conclusive
and binding upon the parties. Promptly, but no later than 20 days after it
accepts appointment as Arbiter, the Arbiter shall determine, based solely on
presentations by the Holding Company and Company Stockholders and their
representatives, and not by independent review, only those issues in dispute
and shall render a written report as to the dispute and the resulting
computation of the Closing Balance Sheet and the calculation of the
Consolidated Net Debt which shall be conclusive and binding upon the parties.
In resolving any disputed item, the Arbiter: (x) shall be bound by Section 1.4
and Section 1.5(b), and (y) may not assign a value
6
<PAGE> 15
to any item greater than the greatest value for such item claimed by either
party or less than the smallest value for such item claimed by either party.
The fees, costs, and expenses of the Arbiter (i) shall be borne by the Holding
Company in the proportion that the aggregate dollar amount of such disputed
items so submitted that are unsuccessfully disputed by the Holding Company (as
finally determined by the Arbiter) bears to the aggregate dollar amount of such
items so submitted and (ii) shall be borne by Company Stockholders in the
proportion that the aggregate dollar amount of such disputed items so submitted
that are successfully disputed by the Holding Company (as finally determined by
the Arbiter) bears to the aggregate dollar amount of such items so submitted.
Whether any dispute is resolved by agreement among the parties or by the
Arbiter, changes to the Closing Balance Sheet and the Annex shall be made
hereunder only for items as to which the Holding Company has taken exception in
the Dispute Notice.
(d) If Company Stockholders fail for any reason to deliver
the Closing Balance Sheet, the Annex or the Auditor's Report as required by
Section 1.5(a), the Holding Company may cause the Closing Balance Sheet, the
Annex and the Auditor's Report to be prepared and delivered to Company
Stockholders, in which case the Auditor's Report shall be prepared by a
nationally-recognized independent accounting firm selected by the Holding
Company. The Holding Company shall deliver such Closing Balance Sheet and
related materials to Company Stockholders' Representative within 120 days after
the Closing Date. The provisions of Section 1.5(c) shall apply to such Closing
Balance Sheet, with appropriate adjustments to reflect that the Closing Balance
Sheet has been prepared by the Holding Company and that Company Stockholders'
Agent shall have the right to object thereto.
(e) If Estimated Net Debt is greater than Consolidated Net
Debt as calculated from the Closing Balance Sheet which has become conclusive
and binding on the parties, the Holding Company shall pay the dollar amount of
the difference to Company Stockholders, pro rata to each Company Stockholder in
proportion to such Company Stockholder's Ownership Percentage as set forth
opposite such Company Stockholder's name on Schedule 1.2, in accordance with
Section 1.5(f). If Consolidated Net Debt as so calculated is greater than
Estimated Net Debt, Company Stockholders shall pay the dollar amount of the
difference to the Holding Company in accordance with Section 1.5(f).
(f) The amount of any payment due pursuant to Section 1.5(e)
shall bear interest at a fluctuating annual rate equal to the Prime Rate (as
reported in the Wall Street Journal "Money Rates") from and including the
Closing Date to, but not including, the date of payment and shall be paid by
wire transfer of immediately
7
<PAGE> 16
available funds to an account designated in writing by the Holding Company or
Company Stockholders' Agent, as the case may be, on the third business day
following (i) the last day on which the Holding Company may give the Dispute
Notice pursuant to Section 1.5(c), if a Dispute Notice was not given in a
timely manner (or such earlier date as the Holding Company advises Company
Stockholders' Representative of the absence of any dispute), or (ii) the date
mutual agreement is reached as to the amount of Consolidated Net Debt, if any,
in the event of a dispute that is settled by the parties without resort to the
Arbiter, or (iii) the receipt of the report of the Arbiter, in the event of a
dispute which is settled by the Arbiter.
(g) For purposes of complying with the terms of this Section
1.5, each party shall cooperate with and promptly make available to the other
party and its auditors and representatives, all information, records, data,
auditors' working papers, and access to its personnel; shall permit access to
its facilities; and shall permit the other party and its auditors and
representatives to make copies of all information, records, data and auditors'
working papers, in each case, as reasonably may be required in connection with
the preparation and analysis of the Closing Balance Sheet and related materials
required by Section 1.5(a) and the resolution of any disputes under this
Section 1.5.
1.6. Company Stockholders' Agent. For all purposes of this
Agreement, each of the Company Stockholders hereby constitutes and appoints
Diether Klingelnberg as his agent ("Company Stockholders' Agent") to perform
all acts and to execute and deliver all writings of every kind that may be
necessary or appropriate to effectuate the transactions contemplated by this
Agreement, and CVC and the Holding Company are hereby expressly authorized and
directed to rely fully and completely upon any act or assurance given by said
agent in connection herewith. If the above-named agent is unable to serve in
such capacity, Arndt Klingelnberg is hereby designated as his successor for all
purposes of this Agreement, and if Arndt Klingelnberg is unable to serve or if
Diether Klingelnberg so designates in writing, Jan Klingelnberg is hereby
designated as his successor for all purposes of this Agreement, and in the
event Jan Klingelnberg is unable to serve, his successor shall be designated by
a majority of the Company Stockholders (based on their respective Ownership
Percentages as set forth opposite their names on Schedule 1.2).
1.7. Default by any Company Stockholder. If any Company Stockholder
fails to deliver to the Holding Company at the Closing any of the Stock to be
exchanged by such Company Stockholder hereunder, such failure shall not relieve
any other Company Stockholder of any obligation hereunder, and the Holding
Company may (a) acquire the remaining shares of Stock; or (b) refuse to make
such acquisition and thereby terminate
8
<PAGE> 17
all of its obligations hereunder, in either case without prejudice to the
Holding Company's rights against such defaulting Company Stockholder.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY STOCKHOLDERS
Company Stockholders represent and warrant to CVC and the Companies as
follows:
2.1. Capitalization. The authorized, issued and outstanding capital
stock of the Holding Company and IKS is set forth on Schedule 2.1 of the
disclosure schedules delivered by Company Stockholders to CVC in connection
herewith (the "Disclosure Schedules"). The Holding Company Stock is owned of
record and beneficially by the Holding Company Stockholders, and the IKS
Management Stock is owned of record and beneficially by the Management
Stockholders, in each case, free and clear of all liens, security interests,
pledges, equities, proxies, claims, charges, rights of first refusal,
preemptive rights, restrictions or other encumbrances. The number of shares of
Holding Company Stock and IKS Management Stock so owned by each of the Company
Stockholders is set forth opposite that Company Stockholder's name on Schedule
1.2 of this Agreement. The number of shares of Holding Company Stock which
will be owned of record and beneficially by each Management Stockholder
immediately prior to the Closing is set forth opposite that Management
Stockholder's name on Schedule 1.2 of this Agreement. All of the issued and
outstanding shares of the common stock of IKS (the "IKS Stock") will be owned
of record and beneficially by TKC on the Closing Date free and clear of any
liens, security interests, pledges, equities, proxies, claims, charges, rights
of first refusal, preemptive rights, restrictions or other encumbrances. All
of the outstanding Holding Company Stock and IKS Stock is validly issued, fully
paid and non-assessable. There are outstanding no securities convertible into,
exchangeable for or carrying the right to acquire equity securities of the
Holding Company or IKS, or subscriptions, warrants, options, rights, or other
arrangements or commitments obligating the Holding Company or IKS to issue or
dispose of any of their respective equity securities or any ownership interest
therein. The consummation of the transactions contemplated hereby will not
cause any liens, security interests, pledges, equities, proxies, claims,
charges, rights of first refusal, preemptive rights, restrictions or other
encumbrances to be created or suffered to the Holding Company Stock or the IKS
Stock, other than liens, security interests, pledges, equities, proxies,
claims, charges, rights of first refusal, preemptive rights, restrictions or
other encumbrances created or suffered by CVC.
9
<PAGE> 18
2.2. Organization. (a) Each of the Holding Company and IKS is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as it now is being conducted. Each of the
Holding Company and IKS is duly qualified to do business and is in good
standing as a foreign corporation in all jurisdictions listed in Schedule 2.2
of the Disclosure Schedules, which are the only jurisdictions where the nature
of the property owned or leased by it or the nature of the business conducted
by it makes such qualification necessary and the absence of such qualification
would have a material adverse effect on the business, products, competitive
position, operations, condition (financial or otherwise), liabilities or assets
of the Companies taken as a whole (a "Material Adverse Effect"). True and
complete copies of the Certificate of Incorporation, Bylaws, and corporate
proceedings of each of the Holding Company and IKS previously have been made
available to CVC.
(b) Except as otherwise described on Schedule 2.2 of the
Disclosure Schedules, TKC is not the successor (by merger or otherwise) to any
other corporation or business entity nor has TKC: (i) owned any assets other
than the stock of IKS, (ii) incurred any liabilities or obligations whatsoever,
except those directly attributable to its ownership of the stock of IKS, or
(iii) engaged in any business activities whatsoever, except for the ownership
of the stock of IKS.
2.3. IKS Subsidiaries; Chinese Subsidiaries. (a) TKC has no
subsidiary other than IKS. Schedule 2.3 of the Disclosure Schedules contains
the name and jurisdiction of organization of each person 50% or more of whose
stock or other equity interest is owned of record or beneficially by IKS or by
any other IKS Subsidiary (such subsidiaries (other than Shanghai IKS Mechanical
Blade Co., Ltd. and Shanghai IKS Lida Mechanical Blade Co., Ltd. (the "Chinese
Subsidiaries")) are hereinafter referred to as the "IKS Subsidiaries"). Except
as set forth in Schedule 2.3 of the Disclosure Schedules, none of the Companies
directly or indirectly owns any stock of, or equity interest in, any other
corporation or business entity. Except as otherwise set forth on Schedule 2.3
of the Disclosure Schedules: (i) each of the IKS Subsidiaries is duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation or organization, has all requisite power and
authority to carry on its business as it now is being conducted and is duly
qualified to do business and is in good standing in all jurisdictions indicated
on such Schedule, which are the only jurisdictions where the nature of the
property owned or leased by it or the nature of the business conducted by it
makes such qualification necessary, other than such jurisdictions where the
absence of such qualification would not have a Material Adverse Effect, (ii)
all outstanding capital stock of each IKS Subsidiary is owned by IKS or another
IKS Subsidiary and is validly issued, fully paid, and non-assessable, is not
subject to
10
<PAGE> 19
preemptive rights, and is owned free and clear of all liens, security
interests, pledges, equities, proxies, claims, charges, rights of first
refusal, preemptive rights, restrictions, encumbrances, easements, covenants,
licenses, options or title defects of any kind whatsoever ("Encumbrances"), and
(iii) there are outstanding no securities convertible into, exchangeable for,
or carrying the right to acquire, equity securities of any of the IKS
Subsidiaries or any subscriptions, warrants, options, rights, or other
arrangements or commitments obligating any of the IKS Subsidiaries to issue or
dispose of any of their respective equity securities or any ownership interest
therein.
(b) IKS owns 51% of the outstanding capital stock of each of
the Chinese Subsidiaries, free and clear of all liens, security interests,
pledges, equities, proxies, claims, charges, rights of first refusal,
preemptive rights, restrictions or other encumbrances, except as set forth on
Schedule 2.3. To the best of the Company Stockholders' knowledge, the rights
of IKS Klingelnberg Far East GmbH under the respective Joint Venture Contracts
dated September 24, 1995 (listed in item (f) of Schedule 2.11) with respect to
the Chinese Subsidiaries are enforceable in accordance with the terms of such
agreements. The Chinese Subsidiaries are duly organized, validly existing and,
to the best of the Company Stockholders' knowledge, (i) have good title to the
assets that they purport to own, (ii) are being operated in accordance with
applicable law, and (iii) have obtained all necessary consents, authorizations
and approvals.
2.4. Financial Statements. The books of account and related records
of each of the Companies fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited consolidated balance
sheet of IKS as of December 31, 1995 and the related consolidated statements of
income and retained earnings and cash flows for the year then ended previously
delivered to CVC were prepared in accordance with generally accepted accounting
principles (except as otherwise noted therein) and present fairly, in all
material respects, the consolidated financial position, results of operations
and cash flow of IKS and its consolidated subsidiaries as of such date and for
the periods then ended. The unaudited pro forma consolidated balance sheet of
TKC as of March 31, 1996 attached hereto as Schedule 2.4 (the "Pro Forma
Interim Balance Sheet") was prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as otherwise noted
therein) and presents fairly, in all material respects, the financial position
of TKC and IKS and their consolidated subsidiaries as of that date; subject,
however, to (i) normal year-end adjustments, (ii) the absence of footnotes, and
(iii) the pro forma adjustments and other exceptions set forth in Schedule 2.4.
None of the Companies has any liability or obligation of any nature, whether
due or to become due, absolute, contingent or otherwise, except (a) to
11
<PAGE> 20
the extent reflected as a liability on the Pro Forma Interim Balance Sheet, (b)
liabilities incurred in the ordinary course of business since the Balance Sheet
Date and fully reflected as liabilities on the Company's books of account, and
(c) liabilities disclosed on Schedule 2.4.
2.5. Absence of Certain Changes or Events. Except as set forth in
Schedule 2.5 of the Disclosure Schedules, as reflected in the Pro Forma Interim
Balance Sheet or, as expressly contemplated by this Agreement with respect to
the period from the date hereof to the Closing Date, since December 31, 1995,
none of the Companies has (a) suffered any damage, destruction, or casualty
loss to its physical properties which reasonably could be expected to have a
Material Adverse Effect; (b) incurred or discharged any obligation or liability
or entered into any other transaction except in the ordinary course of business
and except for obligations, liabilities, and transactions that, individually or
in the aggregate, reasonably could not be expected to have a Material Adverse
Effect; (c) increased the rate or terms of compensation payable or to become
payable by any of the Companies to their respective directors, officers or key
employees or increased the rate or terms of any bonus, pension, or other
employee benefit plan covering any of their respective directors, officers or
key employees, except in each case increases occurring in the ordinary course
of business in accordance with its customary practices (including normal
periodic performance reviews and related compensation and benefit increases) or
as required by any pre-existing Commitment (as defined in Section 2.11); (d)
made any change in any method of accounting or keeping its books of account or
accounting practices or policies; (e) disposed of or failed to keep in effect
any rights in, to or for the use of any patent, trademark, service mark, trade
name or copyright or disclosed to any person not an employee any trade secret,
process or know-how; (f) suffered any loss or experienced any change that has
resulted or reasonably could be expected to result in a Material Adverse
Effect; (g) declared, set aside or paid any dividend or other distribution in
respect of its stock, or directly or indirectly redeemed, purchased or
otherwise acquired any such stock or any rights to purchase such stock or any
securities convertible into or exchangeable for such stock; (h) experienced any
change or, to the best knowledge of Company Stockholders, any threat of any
change in any of its relations with, or any loss or, to the best knowledge of
Company Stockholders, threat of loss of, any of the suppliers, clients,
distributors, customers or employees of any of them, including any loss or
change that may result from the transactions contemplated by this Agreement,
which, individually or in the aggregate, has had or reasonably could be
expected to have a Material Adverse Effect; (i) incurred any indebtedness for
borrowed money or granted any Encumbrance; or (j) conducted its business
otherwise than in the usual and ordinary course consistent with past practice.
12
<PAGE> 21
2.6. Title to Assets. Each of the Companies has good title to all of
the respective assets and properties which such Company purports to own
(including, without limitation, those reflected on the Pro Forma Interim
Balance Sheet, but excluding any such assets and properties sold, consumed, or
otherwise disposed of in the ordinary course of business since the date of the
Pro Forma Interim Balance Sheet) free and clear of all Encumbrances, except (a)
as set forth on Schedule 2.6 of the Disclosure Schedules, (b) liens for taxes
not yet due and payable or which are due but are not delinquent or which are
being contested in good faith by appropriate proceedings, and (c) minor
imperfections of title, none of which, individually or in the aggregate,
materially detracts from the value of the affected properties, or materially
impairs the use of the affected properties in the manner such properties
currently are being used or materially impairs the operations of any of the
Companies. Except as set forth on Schedule 2.6 of the Disclosure Schedules,
all significant properties and assets used or useful in the operation of the
businesses of any of the Companies, including those reflected on the Pro Forma
Interim Balance Sheet, are adequate for the purposes for which they are
presently used in the conduct of such businesses.
2.7. Real Property; Plant and Equipment. Except as set forth on
Schedule 2.7.1. of the Disclosure Schedules, each of the Companies has (and
will continue to have immediately following consummation of the transactions
contemplated hereby) good, valid, marketable and indefeasible fee simple title
to, and are in actual possession of, all the real properties which it purports
to own (such real property is collectively referred to herein as the "Owned
Real Properties"), including, without limitation, all the real properties
reflected in the Pro Forma Interim Balance Sheet, and all the real properties
acquired by the Companies since the date of the Pro Forma Interim Balance
Sheet, which subsequently acquired real properties are listed on Schedule
2.7.2. of the Disclosure Schedules. The Company Stockholders have delivered to
CVC and the Companies complete copies of all title reports and title insurance
policies pertaining to the Owned Real Properties that are known by the Company
Stockholders, after reasonable inquiry, to exist and are in the possession or
control of the Companies. The Company Stockholders have caused to be provided
to CVC copies of legal descriptions for each of the Owned Real Properties that
are located in the United States of America (collectively, the "Owned U.S Real
Properties"). To the best of the knowledge of the Company Stockholders, each
of such legal descriptions is accurate, current and complete. The Company
Stockholders have delivered to CVC and the Companies complete copies of all
surveys pertaining to the Owned Real Properties that are known by the Company
Stockholders, after reasonable inquiry, to exist and are in the possession or
control of the Companies and, to the best of the knowledge of the Company
Stockholders, all such surveys are accurate in all material respects and no
changes or improvements have been made to such properties which would be
reflected
13
<PAGE> 22
in an updated survey. The Owned Real Properties, are, except as disclosed on
the title reports, title insurance policies and surveys delivered to CVC and
the Companies by the Company Stockholders as provided in this Section 2.7, free
and clear of all Encumbrances, including, without limitation, leases,
subleases, rights of occupancy, deed restrictions, chattel mortgages,
conditional sales contracts, collateral security arrangements and other title
or interest retention arrangements, and are not subject to any rights of way,
encroachments, building use restrictions, exceptions, variances or reservations
of any nature whatsoever except (collectively, "Permitted Fee Title
Exceptions"): (a) encumbrances set forth on Schedule 2.7.1. of the Disclosure
Schedules, (b) minor imperfections of title, conditions, easements, covenants
or restrictions, if any, none of which is substantial in amount and none of
which, individually or in the aggregate, materially detracts from the value of
the affected property, or impairs the use of the affected property in the
manner such property is currently being used, or impairs the operations of any
of the Companies, (c) zoning or land use ordinances, none of which,
individually or in the aggregate, to the best of the knowledge of the Company
Stockholders, materially detracts from the value of the affected property,
impairs the use of the affected property in the manner such property is
currently being used or impairs the operations of any of the Companies, and (d)
liens for taxes not yet due and payable. None of the Companies, has received
written notice of any violation of or nonconformity with any zoning,
subdivision, wetlands or other similar law, code, rule, regulation or ordinance
from any governmental authority with respect to any of the Owned Real
Properties, or of any condemnation action, eminent domain proceeding or other
litigation concerning any of the Owned Real Properties. Except as set forth on
the title policies and reports and surveys delivered to CVC and the Companies
by the Company Stockholders as provided in this Section 2.7, to the best of the
knowledge of the Company Stockholders, no portion of any of the improvements
erected on the Owned Real Properties encroaches on adjoining property or public
streets. None of the companies has received any written notice of the
existence of any such encroachment not disclosed by the aforesaid title
policies and reports and surveys. No portion of any of the Owned Real
Properties is or has been subject to an ad valorem tax valuation such that a
change in ownership or use (whether now existing or in the future) has caused
or will cause additional ad valorem taxes to be imposed upon the Owned Real
Properties (other than additional ad valorem taxes attributable to a
revaluation of such property made in the normal course as a result of a
transfer and based upon the amount of consideration paid for such transfer).
The water, gas, electricity and other utilities serving each of the Owned Real
Properties have been and are currently adequate to service the normal operation
of each of the Owned Real Properties, as conducted in the past and as currently
conducted.
14
<PAGE> 23
2.8. Leases. (a) Schedule 2.8.1. of the Disclosure Schedules is an
accurate and complete list of all leases or rights or occupancy pursuant to
which the Companies (or any of them) lease or sublease any real property or
interest therein (collectively, the "Leases"). Except as set forth in said
Schedule 2.8.1., one or more of the Companies is the lessee under all Leases,
and, to the best of the knowledge of the Company Stockholders, no party other
than one or more of the Companies has any right to possession, occupancy or use
of any of the properties demised under the Leases (the "Leased Real Property").
A true and correct copy of each Lease has been delivered to CVC, together with
all amendments and modifications thereto, and all subordination,
non-disturbance and/or attornment agreements related thereto, and no changes
have been made thereto since the date of delivery. To the best of the
knowledge of the Company Stockholders, each of the Leases is valid and in full
force and effect and is binding and enforceable in accordance with its terms.
Except as set forth in Schedule 2.8.1. of the Disclosure Schedules, there are,
to the best of the knowledge of the Company Stockholders, no existing defaults
under any provision of any of the Leases, and, to the best of the knowledge of
the Company Stockholders, no event has occurred which (with or without notice,
lapse of time or both) would constitute a default thereunder.
(b) Except as set forth in Schedule 2.8.1. of the Disclosure
Schedules, the Companies are in actual possession of the Leased Real Property.
Except as set forth in said Schedule 2.8.1., the Companies have good, valid and
indefeasible title to all the leasehold estates conveyed under the Leases free
and clear of all Liens, including, without limitation, leases, subleases,
rights of occupancy, chattel mortgages, conditional sales contracts, deed
restrictions, collateral security arrangements and other title or interest
retention arrangements, and are not, with respect to the Leased Real Property,
subject to any rights of way, building use restrictions, exceptions, variances,
reservations or limitations of any nature whatsoever except: (i) as shown on
Schedule 2.8.1. of the Disclosure Schedules, (ii) minor imperfections of title,
conditions, easements, covenants or restrictions, if any, none of which is
substantial in amount, and none of which, individually or in the aggregate,
materially detracts from the value of the affected property, or impairs the use
of the affected property in the manner such property is currently being used,
or impairs the operations of any of the Companies, or materially detracts from
the value of such leasehold, (iii) zoning or land use ordinances, none of
which, individually or in the aggregate, to the best of the knowledge of the
Company Stockholders, materially detracts from the value of the affected
property, impairs the use of the affected property in the manner such property
is currently being used, impairs the operations of any of the Companies or
materially detracts from the value of such leasehold, and (iv) liens for taxes
not yet due and payable. None of the Companies, has received written notice of
any violation of or
15
<PAGE> 24
nonconformity with any zoning, subdivision, wetlands or other similar law,
code, rule, regulation or ordinance from any governmental authority with
respect to any of the Leased Real Property, or of any condemnation action,
eminent domain proceeding or other litigation concerning any of such
properties. To the best of the knowledge of the Company Stockholders, except
as disclosed on Schedule 2.8.1. of the Disclosure Schedules, no portion of any
of the improvements erected by or under the direction of any of the Companies
on the Leased Real Property encroaches on adjoining property or public streets,
and no portion of any of the Leased Real Property is or has been subject to an
ad valorem tax valuation such that a change in ownership or use (whether now
existing or in the future) has caused or will cause additional ad valorem taxes
to be imposed upon any of the Leased Real Property (other than additional ad
valorem taxes attributable to a revaluation of such property made in the normal
course as a result of a transfer and based upon the amount of consideration
paid for such transfer).
(c) Except as set forth in Schedule 2.8.1. of the Disclosure
Schedules, the basic rent and all additional rent payable under the Leases have
been paid to date and not more than one month in advance. All work required to
be performed under the Leases by the landlords thereunder or by the Company
have been performed, and, to the extent that any of the Companies is
responsible for payment of such work, has been fully paid for, whether directly
to the contractor performing such work or to such landlord as reimbursement
therefor, except for items which any of the Companies is disputing in good
faith (which items are set forth in said Schedule 2.8.1.).
(d) Except as set forth on Schedule 2.8.1. of the Disclosure
Schedules, there are no brokerage commissions or finder's fees due from the
Company Stockholders or any of the Companies which are unpaid with regard to
any of the Leases, or which will become due at any time in the future with
regard to the Leases.
(e) Except as set forth on Schedule 2.8.1. of the Disclosure
Schedules, to the best of the knowledge of the Company Stockholders, there have
been no casualties which could result in the termination of any Lease or the
application of any buy-out provisions contained in any Lease relative to damage
by casualty.
(f) Except as set forth on Schedule 2.8.2 of the Disclosure
Schedules, no consent of the landlords under any of the Leases are required by
reason of the transactions contemplated by this Agreement.
2.9. KRELP Property. (a) IKS purchased all of the partnership
interests (the "Partnership Interests") in Klingelnberg Real Estate Limited
Partnership ("KRELP").
16
<PAGE> 25
In connection with the winding up of KRELP, certain of the Owned Real
Properties (the "KRELP Properties") were conveyed by KRELP to IKS.
(b) Except as listed on Schedule 2.9 of the Disclosure Schedules,
both at the time of the sale of the Partnership Interests and at the time of
the conveyance of the KRELP Properties to IKS, there were no creditors of KRELP
and KRELP was not indebted to any person.
(c) Except as listed on Schedule 2.9 of the Disclosure Schedules, no
transfer tax, conveyance fee or similar tax or fee was or will become due and
payable in connection with or as a result of: (i) the sale and assignment of
the Partnership Interests (or of any of such interests) to IKS, or (ii) the
conveyance of the KRELP Properties (or any of them) to IKS. All forms
necessary to exempt the conveyance of any of the KRELP Properties from any such
tax or fee have been properly and timely completed and filed, and any requested
or claimed exemption from any such tax or fee has been granted by the
government authority with jurisdiction.
2.10. Patents, Trademarks, Etc. Schedule 2.10 of the Disclosure
Schedules sets forth a list of all United States or foreign patents,
trademarks, service marks, trade names, copyrights, and applications therefor
owned or used by any of the Companies in, and which are material to, the
conduct of their respective businesses (the "Patent and Trademark Rights").
Except as set forth on Schedule 2.10 of the Disclosure Schedules: (a) each of
the Companies owns or possesses adequate licenses or other valid rights to use
all Patent and Trademark Rights and all know-how, trade secrets (including,
without limitation, all results of research and development), product formulas,
franchises, inventions, rights-to-use and other industrial and intellectual
property rights (together with Patent and Trademark Rights, "Intellectual
Property"); (b) to Company Stockholders' knowledge, the conduct of the
respective businesses of each of the Companies as now being conducted does not
conflict with any Intellectual Property of others in any way which reasonably
could be expected to have a Material Adverse Effect; (c) no current or former
employee of any of the Companies and no other person owns or has any
proprietary, financial or other interest, direct or indirect, in whole or in
part, and including any rights to royalties or other compensation, in any of
the Intellectual Property; (d) there is no agreement or other contractual
restriction affecting the use by any of the Companies of any of the
Intellectual Property; and (e) no Company Stockholder is aware of any present
infringement or misappropriation of any of the Intellectual Property by any
person, and none of the Companies nor any Company Stockholder has asserted or
threatened any claim or objection against any person for any such infringement
or misappropriation nor, to the best of Company Stockholders' knowledge, is
there any basis in fact for any such objection or claim.
17
<PAGE> 26
2.11. Commitments. Schedule 2.11 of the Disclosure Schedules contains
a list of each contract or agreement (including any and all amendments thereto)
to which any of the Companies is a party or by which any of the Companies is
bound and which (a) involves the receipt or expenditure of $100,000 or more;
(b) involves the sale of any product or service to a governmental or a
regulatory body; (c) limits or restrains any of the Companies from engaging or
competing in any lines of business or requires any of them to engage in any new
line of business; (d) creates or recognizes any Encumbrances with respect to
any assets; (e) relates to the borrowing of money or to any guarantee of, or
any undertaking in connection with, the borrowing of money by any other person;
(f) involves any joint venture, partnership or similar contractual arrangement;
(g) involves any commitment to any present or former shareholder, director,
officer, employee, partner or consultant of any of the Companies, or with any
affiliate of any of the foregoing; (h) permits or requires any of the Companies
to acquire legal or beneficial title to any real property; or (i) involves the
granting of any power-of-attorney to any person (collectively, the
"Commitments"). Except as set forth in Schedule 2.11 of the Disclosure
Schedules, none of the Companies is in default under any of the Commitments,
which default has a Material Adverse Effect.
2.12. Litigation. Except as set forth in Schedule 2.12 of the
Disclosure Schedules, there is no action or proceeding in any court or before
any governmental authority ("Litigation") pending or, to Company Stockholders'
knowledge, threatened against Company Stockholders or any of the Companies.
Except as set forth in Schedule 2.12 of the Disclosure Schedules, none of the
Companies is subject to any outstanding orders, rulings, judgments or decrees
that (a) reasonably could be expected to have a Material Adverse Effect; or (b)
affect the validity of this Agreement or its enforceability against Company
Stockholders or the Holding Company, consummation by Company Stockholders or
the Holding Company of the transactions contemplated by this Agreement or
compliance by Company Stockholders or the Holding Company with the terms of
this Agreement.
2.13. Compliance with Laws. Except as set forth in Schedule 2.13 of
the Disclosure Schedules and except for any and all Environmental Matters (as
defined in Section 2.14), each of the Companies is in compliance with all
applicable laws, rules and regulations currently in effect except where the
failure to comply therewith reasonably could not be expected to have a Material
Adverse Effect. Each of the Companies has all governmental permits, licenses,
and authorizations necessary for the conduct of its respective businesses as
presently conducted, except as set forth in Schedule 2.13 and except for such
other permits, licenses and authorizations the absence of which reasonably
could not be expected to have a Material Adverse Effect. Except as set forth
in Schedule 2.13 of the Disclosure Schedules, no notice, citation,
18
<PAGE> 27
summons or order has been issued, no complaint has been filed and served, no
penalty has been assessed and notice thereof given, and to the best knowledge
of Company Stockholders, no investigation or review is pending or threatened
with respect to any of the Companies, by any governmental authority with
respect to any alleged (a) violation by any of the Companies of any law,
ordinance, rule, regulation or order; or (b) failure by any of the Companies to
have any permit, license or authorization required in connection with the
conduct of or otherwise applicable to the businesses conducted by them.
2.14. Environmental Matters. (a) As used in this Agreement,
"Hazardous Material" means any hazardous, toxic or polluting substance, waste
or contaminant including, without limitation: (i) any "hazardous substance",
as defined as of the Closing pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. Section
9601(14); (ii) any "pollutant or contaminant", as defined as of the Closing in
42 U.S.C. Section 9601(33); (iii) any material defined as of the Closing as
"hazardous waste" pursuant to 40 C.F.R. pt. 261; (iv) any petroleum, including
crude oil and any fraction thereof; (v) any "hazardous chemical" as defined as
of the Closing pursuant to 29 C.F.R. pt. 1910; (vii) any polychlorinated
biphenyls or isomer of dioxin, or any material or thing containing or composed
of such substance or substances; and (viii) any other substance, waste or
contaminant defined by or regulated under any other applicable foreign, state
or local Environmental Laws (as hereinafter defined).
(b) As used in this Agreement, "Released" means released,
spilled, leaked, discharged, disposed of, pumped, poured, emitted, emptied,
injected, leached, dumped or allowed to escape or threat thereof.
(c) Except as set forth on Schedule 2.14 of the Disclosure
Schedules, no real property interest owned or leased by any of the Companies or
any of their predecessors has been used by any of the Companies, IKS or any of
the IKS Subsidiaries or, to the knowledge of Company Stockholders, by any other
party for the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of any Hazardous Material in violation of or
which has resulted in a condition which requires Remediation (as hereinafter
defined) under applicable Environmental Laws (as hereinafter defined) where
such could have a Material Adverse Effect.
(d) To the knowledge of Company Stockholders, except as set
forth on Schedule 2.14 of the Disclosure Schedules, the Companies are in
compliance in all respects with all Environmental Laws and possess and are in
compliance in all respects with all permits, licenses, certificates, franchises
and other authorizations which are
19
<PAGE> 28
required under the Environmental Laws to conduct their respective businesses
("Environmental Permits") except where such noncompliance or the failure to
have an Environmental Permit would not have a Material Adverse Effect. To the
knowledge of Company Stockholders, all such permits, licenses, certificates,
franchises and other authorizations are in full force and effect and are listed
on Schedule 2.11.
(e) Except as set forth on Schedule 2.14 of the Disclosure
Schedules, no claims have been made against any of the Companies during the
past five years under the Environmental Laws (except claims which have been
resolved without fines or penalties or without the incurrence of any
obligations to perform or pay money which could have a Material Adverse
Effect), no such claims have been made prior to the past five years which are
unresolved, and no presently outstanding citations, notices, summons or orders
have been entered or issued against any of the Companies under the
Environmental Laws where such citation, notice, summons or order could have a
Material Adverse Effect. None of the Companies has been or is subject to any
civil, criminal, or administrative action, suit, claim, hearing, notice of
violation, investigation, inquiry, or proceeding for failure to comply with, or
received notice of any violation or potential liability (including, without
limitation, any request for information) under the Environmental Laws where
such could have a Material Adverse Effect.
(f) Schedule 2.11 identifies all active or, to the knowledge
of the Company Stockholders, inactive or closed underground storage tanks on
any real property owned or leased by the Holding Company, IKS or any of the IKS
Subsidiaries. To the knowledge of Company Stockholders, except as set forth on
Schedule 2.11 of the Disclosure Schedules, all underground storage tanks on any
real property owned or leased by any of the Companies which have been closed,
abandoned or removed were done so in accordance with applicable laws and
regulations at the time of such closure.
(g) Company Stockholders have made available to CVC copies of
the final results of any reports, studies, audits, assessments, analyses,
tests, or monitoring available to or in the possession or control of or
initiated by any of the Companies with respect to the existence, Management or
exposure to Hazardous Material on and any other environmental concerns relating
to, any real property owned or leased by them or their predecessors or any
activities of the Companies or their predecessors.
(h) Except as set forth on Schedule 2.14, to the knowledge of
Company Stockholders, no Hazardous Materials Managed by or on behalf of the
Holding Company, IKS or any of the IKS Subsidiaries or any of their
predecessors has come to be located at any site which is listed or proposed for
listing on the National Priorities
20
<PAGE> 29
List under CERCLA ("NPL"), the Comprehensive Environmental Response,
Compensation and Liability Information System ("CERCLIS"), the Oil Pollution
Act of 1990 or any similar foreign, federal, state or local list of sites
requiring investigation, remediation or other response action ("Remediation")
or which is the subject of foreign, federal, state or local enforcement actions
or other investigations which the Company Stockholders believe are reasonably
likely to lead to claims against the Holding Company, IKS, any of the IKS
Subsidiaries or Buyer for the cost of or liability for Remediation, damages to
natural resources or for personal injury claims, including, but not limited to,
claims under CERCLA or other similar Environmental Laws.
(i) The only representations and warranties of Company
Stockholders in this Agreement as to any Environmental Matters are those
contained in this Section 2.14. As used herein, "Environmental Matters" means
any matter arising out of or relating to the environment, pollution, safety,
health, or sanitation or the production, treatment, storage, handling, use,
generation, exposure to or Release ("Management" or "Manage") of any Hazardous
Material.
2.15. Employee Benefit Plans. (a) Schedule 2.15(a) of the Disclosure
Schedules lists all "employee benefit plans," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and all
pension, retirement, supplemental retirement, stock, stock option, basic and
supplemental accidental death and dismemberment, basic and supplemental life
and health insurance, dental, vision, savings, bonus, deferred compensation,
incentive compensation, business travel and accident, holiday, vacation,
severance pay, salary continuation, sick pay, sick leave, short and long term
disability, tuition refund, service award, company car, scholarship,
relocation, patent award, fringe benefit and other employee benefit
arrangements, plans, contracts, policies, or practices maintained, contributed
to, or required to be contributed by any of the Companies or any ERISA
Affiliate (as hereinafter defined) (or with respect to which any of the
Companies or any ERISA Affiliate may have any liability) within the United
States (the "Benefit Plans"). For purposes of this Section 2.15, the term
"ERISA Affiliate" means (i) any corporation included with any of the Companies
in a controlled group of corporations within the meaning of Section 414(b) of
the Code; (ii) any trade or business (whether or not incorporated) which is
under common control with any of the Companies within the meaning of Section
414(c) of the Code; (iii) any member of an affiliated service group of which
any of the Companies is a member within the meaning of Section 414(m) of the
Code; or (iv) any other person or entity treated as an affiliate of any of the
Companies under Section 414(o) of the Code.
21
<PAGE> 30
(b) As applicable, with respect to each of the Benefit Plans,
true and complete copies of (i) all plan documents (including all amendments
and modifications thereof) and in the case of an unwritten Benefit Plan, a
written description thereof, and in either case all related agreements
including, without limitation the trust agreement and amendments thereto,
insurance contracts, and investment management agreements; (ii) the last three
filed Form 5500 series and all Schedules thereto, as applicable; (iii) the
current summary plan descriptions and all material modifications thereto; (iv)
the three most recent auditor's reports, annual reports, actuarial reports,
financial statements and trustee reports; and (v) copies of any private letter
rulings, requests and applications for determination and determination letters
issued with respect to the Benefit Plans within the past five years have been
delivered to CVC.
(c) Each Company and each ERISA Affiliate are in compliance
in all material respects with the provisions of ERISA and the Code applicable
to the Benefit Plans. Each Benefit Plan has been maintained, operated and
administered in compliance in all material respects with its terms and any
related documents or agreements and the applicable provisions of ERISA and the
Code.
(d) No Benefit Plan is (or at any time has been) subject to
Title IV of ERISA and no Benefit Plan is (or at any time has been) a
"multiemployer plan" as defined in Section 3(37) of ERISA.
(e) The Klingelnberg Corporation 401(k) Retirement Plan and
Trust and the International Knife & Saw, Inc. Profit Sharing Plan and Trust are
the only Benefit Plans which are "employee pension benefit plans" within the
meaning of Section 3(2) of ERISA and which are intended to meet the
qualification requirements of Section 401(a) of the Code (each a "Pension
Plan"). Each Pension Plan meets the qualification requirements of Section
401(a) of the Code and each related trust is exempt from taxation under Section
501(a) of the Code.
(f) Each Pension Plan has received determination letters from
the IRS to the effect that such Pension Plans are qualified and the related
trust are exempt from federal income taxes and no determination letter with
respect to any Pension Plan has been revoked nor, is there any reason for such
revocation, nor has any Pension Plan been amended since the date of its most
recent determination letter in any respect which would adversely affect its
qualification.
(g) There are no pending audits or investigations by any
governmental agency involving the Benefit Plans, and no threatened or pending
claims (except for individual claims for benefits payable in the normal
operation of the Benefit Plans),
22
<PAGE> 31
suits or proceedings involving any Benefit Plan, any fiduciary thereof or
service provider thereto, nor to the knowledge of the Company Stockholders is
there any reasonable basis for any such claim, suit or proceeding.
(h) None of the Companies nor any ERISA Affiliate, employee
of any of the Companies or any ERISA Affiliate, or any Company Stockholder has
engaged in a "prohibited transaction" within the meaning of Section 406 of
ERISA or Section 4975 of the Code, nor has any such person breached any duty
imposed by Title I of ERISA, with respect to any Benefit Plan. To the
knowledge of Company Stockholders, no other person has engaged in such a
prohibited transaction or breach.
(i) Any insurance premium under any insurance policy related
to a Benefit Plan for any period up to and including the Closing Date shall
have been paid, or accrued and booked on or before the Closing Date, and, with
respect to any such insurance policy or premium payment obligation, none of the
Companies shall be subject to a retroactive rate adjustment, loss sharing
arrangement or other actual or contingent liability.
(j) With respect to each Benefit Plan that is a "group health
plan" within the meaning of Section 607 of ERISA and that is subject to Section
4980B of the Code, the Companies and each ERISA Affiliate comply in all
material respects with the continuation coverage requirements of the Code and
ERISA.
(k) Except as set forth in Schedule 2.5(k) of the Disclosure
Schedules, no Benefit Plan provides benefits, including, without limitation,
death or medical benefits, beyond termination of service or retirement other
than (i) coverage mandated by law or (ii) death or retirement benefits under a
Benefit Plan qualified under Section 401(a) of the Code.
(l) The execution of, and performance of the transactions
contemplated by this Agreement will not constitute an event under any Benefit
Plan that will result in any payment (whether as severance pay or otherwise),
acceleration, vesting or increase in benefits with respect to any employee. No
Benefit Plan provides for "parachute payments" within the meaning of Section
280G of the Code.
(m) Schedule 2.15(m) of the Disclosure Schedules lists all
pension, profit sharing, retirement, supplemental retirement, stock, stock
option, basic and supplemental accidental death and dismemberment, basic and
supplemental life and health insurance, welfare, dental, vision, savings,
bonus, deferred compensation, incentive compensation, business travel and
accident, holiday, vacation, severance pay,
23
<PAGE> 32
salary continuation, sick pay, sick leave, short and long term disability,
tuition refund, service award, company car, scholarship, relocation, patent
award, fringe benefit and other employee benefit arrangements, plans,
contracts, policies or practices maintained, contributed to, or required to be
contributed to by any of the Companies or any ERISA Affiliate (or with respect
to which any of the Companies or any ERISA Affiliate may have any liability)
outside the United States (the "Foreign Plans").
(n) A true and complete copy of each Foreign Plan including
all amendments and modifications thereof (and in the case of an unwritten
Foreign Plan, a written description thereof) together with all related
agreements including, without limitation, trust agreements, insurance contracts
and investment management agreements have been delivered to CVC.
(o) Each Foreign Plan has been maintained, operated and
administered in compliance in all material respects with its terms and any
related documents or agreements and with all applicable laws.
2.16. Taxes. (a) Except as set forth in Schedule 2.16 of the
Disclosure Schedules, each of the Companies has timely filed with the
appropriate federal, state, local, and foreign governmental entity or other
authority (individually or collectively, "Taxing Authority") all Tax Returns
(as defined in Section 2.16(b)) required to be filed and has timely paid in
full all Taxes (as defined in Section 2.16(b)), if any, shown to be due on such
Tax Returns and all other Taxes for which a notice of assessment or demand for
payment has been received. All Tax Returns are true, correct and complete;
have been prepared in accordance with all applicable laws and requirements; and
accurately reflect the taxable income (or other measure of tax) of the
corporation filing the tax return. There are no liens for Taxes upon any of
the Companies or their respective assets, except liens for current Taxes not
yet due. Except as set forth on Schedule 2.16 of the Disclosure Schedules,
none of the Companies has granted any waiver of any statute of limitations with
respect to, or any extension of a period for the assessment of, any Taxes.
(b) As used in this Agreement: (i) "Tax" means any of the
Taxes and "Taxes" means all income taxes (including any tax on or based upon
net income, or gross income, or income as specially defined, or earnings, or
profits, or selected items of income, earnings, or profits) and all gross
receipts, estimated, sales, use, ad valorem, transfer, franchise, license,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, or windfall profit taxes, environment, alternative, or
add-on minimum taxes, custom duties or other taxes, fees, assessments, or
charges of any kind whatsoever, together with any interest and any
24
<PAGE> 33
penalties, additions to tax or additional amounts imposed by any Taxing
Authority on any of the Companies, and (ii) "Tax Return" means any return,
report, information return or other document (including any related or
supporting information) filed or required to be filed with any Taxing Authority
or other authority in connection with the determination, assessment, or
collection of any Tax paid or payable by any of the Companies or the
administration of any laws, regulations, or administrative requirements
relating to any such Tax.
(c) Except as set forth on Schedule 2.16 of the Disclosure
Schedules, there is no action, suit, proceeding, investigation, audit, claim,
assessment or judgment now pending against any of the Companies in respect of
any Tax, and no notification of an intention to examine has been received from
any Taxing Authority.
(d) None of the Companies is a party to any agreement,
contract, arrangement or plan that would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code.
(e) Except as set forth on Schedule 2.16 of the Disclosure
Schedules, none of the Companies nor any predecessor thereto by way of merger,
liquidation or similar transaction: (i) has been a member of an affiliated
group of corporations (as defined in Section 1504(a) of the Code) other than
the group in which the Holding Company is the common parent or (ii) has filed
or been required to file or been included in a combined, consolidated, or
unitary federal, state, local or foreign income tax return other than with the
Holding Company or a member of the affiliated group of the Holding Company.
There is no agreement or arrangement with any person or entity pursuant to
which any of the Companies would have an obligation with respect to Taxes of
another person or entity following the Closing.
(f) The accruals for Taxes contained in the Pro Forma Interim
Balance Sheet are adequate to cover all liabilities for Taxes of each of the
Companies for all periods ending on or before March 31, 1996 (include adequate
provision for all deferred Taxes) and nothing has occurred subsequent to March
31, 1996 to make any of such accruals inadequate. Each of the Companies has on
a timely basis filed all information returns or reports, including Forms 1099,
that are required to be filed and has accurately reported all information
required to be included on such returns or reports.
(g) True copies of federal, state and foreign income Tax
Returns of the Holding Company, IKS and each of the IKS Subsidiaries for each
of the fiscal years ending December 31, 1990 through December 31, 1995 have
been delivered or made
25
<PAGE> 34
available to CVC. Except as disclosed on Schedule 2.16 of the Disclosure
Schedules, each Tax Return of each of the Companies has been audited by the
relevant Taxing Authority (and all deficiencies or proposed deficiencies
resulting from such audits have been paid or are adequately provided for in the
Closing Balance Sheet), or the statute of limitations with respect to each Tax
Return has expired. No claim has been made by a Taxing Authority in a
jurisdiction where any of the Companies does not file Tax Returns that any of
the Companies is or may be subject to taxation by that jurisdiction.
(h) Except as disclosed on Schedule 2.16 of the Disclosure
Schedules, none of the Companies has ever (a) filed any consent agreement under
Section 341(f) of the Code, (b) been the subject of a Tax ruling that has
continuing effect, (c) been the subject of a closing agreement with any Taxing
Authority that has continuing effect, (d) filed or been the subject of an
election under Section 338(g) or Section 338(h)(10) of the Code or caused or
been the subject of a deemed election under Section 338(e) thereof or (e)
granted a power of attorney with respect to any Tax matters that has continuing
effect. None of the Companies has agreed to make, nor is any one of them
required to make, any adjustment under Section 481 of the Code.
(i) Except as disclosed on Schedule 2.16 of the Disclosure
Schedules, none of the Companies owns any interest in an entity characterized
as a partnership for federal income tax purposes.
2.17. Consents. Except as set forth on Schedule 2.17 of the
Disclosure Schedules and those that may be required solely by reason of CVC's
(as opposed to any third party's) participation in the transactions
contemplated hereby, no consent, approval, or authorization of, or exemption
by, or filing with, any governmental authority (including, without limitation,
under Environmental Laws) is required to be obtained or made by Company
Stockholders or any of the Companies in connection with the execution,
delivery, and performance by Company Stockholders or any of the Companies of
this Agreement or the taking by Company Stockholders or any of the Companies of
any other action contemplated hereby or the continuation by any of the
Companies immediately after the Closing of the businesses conducted by them
prior to the Closing.
2.18. Authority; Effect of Agreement. The execution, delivery and
performance by the Holding Company of this Agreement and the consummation by
the Holding Company of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Holding
Company. This Agreement has been duly and validly executed and delivered by
the Holding Company and the Company Stockholders and constitutes the valid and
binding obligation of each of them,
26
<PAGE> 35
enforceable against each of them in accordance with its terms. The execution,
delivery and performance by the Holding Company and the Company Stockholders of
this Agreement and the consummation by the Holding Company and the Company
Stockholders of the transactions contemplated hereby will not, with or without
the giving of notice or the lapse of time, or both, (w) violate any provision
of law, rule, or regulation to which any Company Stockholder or any of the
Companies is subject, (x) violate any order, judgment, or decree applicable to
any Company Stockholder or any of the Companies, (y) violate any provision of
any of the charter documents of any of the Companies, (z) violate or result in
a breach of or constitute a default (or an event which might, with the passage
of time or the giving of notice, or both, constitute a default) under, or
require the consent of any third party under, or result in or permit the
termination or amendment of any provision of, or result in or permit the
acceleration of the maturity or cancellation of performance of any obligation
under, or result in the creation or imposition of any Encumbrance of any nature
whatsoever upon any assets or property or give to others any interests or
rights therein under any indenture, deed of trust, mortgage, loan or credit
agreement, license, permit, contract, lease, or other agreement, instrument or
commitment to which any Company Stockholder or any of the Companies is a party
or by which any of them may be bound or affected, except for any such
violations that in the aggregate would not materially hinder or impair the
consummation of the transactions contemplated hereby and would not have a
Material Adverse Effect.
2.19. Employee Relations. (a) Except as disclosed in Schedule 2.19 of
the Disclosure Schedules, none of the Companies is: (i) a party to or
otherwise bound by any collective bargaining or other type of union agreement;
(ii) a party to, involved in or, to the knowledge of Company Stockholders,
threatened by, any labor dispute or unfair labor practice charge; or (iii)
currently negotiating any collective bargaining agreement, and none of the
Companies has experienced any work stoppage during the last three years.
(b) Each of the Companies is in compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in any unfair
labor practice. Except as disclosed on Schedule 2.19 of the Disclosure
Schedules, there are no outstanding claims against any of the Companies
(whether under regulation, contract, policy or otherwise) asserted by or on
behalf of any present or former employee or job applicant of such company on
account of or for (i) overtime pay, other than overtime pay for work done in
the current payroll period, (ii) wages or salary for a period other than the
current payroll period, (iii) any amount of vacation pay or pay in lieu of
vacation time off, other than vacation time off or pay in lieu thereof earned
in or in respect of the current
27
<PAGE> 36
fiscal year, (iv) any amount of severance pay or similar benefits, (v)
unemployment insurance benefits, (vi) workers' compensation or disability
benefits, (vii) any violation of any statute, ordinance, order, rule or
regulation relating to plant closings, employment terminations or layoffs,
including but not limited to The Workers Adjustment and Retraining Act, (viii)
any violation of any statute, ordinance, order, rule or regulation relating to
employee "whistleblower" or "right-to-know" rights and protections, (ix) any
violation of any statute, ordinance, order, rule or regulations relating to the
employment obligations of federal contractors or subcontractors or (x) any
violation of any regulation relating to minimum wages or maximum hours of work,
and no Company Stockholder is aware of any such claims which have not been
asserted. No person (including any governmental body) has asserted or
threatened any claims against any of the Companies under or arising out of any
regulation relating to discrimination or occupational safety in employment or
employment practices.
2.20. Products Liability. Except as disclosed on Schedule 2.20 of the
Disclosure Schedules, there are no: (i) liabilities of any of the Companies,
fixed or contingent, asserted or, to the best knowledge of any Company
Stockholder, unasserted, with respect to any product liability or any similar
claim that relates to any product manufactured by any of the Companies on or
prior to the Closing Date; or (ii) liabilities of any of the Companies, fixed
or contingent, asserted or, to the best knowledge of any Company Stockholder,
unasserted, with respect to any claim for the breach of any express or implied
product warranty or any other similar claim with respect to any product
manufactured by any of the Companies on or prior to the Closing Date, other
than standard warranty obligations (to replace, repair or refund) in the
ordinary course of the conduct of the businesses of the Companies, none of
which individually involves a claim for money, property or services in excess
of $5,000.00.
2.21. Transactions with Related Parties. Except as described in
Schedule 2.21 of the Disclosure Schedules, since December 31, 1995, no Company
Stockholder or other affiliate (which as used in this Agreement means any
person who controls, is controlled by or is under common control with the
specified person and any member of the specified person's immediate family) of
any of the Companies or any Company Stockholder has or has had:
(a) borrowed money from or loaned money to any of the
Companies for the benefit of their businesses other than loans among the
Companies in the ordinary course of business;
(b) any contractual or other claims, express or implied, or
of any kind whatsoever against any of the Companies;
28
<PAGE> 37
(c) any interest in any property or assets used by any of the
Companies;
(d) engaged in any other transaction with any of the
Companies (other than employment relationships at the salaries disclosed in the
Disclosure Schedules).
2.22. Insurance. Schedule 2.22 of the Disclosure Schedules contains a
complete and correct list of all policies and contracts for property and
casualty insurance of which any of the Companies is the owner, insured or
beneficiary, or covering any of their respective properties. Schedule 2.22 of
the Disclosure Schedules contains a list of any pending claims under the
respective insurance policies listed thereon. All such policies are
outstanding and in full force and effect. There is no default with respect to
any provision contained in any such policy, nor has there been any failure to
give any notice or present any claim under any such policy in a timely fashion
or in the manner or detail required by the policy. Except as set forth on
Schedule 2.22 of the Disclosure Schedules: (a) all of such coverages are
provided on an "occurrence" (as opposed to "claims made") basis; (b) there are
no outstanding claims under such policies; (c) there are no premiums or claims
due under such policies which remain unpaid; (d) in the past two years, no
notice of cancellation or non-renewal with respect to, or disallowance (other
than reservation of rights by the insurer) of any material claim under, any
such policy has been received; and (e) none of the Companies has been refused
any property and casualty insurance, nor have any of their respective coverages
been limited by any insurance carrier to which any of them has applied for
insurance or with which any of them has carried insurance during the last two
years.
2.23. Brokers. Other than Schroder Wertheim & Co. Incorporated (whose
fees will be paid by Company Stockholders), Company Stockholders have retained
no broker, finder or investment banking firm to act on their behalf in
connection with the transactions contemplated by this Agreement and, to Company
Stockholders' knowledge, no other corporation, firm, or person is entitled to
receive any brokerage commission, finder's fee or other similar compensation in
connection with the transactions contemplated by this Agreement, except as
otherwise described in Section 3.6.
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, COMPANY STOCKHOLDERS MAKE NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE HOLDING
COMPANY, IKS OR ANY OR THE IKS SUBSIDIARIES OR THE ASSETS OR PROPERTIES OF ANY
OF THEM OR OTHERWISE IN CONNECTION WITH THE SALE OF SECURITIES OR THE OTHER
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
29
<PAGE> 38
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CVC
CVC hereby represents and warrants to Company Stockholders as follows:
3.1. Organization. CVC is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation, and has all requisite corporate power and authority to carry on
its business as it is now being conducted, and to execute, deliver, and perform
this Agreement and to consummate the transactions contemplated hereby.
3.2. Corporate Power and Authority; Effect of Agreement. The
execution, delivery, and performance by CVC of this Agreement and the
consummation by CVC of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of CVC. This
Agreement has been duly and validly executed and delivered by CVC and
constitutes the valid and binding obligation of CVC, enforceable against CVC in
accordance with its terms. The execution, delivery, and performance by CVC of
this Agreement and the consummation by CVC of the transactions contemplated
hereby will not, with or without the giving of notice or the lapse of time, or
both, (i) violate any provision of law, rule, or regulation to which CVC is
subject, (ii) violate any order, judgment, or decree applicable to CVC or (iii)
violate any provision of the charter or the by-laws or regulations of CVC;
except, in each case, for violations that in the aggregate would not materially
hinder or impair the consummation of the transactions contemplated hereby.
3.3. Consents. No consent, approval, or authorization of, or
exemption by, or filing with, any governmental authority is required to be
obtained or made by CVC in connection with the execution, delivery and
performance by CVC of this Agreement or the taking by CVC of any other action
contemplated hereby. No statute, rule or regulation, or order of any court or
administrative agency prohibits CVC from consummating the transactions
contemplated hereby.
3.4. Litigation. There is no Litigation pending or, to the knowledge
of CVC, threatened (i) against CVC or any of its affiliates with respect to
which there is a reasonable likelihood of a determination that would have a
material adverse effect on the ability of CVC to perform its obligations under
this Agreement, or (ii) that seeks to enjoin or obtain damages in respect of
the consummation of the transactions contemplated hereby. Neither CVC nor any
of its affiliates is subject to any
30
<PAGE> 39
outstanding orders, rulings, judgments, or decrees that would have a material
adverse effect on the ability of CVC to perform its obligations under this
Agreement.
3.5. Brokers. CVC has retained no broker, finder or investment
banking firm to act on its behalf in connection with the transactions
contemplated by this Agreement and, to CVC's knowledge, no other corporation,
firm or person is entitled to receive any brokerage commission, finder's fee or
other similar compensation in connection with the transactions contemplated by
this Agreement, except as otherwise described in Section 2.19.
3.6. Purchase for Investment. CVC is purchasing the securities being
purchased by it pursuant to Section 1.2(b) for investment and not with a view
to any public resale or other distribution thereof, except in compliance with
applicable securities laws. CVC hereby acknowledges receipt of the Disclosure
Schedules referred to in this Agreement.
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, CVC MAKES NO REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, IN CONNECTION WITH THE PURCHASE OF SECURITIES OR
OTHERWISE IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
ARTICLE IV
COVENANTS OF COMPANY STOCKHOLDERS
Company Stockholders hereby covenant and agree with CVC and the
Companies as follows:
4.1. Cooperation by Company Stockholders. From the date hereof and
prior to the Closing, Company Stockholders will use their reasonable efforts,
and will cooperate with CVC, to secure all necessary consents, approvals,
authorizations, exemptions, and waivers from third parties (including any
required pursuant to the Hart-Scott-Rodino Antitrust Improvements act of 1974,
as amended (the "HSR Act"), German Act Against Restraints of Competition
(Gesetz gegen Wettbewerbsbeschrankungen) (the "German Act") and the Canadian
Bank Act ("Canadian Bank Act") as shall be required in order to enable the
Holding Company and Company Stockholders to effect the transactions
contemplated hereby, and will otherwise use their reasonable efforts to cause
the consummation of such transactions, in accordance with the terms and
conditions hereof.
31
<PAGE> 40
4.2. Conduct of Business. Except as expressly contemplated by this
Agreement or the Disclosure Schedules or except as CVC otherwise may consent to
in writing (which consent shall not be unreasonably withheld), from the date
hereof and prior to the Closing, Company Stockholders shall cause the
Companies: (A) to (i) in all material respects, operate their respective
businesses only in the ordinary course; (ii) use all reasonable efforts to
preserve intact their respective business organizations; (iii) maintain their
respective properties, machinery, and equipment in sufficient operating
condition and repair to enable them to operate their respective businesses in
all material respects in the manner in which the businesses are currently
operated, except for maintenance required by reason of fire, flood, earthquake,
or other acts of God; (iv) use all reasonable efforts to continue all material
existing insurance policies (or comparable insurance) in full force and effect;
(v) use all reasonable efforts to keep available until the Closing the services
of their respective present officers, key employees, and key agents; and (vi)
use all reasonable efforts to preserve their relationships with their
respective material lenders, suppliers, customers, licensors, and licensees
such that their respective businesses will not be materially impaired; and (B)
not to (i) issue, sell or otherwise dispose of any of its capital stock, or
create, sell or otherwise dispose of any options, rights, conversion rights or
other agreements or commitments of any kind relating to the issuance, sale or
disposition of any of its capital stock; (ii) reclassify, split up or otherwise
change its capital stock; (iii) amend any of its charter documents or bylaws;
(iv) be a party to a merger, consolidation or other business combination; (v)
sell, lease, license or otherwise dispose of any of its assets, except in the
ordinary course of business; (vi) organize any subsidiary or acquire any equity
securities of any person or any equity or ownership interest in any business;
(vii) enter into any agreement that materially restricts any of the Companies
from carrying on the businesses currently conducted by it; (viii) cancel any
material debts of others or waive any material claims or rights; or (ix) take
or omit to take any action which if taken or omitted prior to the date hereof
would constitute or result in a breach of any representations and warranties
contained in Article II of this Agreement; provided, however, that nothing in
this Section 4.2 shall prohibit the repayment by Edward J. Brent of his loans
from IKS in the approximate amount of $135,000.00 and the purchase for $1 by
Diether Klingelnberg of the accounts receivable in the approximate amount of
$40,000 due to the Holding Company from Lamont Gear.
4.3. Access. From the date hereof and prior to the Closing, Company
Stockholders shall provide CVC with such information as CVC from time to time
reasonably may request with respect to the Companies and shall cause the
Companies to provide CVC and its representatives such reasonable access during
regular business hours and upon reasonable notice to their respective
properties, books and records as CVC from time to time reasonably may request.
All such information and access shall
32
<PAGE> 41
be subject to the terms and conditions of the letter agreements dated April 23,
1996 and August 22, 1996 (collectively, the "Confidentiality Agreement").
4.4. Resignations. At the Closing, Company Stockholders will cause
to be delivered to the Holding Company written resignations of each officer or
director of the Companies as to which such resignation has been requested by
CVC.
4.5. Estoppel Certificates and Consents. Immediately upon its
execution of this Agreement, the Holding Company and the Company Stockholders
shall cause the Companies to exercise their commercially reasonable efforts to
obtain and deliver to CVC at the Closing (a) estoppel certificates and lessor
waivers (such consents not to be conditioned on any increased rental, other
payment, reduced term, or other change of lease terms), in a form acceptable to
CVC (the "Estoppel Certificates"), from each real property lessor listed on
Schedule 2.8.1 of the Disclosure Schedules and (b) landlord consents in a form
acceptable to CVC from each real property lessor set forth on Schedule 2.8.2 of
the Disclosure Schedules (the "Lessor Consents").
ARTICLE V
COVENANTS OF CVC AND THE HOLDING COMPANY
5.1. Cooperation by CVC. From the date hereof and prior to the
Closing, CVC shall use its reasonable efforts, and shall cooperate with Company
Stockholders, to secure all necessary consents, approvals, authorizations,
exemptions, and waivers from third parties as shall be required in order to
enable CVC to effect the transactions contemplated hereby, and will otherwise
use its reasonable efforts to cause the consummation of such transactions in
accordance with the terms and conditions hereof.
5.2. Books and Records; Personnel. For a period of five years from
and after the Closing Date:
(a) The Holding Company shall not, and shall cause each of
the Companies not to, dispose of or destroy any of their respective books and
records relating to periods prior to the Closing ("Books and Records") without
first offering to turn over possession thereof to Company Stockholders by
written notice given to Company Stockholders at least 30 days prior to the
proposed date of such disposition or destruction.
33
<PAGE> 42
(b) The Holding Company shall, and shall cause each of the
Companies to, allow Company Stockholders and their agents access to all Books
and Records (to the extent that they relate to periods prior to the Closing)
during normal working hours at the principal place of business of the Holding
Company or, at the Holding Company's option, at any location where any such
Books and Records are stored, and Company Stockholders shall have the right, at
their own expense, to make copies of any Books and Records (to the extent that
they relate to periods prior to the Closing); provided, however, that any such
access or copying shall be had or done in such a manner so as not to interfere
unreasonably with the normal conduct of the business of the Holding Company or
any of the Companies.
(c) The Holding Company shall, and shall cause the Companies
to, make available to Company Stockholders upon written request: (i) copies of
any Books and Records (to the extent that they relate to periods prior to the
Closing), (ii) such personnel of the Companies as are reasonably required to
assist Company Stockholders in locating and obtaining any such Books and
Records, and (iii) any personnel of the Companies whose assistance or
participation is reasonably required by Company Stockholders or any of their
representatives in anticipation of, or preparation for, existing or future
Litigation, tax returns, or other matters in which Company Stockholders or any
of their affiliates are involved; provided that such requests shall not
interfere with the ability of such personnel to perform services for any of the
Companies. Company Stockholders shall reimburse the Companies for the
reasonable out-of-pocket expenses incurred by any of them in performing the
covenants contained in this Section 5.2(c).
5.3. Change of Name. The Holding Company shall by appropriate
corporate actions cause the name of each of the Companies in the corporate name
of which the name "Klingelnberg" appears to be changed to a name not including
the name "Klingelnberg" or any derivation thereof as soon as reasonably
practicable after the Closing Date. After the date by which such corporate
names are required to be changed, none of the Companies shall use, directly or
indirectly, the name "Klingelnberg" or any derivation thereof except in
conjunction with the initials "IKS" under the same circumstances in which such
name or derivation and such initials are being used as of the date of this
Agreement; provided, however, that no such use of the name "Klingelnberg" or
any derivation thereof shall occur following the fifth anniversary of the
Closing Date.
5.4. Financing. CVC shall use all reasonable efforts to obtain the
financing required to effect the transactions contemplated by this Agreement
and to pay related fees and expenses (the "Financing") and, in the event that
any portion of the Financing
34
<PAGE> 43
becomes unavailable, for reasons other than a material breach of this Agreement
by the Holding Company or the Company Stockholders, CVC shall use all
reasonable efforts to obtain alternative financing from other sources. Company
Stockholders and the Holding Company covenant that they shall cause the
Companies to cooperate with CVC with respect to the Financing and to take all
actions and do all things reasonably necessary, proper or advisable to assist
CVC in securing the Financing.
ARTICLE VI
CONDITIONS TO CVC'S OBLIGATIONS
The obligation of CVC to consummate the transactions contemplated hereby
at the Closing shall be subject to the satisfaction (or waiver) on or prior to
the Closing Date of all of the following conditions:
6.1. Representations, Warranties and Covenants of Company
Stockholders. Company Stockholders shall have performed the agreements and
covenants contained in this Agreement and shall have caused the Holding Company
to perform the agreements and covenants contained in this Agreement which are
to be performed by Company Stockholders and the Holding Company on or prior to
the Closing Date, and the representations and warranties made by Company
Stockholders in this Agreement (without giving effect to any amendment to the
Disclosure Schedules permitted by Section 10.5) shall be true and correct in
all material respects on the date of this Agreement and on and as of the
Closing Date with the same effect as though made on and as of the Closing Date,
except to the extent that any such representations and warranties were made as
of a specified date and as to such representations and warranties the same
(without giving effect to any amendment to the Disclosure Schedules permitted
by Section 10.5) shall continue on the Closing Date to have been true and
correct in all material respects as of the specified date.
6.2. No Prohibition. No statute, rule or regulation, or order of any
court or administrative agency shall be in effect that prohibits CVC from
consummating the transactions contemplated hereby or the ability of any of the
Companies to conduct their respective businesses substantially in the manner
that such businesses were being conducted prior to the Closing.
6.3. Third Party Consents. Company Stockholders shall have received
the consents from third parties, if any, set forth on Schedule 2.17 of the
Disclosure Schedules in form reasonably acceptable to CVC.
35
<PAGE> 44
6.4. Governmental Consents. The waiting period under the HSR Act,
the German Act and the Canadian Banking Act, if applicable, shall have expired
or been terminated and all other consents, approvals, authorizations,
exemptions, and waivers from governmental agencies that shall be required in
order to consummate the transactions contemplated hereby, shall have been
obtained (except for such consents, approvals, authorizations, exemptions, and
waivers, the absence of which would not prohibit the consummation of the
transactions contemplated hereby or render such transactions illegal).
6.5. Proceedings. No action or proceeding shall be pending or
threatened to restrain or prevent the consummation of the transactions
contemplated hereby or that substantially interferes with the ability of any of
the Companies to conduct their respective businesses substantially in the
manner that such businesses were being conducted prior to the Closing.
6.6. Financing. The Holding Company shall have received the proceeds
of the Financing.
6.7. Opinion. CVC shall have received a written opinion, dated the
Closing Date, of Thompson Hine & Flory P.L.L., in a form to be mutually agreed
upon by the parties.
6.8. Exchange of Stock. Management Stockholders shall have exchanged
all of their shares of IKS Management Stock for the shares of TKC Management
Stock.
6.9. Stockholders Agreement. Each Company Stockholder who acquires
shares of Class A Stock pursuant to this Agreement shall have entered into a
Stockholders Agreement, dated as of the Closing Date, substantially in the form
of Exhibit 6.9.
6.10. Estoppel Certificates. CVC shall have received the duly
executed Estoppel Certificates and a written waiver of lien from the landlords
under each of the Real Property Leases, dated no more than ten days prior to
the Closing, and shall have received the Lessor Consents.
6.11. Title Insurance. (a) The Company Stockholders shall have
delivered to CVC and the Companies good and valid, irrevocable ALTA title
insurance binders or commitments (collectively, the "Title Commitments," and
each a "Title Commitment"), in final form, from one or more title insurance
companies reasonably acceptable to CVC (collectively, the "Title Company"),
subject only to such requirements relating to the issuance of a final policy of
title insurance as are reasonably acceptable to CVC,
36
<PAGE> 45
committing the Title Company to insure that each of the Owned U.S. Real
Properties are free and clear of all Encumbrances, except Permitted Fee Title
Exceptions. Each of the Title Commitments shall be effective as of a date
occurring not earlier than the date of this Agreement and, if required by and
at the expense of CVC, the effective dates of each of the Title Commitments
shall be brought down to the close of business on the Closing Date. Each such
Title Commitment shall include such endorsements thereto as may reasonably be
requested by CVC. On or prior to the Closing Date, and as a condition
precedent to the obligations of CVC hereunder, the Company Stockholders shall
execute and deliver, or cause to be executed and delivered, to the Title
Company any affidavits reasonably requested by the Title Company or CVC in
connection with the issuance of the Title Commitments in form and substance as
required hereunder. The Title Commitments shall be delivered to CVC and the
Companies at the sole cost and expense of the Company Stockholders, provided
that any and all Title Company fees, charges, costs and expenses in excess of
$1,500.00 ("Excess Commitment Fees") shall be borne and paid by the Holding
Company, except to the extent that such Excess Commitment Fees are attributable
to title defects giving rise to (i) title exceptions which are not Permitted
Fee Title Exceptions, or (ii) requirements to the issuance of a final title
policy which are not reasonably satisfactory to CVC.
(b) Should any Title Commitment contain any exception which is not a
Permitted Fee Title Exception or be subject to any requirement relating to the
issuance of a final title policy which is not reasonably satisfactory to CVC,
then as soon as practicable, but in no event later than five (5) business days
after CVC's receipt of such Title Commitment, and when circumstances permit, no
later than the fifth (5th) business day before the Closing Date, CVC shall
notify the Company Stockholders' Agent of the existence of such exception or
requirement, but the failure of CVC to give such notice within such time period
shall not relieve the Company Stockholders of their obligations under this
Section, except to the extent that they are prejudiced thereby. The Company
Stockholders shall use all commercially reasonable efforts to cure the title
defect giving rise to such exception or requirement or, if reasonably
acceptable to CVC, to have the same insured over, and shall have such exception
or requirement removed from the Title Commitment or insured over, as
applicable. If such cannot be or is not so cured or insured over prior to the
Closing, then CVC may terminate this Agreement as provided in Section 8.1(c)
hereof; provided that if CVC does not so terminate this Agreement, then CVC
shall be conclusively deemed to have waived any claim against the Company
Stockholders with respect to such title defect, except for any claim for
indemnification or defense relating to such title defect which may be made
under Section 9.2 of this Agreement.
37
<PAGE> 46
6.12. FIRPTA Certificate. Company Stockholders shall have delivered
to CVC a certificate of the Holding Company prepared in accordance with
Treasury regulations sections 1.1445-2(c)(3) promulgated under the Code and
dated as of the Closing Date that the Holding Company Stock is not a U.S. real
property interest as defined in section 897(c) of the Code.
6.13. Affiliate Agreements. The agreements listed in items (a)(21),
(a)(22) and (a)(25) of Schedule 2.11 shall have been amended to provide that
the Companies shall continue to have the right to receive the services being
provided by certain affiliates of Diether Klingelnberg other than the Companies
thereunder on the current pricing terms provided that the Companies and such
affiliates may terminate such agreements on reasonable notice without any
penalties, retroactive fee adjustments or other charges. Diether Klingelnberg
shall have purchased the insurance on his life held by the Holding Company from
the Holding Company in exchange for the obligation of the Holding Company to
Diether Klingelnberg under the Deferred Compensation Agreement listed in item
(g)(1) of Schedule 2.11. The Amended Stockholders' Agreement listed in item
(g)(9) of Schedule 2.11 shall have been terminated and the parties thereto
shall have waived any and all rights thereunder.
ARTICLE VII
CONDITIONS TO COMPANY STOCKHOLDERS' OBLIGATIONS
The obligations of Company Stockholders to consummate the transactions
contemplated hereby at the Closing shall be subject to the satisfaction (or
waiver) on or prior to the Closing Date of all of the following conditions:
7.1. Representations, Warranties and Covenants of CVC. CVC shall
have performed the agreements and covenants contained in this Agreement which
are to be performed by CVC on or prior to the Closing Date, and the
representations and warranties made by CVC in this Agreement shall be true and
correct in all material respects on the date of this Agreement and on and as of
the Closing Date with the same effect as though made on and as of the Closing
Date, except (a) as otherwise contemplated hereby, and (b) to the extent that
any such representations and warranties were made as of a specified date and as
to such representations and warranties the same shall continue on the Closing
Date to have been true and correct in all material respects as of the specified
date.
38
<PAGE> 47
7.2. No Prohibition. No statute, rule or regulation, or order of any
court or administrative agency shall be in effect that prohibits Company
Stockholders from consummating the transactions contemplated hereby.
7.3. Third Party Consents. Company Stockholders shall have received
the consents from third parties set forth on Schedule 2.17 of the Disclosure
Schedules in form reasonably acceptable to Company Stockholders.
7.4. Governmental Consents. The waiting period under the HSR Act and
the German Act, if applicable, shall have expired or been terminated and all
consents, approvals, authorizations, exemptions, and their waivers from
governmental agencies that shall be required in order to consummate the
transactions contemplated hereby, if any, shall have been obtained (except for
such consents, approvals, authorizations, exemptions, and waivers, the absence
of which would not prohibit the consummation of the transactions contemplated
hereby or render such transactions illegal).
7.5. Proceedings. No action or proceeding shall be pending or
threatened to restrain or prevent the consummation of the transactions
contemplated hereby.
7.6. Opinion. Company Stockholders shall have received a written
opinion, dated the Closing Date, of Dechert Price & Rhoads, in a form to be
mutually agreed upon by the parties.
7.7. Stockholders Agreement. CVC shall have entered into a
Stockholders Agreement, dated as of the Closing Date, substantially in the form
of Exhibit 6.9.
7.8. Affiliate Agreements. The agreements listed in items (a)(21),
(a)(22) and (a)(25) of Schedule 2.11 shall have been amended to provide that
the Companies shall continue to have the right to receive the services being
provided by certain affiliates of Diether Klingelnberg other than the Companies
thereunder on the current pricing terms provided that the Companies and such
affiliates may terminate such agreements on reasonable notice without any
penalties, retroactive fee adjustments or other charges. Diether Klingelnberg
shall have purchased the insurance on his life held by the Holding Company from
the Holding Company in exchange for the obligation of the Holding Company to
Diether Klingelnberg under the Deferred Compensation Agreement listed in item
(g)(1) of Schedule 2.11. The Amended Stockholders' Agreement listed in item
(g)(9) of Schedule 2.11 shall have been terminated and the parties thereto
shall have waived any and all rights thereunder.
39
<PAGE> 48
ARTICLE VIII
TERMINATION PRIOR TO CLOSING
8.1. Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) By the mutual written consent of CVC and Company
Stockholders' Agent; or
(b) By either Company Stockholders' Agent or CVC by written
notice given to the other, if the Closing has not occurred on or before
November 20, 1996; or
(c) By either Company Stockholders' Agent or CVC by written
notice given to the other, if there has been a material breach by the
other party of any of the representations, warranties, covenants or
agreements made by such other party in this Agreement and such breach
results in a failure to satisfy a condition to the terminating party's
obligation to consummate the transactions provided herein.
8.2. Effect on Obligations. Termination of this Agreement pursuant
to Section 8.1 shall terminate all obligations of the parties hereunder, except
for their obligations under Section 10.9 and under the Confidentiality
Agreement; provided, however, that termination pursuant to Section 8.1(c) by
reason of a breach of any covenant or agreement shall not relieve the breaching
party (whether or not it is the terminating party) from any liability to the
other party hereto arising from or related to such breach.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
9.1. Survival. Except as otherwise set forth in this Section 9.1,
the representations and warranties made by the parties in this Agreement shall
survive the Closing until April 15, 1998 regardless of any investigation made
or information or knowledge obtained by or on behalf of any party, as
applicable, at any time, and thereupon shall expire (together with any right to
indemnification or other recovery for
40
<PAGE> 49
any breach or inaccuracy thereof), except to the extent that a Claim Notice (as
defined in Section 9.2) is given to the party that made such representation or
warranty (or to the Company Stockholders' Agent in the case of representations
and warranties made by any Company Stockholder) prior to such date, in which
case the representation and warranty shall survive, to the extent of the claim
described in the Claim Notice only, until such claim is resolved, but only if:
(i) in the case of a claim made by any party by reason of a third party claim,
the Claim Notice is accompanied by a copy of any written notice of the third
party claimant, and (ii) in the case of any other claim, either the party
making such claim has incurred damages or expenses in good faith at or prior to
the date on which the Claim Notice is given or such claim represents a claim
for potential or contingent claims or demands and the party making such
indemnification claim has reasonable grounds to believe that such potential or
contingent claim or demand may be made; and provided that any Claim Notice with
respect to any breach of the representations in Section 2.14 with respect to
any Environmental Matters (an "Environmental Breach") shall not be effective
unless accompanied by (a) written notice from the applicable regulatory
authority, or, if there has been a claim made against any of the Companies by a
third party, the written notice of the third party claimant, alleging the
existence of the conditions as to which the Environmental Breach is claimed or
(b) a written report from a reputable environmental consulting firm, the fees
and expenses of which firm shall be borne solely by the Holding Company,
confirming, in reasonable detail, the existence of the conditions as to which
an Environmental Breach is claimed. Notwithstanding the foregoing: (i) the
representations and warranties made by Company Stockholders in Sections 2.1,
2.18 and 2.23 of this Agreement shall survive the Closing indefinitely; (ii)
the representations and warranties made by Company Stockholders under Section
2.14 shall survive the Closing until the fifth anniversary of the Closing Date;
(iii) the representations and warranties made by Company Stockholders in
Section 2.15, insofar as they relate to compliance with ERISA, or any
comparable statute or regulation applicable to employee benefit plans
maintained in foreign countries, shall survive the Closing until the date that
is 30 days following the expiration of any applicable statute of limitations
plus extensions or waivers thereof; and (iv) the representations and warranties
made by Company Stockholders with respect to Taxes under Section 2.16 shall
survive the Closing until the date that is 30 days following the expiration of
any applicable statute of limitations plus any waivers or extensions thereof.
9.2. General Indemnification. (a) Following the Closing, Company
Stockholders, jointly and severally, shall indemnify and defend each of the
Companies and shall hold each of them harmless from and against all Losses (as
hereinafter defined) that are incurred or suffered by any of them:
41
<PAGE> 50
(i) By reason of any misrepresentation or breach of
any representation or warranty made by Company Stockholders in this Agreement
or in any Disclosure Schedule or certificate required to be furnished to CVC
pursuant hereto ("Warranty Losses");
(ii) By reason of any breach of any covenant made by
Company Stockholders in this Agreement or in any Disclosure Schedule or
certificate required to be furnished to CVC pursuant hereto, whether such
covenant requires performance prior to or after the Closing;
(iii) On account of any Retained Liabilities (as
hereinafter defined);
(iv) On account of (A) any Taxes of any of the
Companies with respect to any taxable period that ends on or before the Closing
Date, except to the extent that such Taxes are reflected as a current liability
on the Closing Balance Sheet; (B) any Taxes of any of the Companies with
respect to any taxable period that begins before, but ends after the Closing
Date to the extent such Taxes are allocable to the portion of the taxable
period up to and including the Closing Date ("Pre-Closing Taxes"), except to
the extent such Taxes are reflected as a current liability on the Closing
Balance Sheet; (C) any liability for Taxes pursuant to Treasury regulations
section 1.1502-6 (or analogous state, local or foreign tax provision) of any
consolidated, combined or unitary group of which any of the Companies was a
member on or before the Closing Date, to the extent such liability is not
attributable to the income or operations of a Company; and (D) any liability
resulting from any of the Companies being liable for the Taxes of another
person pursuant with an agreement with any person entered into before the
Closing Date (for purposes of determining Pre-Closing Taxes, personal
property, real property and other ad valorem Taxes shall be apportioned on a
per diem basis, income taxes for a taxable period that includes but does not
end on the Closing Date shall be allocated on the basis of taxable income
allocable to the pre-Closing and post-Closing periods on an interim closing of
the books basis, and all other Taxes shall be apportioned on the basis of an
interim closing of the books as of the end of the Closing Date).
(Notwithstanding the foregoing provisions of this Section 9.2(iv), if there is
an adjustment to an item of income or deduction with respect to a Tax return of
the Companies and, if in connection therewith, there is an increase in the
share of the Tax liability that would be borne by the Company Stockholders
under this section for a taxable period (or portion thereof) prior to the
Closing and a decrease in the Tax liability that would be borne by the
Companies for a taxable period (or portion thereof) following the Closing, or
if in connection therewith there is an increase in Tax liability that would be
borne by the Companies for a taxable period (or portion thereof) following the
Closing and a decrease in the Tax liability that
42
<PAGE> 51
would be borne by the Company Stockholders under this section for a taxable
period (or portion thereof) prior to the Closing, then the party that realizes
a Tax benefit shall pay to the party that realizes the Tax detriment the amount
of the Tax benefit actually received within 15 days following the date on which
the Tax benefit is actually received provided that the amount payable by the
party realizing the Tax benefit shall not exceed the Tax detriment arising from
such adjustment.); or
(v) Arising from, relating to or in connection with
any of the following: (1) the presence, Management or Release of Hazardous
Materials first occurring or existing prior to the Closing (a) at, on, under or
from any property previously (but not as of the date of the Closing) owned,
operated or leased by any of the Companies or any of their predecessors,
whether into the air, soil, ground or surface waters on-site or off-site or (b)
arising from the off-site transportation, storage, treatment, recycling or
disposal of Hazardous Materials by or on behalf of any of the Companies or any
of their predecessors; or (2) fines, penalties (criminal and civil) and
administrative assessments arising from or related to any violations of
Environmental Laws existing prior to the Closing and during such reasonable
time after Closing for the Companies to attain compliance with such
Environmental Laws; or (3) relating to, arising from or in connection with the
matters, site conditions or activities identified on Schedule 9.2(a)(v) and
disclosed by the environmental reports listed on such Schedule; or (4) any
Losses suffered by any of the Companies (other than IKS Klingelnberg Far East
GmbH) on account of any environmental condition or violation of Environmental
Laws at the facility of the Chinese Subsidiaries located in Shanghai other than
diminution or loss of the value of such Company's investment in IKS
Klingelnberg Far East GmbH or the Chinese Subsidiaries operating such Shanghai
facility (currently approximately $2.8 million); regardless of whether any of
the foregoing environmental conditions or violations of Environmental Law are
disclosed in any Disclosure Schedule to this Agreement or otherwise disclosed
to CVC.
Notwithstanding the foregoing, (a) Company Stockholders shall not be obligated
to provide any such indemnification for Warranty Losses or indemnification
pursuant to Section 9.2(a)(v)(1), (3) or (4) unless the aggregate amount that
the Companies are entitled to recover in respect of all such claims exceeds
$2,500,000 (the "Deductible"), and then only to the extent that such amount
exceeds the Deductible; and, in any event, the maximum aggregate obligation of
Company Stockholders hereunder for Warranty Losses and indemnification pursuant
to Section 9.2(a)(v) shall not exceed $15,000,000; (b) the maximum aggregate
obligation of each Management Stockholder hereunder for indemnification in
respect of Losses shall not exceed an amount equal to the product of
$15,000,000 and the Ownership Percentage set forth opposite such Management
Stockholder's name on Schedule 1.2; (c) each Management Stockholder's
43
<PAGE> 52
obligation for indemnification in respect of any Loss shall not exceed an
amount equal to the aggregate amount of such Loss multiplied by such Company
Stockholder's Ownership Percentage set forth opposite such Management
Stockholder's name on Schedule 1.2; and (d) Management Stockholders shall have
no liability for indemnification in respect of any of the Retained Liabilities.
In addition to the indemnification to the Companies, Company Stockholders,
jointly and severally, shall indemnify and defend CVC and shall hold CVC
harmless from and against all Losses that are incurred or suffered by CVC for
breaches of the representation and warranties in Section 2.1.
(b) Following the Closing, each of the Companies jointly and
severally shall indemnify Company Stockholders and their affiliates and hold
each of them harmless from and against all Losses (as hereinafter defined) that
are incurred or suffered by any of them:
(i) By reason of any misrepresentation or breach of
any representation or warranty made by CVC in this Agreement or in any
schedule, statement, document or certificate furnished or required to be
furnished to Company Stockholders pursuant to this Agreement;
(ii) By reason of any breach of any covenant made by
CVC in this Agreement or in any schedule, statement, document or certificate
furnished or required to be furnished to Company Stockholders pursuant hereto,
or by reason of any breach of any covenant made by the Holding Company in this
Agreement or in any schedule, statement, document or certificate furnished or
required to be furnished to Company Stockholders pursuant hereto, which
covenant of the Holding Company requires performance after the Closing;
(iii) On account of the Assumed Liabilities (as
hereinafter defined); or
(iv) Arising from or related to any of the following
first occurring after the Closing: (1) environmental conditions, including
without limitation, the presence of Hazardous Substances at, on, under or from
any property owned, operated or leased by the any of the Companies, or the
Release or threat of Release of Hazardous Substances at, on, under or from any
property owned, operated or leased by any of the Companies whether into the
air, soil, ground or surface waters on-site or off-site or arising from the
off-site transportation, storage, treatment, recycling or disposal of Hazardous
Substances generated by or on behalf of any of the Companies after the
44
<PAGE> 53
Closing at or from any property owned or leased by any of the Companies, or (2)
the violation of any Environmental Law.
(c) Notwithstanding anything in this Agreement to the
contrary, CVC and the Companies shall have no right to any indemnification
under this Section 9.2 for any matter to the extent and in the dollar amount
that such matter was included in Consolidated Net Debt.
(d) (i) In the event that any party incurs or suffers any
Losses with respect to which indemnification may be sought by such party
pursuant to this Section 9.2, the party seeking indemnification (the
"Indemnitee") must assert the claim by giving written notice (a "Claim Notice")
to the party from whom indemnification is sought (or, in the case of a claim
against the Company Stockholders, to Company Stockholder' Agent) (the
"Indemnitor"). The Claim Notice must state the nature and basis of the claim
in reasonable detail based on the information available to the Indemnitee and,
if the Claim Notice is being given with respect to a third party claim or an
Environmental Breach, must be accompanied by any documentation described in
Section 9.1. If the Claim Notice is being given by reason of any third party
claim, it shall be given within 30 days after the filing or other written
assertion of any such claim against the Indemnitee, but the failure of the
Indemnitee to give the Claim Notice within such time period shall not relieve
the Indemnitor of any liability for indemnification under this Section 9.2,
except to the extent that the Indemnitor is prejudiced thereby. Each
Indemnitor to whom a Claim Notice is given shall respond to any Indemnitee that
has given a Claim Notice (a "Claim Response") within 30 days (the "Response
Period") after the date that the Claim Notice is given. Any Claim Response
shall specify whether or not the Indemnitor given the Claim Response disputes
the claim described in the Claim Notice. If any Indemnitor fails to give a
Claim Response within the Response Period, such Indemnitor shall be deemed not
to dispute the claim described in the related Claim Notice. If any Indemnitor
elects not to dispute a claim described in a Claim Notice, whether by failing
to give a timely Claim Response or otherwise, than the amount of such claim
shall be conclusively deemed to be an obligation of such Indemnitor. If any
Indemnitor shall be obligated to indemnify an Indemnitee hereunder, such
Indemnitor shall pay to such Indemnitee within 30 days after the last day of
the applicable Response Period the amount to which such Indemnitee shall be
entitled. If there shall be a dispute as to the amount or manner of
indemnification under this Agreement, the Indemnitor and the Indemnitee shall
seek to resolve such dispute through negotiations and, if such dispute is not
resolved within 20 days, the Indemnitee may pursue whatever legal remedies may
be available for the recovery of the Losses claimed from any Indemnitor. If
any Indemnitor fails to pay all or any part of any indemnification obligation
on or before
45
<PAGE> 54
the later to occur of (y) 30 days after the last day of the applicable Response
Period, and (z) if the Claim Notice relates to Losses that have not been
liquidated as of the date of the Claim Notice, the date on which all or any
part of such Losses shall have become liquidated and determined, then the
Indemnitor shall also be obligated to pay to the Indemnitee interest on the
unpaid amount for each day during which the obligation remains unpaid at an
annual rate established in the manner described in Section 1.5(f).
(ii) The Indemnitee shall provide to the Indemnitor on
request all information and documentation reasonably necessary to support and
verify any Losses that the Indemnitee believes give rise to the claim for
indemnification hereunder and shall give the Indemnitor reasonable access to
all books, records, and personnel in the possession or under the control of the
Indemnitee that would have bearing on such claim.
(iii) Except as hereinafter provided, in the case of
third party claims for which indemnification is sought, the Indemnitor shall
have the option: (x) to conduct any proceedings or negotiations in connection
therewith, (y) to take all other steps to settle or defend any such claim
(provided that the Indemnitor shall not settle any such claim without the
consent of the Indemnitee (which consent shall not be unreasonably withheld, it
being understood that it shall not be unreasonable for the Indemnitee to
withhold its consent from any settlement which (1) commits the Indemnitee to
take, or to forbear to take, any action, or (2) does not provide for a complete
release of the Indemnitee by such third party)), and (z) to employ counsel to
contest any such claim or liability in the name of the Indemnitee or otherwise.
In any event, the Indemnitee shall be entitled to participate at its own
expense and by its own counsel (a "Voluntary Participation") in any proceedings
relating to any third party claim. The Indemnitor shall, within 45 days of
receipt of the Claim Notice, notify the Indemnitee of its intention to assume
the defense of the claim (a "Defense Notice"). Until the Indemnitee has
received the Defense Notice, the Indemnitee shall take reasonable steps to
defend (but may not settle) the claim. If the Indemnitor declines to assume
the defense of any such claim or fails to give a Defense Notice within 45 days
after receipt of the Claim Notice, the Indemnitee shall defend against the
claim but shall not settle such claim without the consent of the Indemnitor
(which consent shall not be unreasonably withheld). The expenses of all
proceedings, contests or lawsuits (other than those incurred in a Voluntary
Participation) with respect to claims as to which a party is entitled to
indemnification under this Section 9.2. shall represent indemnifiable Losses
under this Agreement. Regardless of which party shall assume the defense of
the claim, the parties shall cooperate fully with one another in connection
therewith. Notwithstanding the foregoing, the Indemnitor shall not be entitled
(except with the
46
<PAGE> 55
consent of the Indemnitee) to take any of the actions referred to in clauses
(x), (y) or (z) of the first sentence of this subparagraph unless: (a) the
third party claim involves solely monetary damages; (b) the Indemnitor shall
have expressly agreed in writing that, as between the Indemnitor and the
Indemnitee, the Indemnitor shall be solely obligated to satisfy and discharge
such third party claim; and (c) if reasonably requested to do so by the
Indemnitee, the Indemnitor shall have made reasonably adequate provision to
ensure the Indemnitee of the financial ability of the Indemnitor to satisfy the
full amount of any adverse monetary judgment that may result from such third
party claim.
(e) The indemnification provided in this Section 9.2 shall be
the sole and exclusive remedy for any inaccuracy or breach of any
representation or warranty in connection with the transactions contemplated by
this Agreement or otherwise including, without limitation, any liability
arising under Section 10 of the Securities and Exchange Act of 1934, as
amended, or Rule 10b-5 thereunder. All amounts payable with respect to
indemnification shall be considered an adjustment to the Recapitalization
Distribution.
(f) For purposes of determining under Section 9.2 if any
representation or warranty in this Agreement has been breached, and for
purposes of determining the amount of Warranty Losses, all references to
materiality and to the requirement for an event or matter having a Material
Adverse Effect shall be disregarded; provided however that the failure of the
Company Stockholders to list any contract or agreement on Schedule 2.11 because
such contract or agreement does not meet the dollar thresholds for inclusion
contained in Section 2.11 shall not be considered a breach of Section 2.11.
(g) The rights to indemnification under this Section 9.2 are
the sole and exclusive remedies of CVC and the Companies against Company
Stockholders and of the Company Stockholders against CVC and the Companies,
with respect to any Environmental Matters whatsoever. CVC and the Holding
Company, each on its own behalf and on behalf of its affiliates (including,
without limitation, each of the Companies) and the successors and assigns of
any of the foregoing, hereby waive any right to seek contribution or other
recovery from Company Stockholders or any of their affiliates that any of them
may now or in the future ever have under CERCLA, the Hazardous Material
Transportation Act (49 U.S.C. Section 801 et seq.), the Clean Water Act (33
U.S.C. Section 1251 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. Section 6901 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et
seq.), the Emergency Planning and Community Right-to-Know Act of 1986 (42
U.S.C. Section Section 11001 et seq.), the Safe Drinking Water Act (42 U.S.C.
Section Section 300f et. seq.), the Toxic Substances
47
<PAGE> 56
Control Act, as amended (15 U.S.C. Section 2601 et seq.), the Federal
Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Section 136 et seq.), the
Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.) or any
other federal, state, local or foreign law relating to Environmental Matters,
the rules and regulations promulgated under any thereof and any provisions of
common law providing for any remedy or right of recovery with respect to
Environmental Matters (collectively, "Environmental Laws") except to the extent
such matters constitute Retained Liabilities. The Company Stockholders, on
their own behalf and on behalf of their affiliates, and the successors and
assigns of any of the foregoing, hereby waive any right to seek contribution or
other recovery from CVC or any of the Companies or any of their affiliates that
any of them may now or in the future ever have under Environmental Laws except
to the extent such matters constitute Assumed Liabilities. Each of CVC and the
Holding Company, on its own behalf and on behalf of its affiliates (including,
without limitation, each of the Companies) and their affiliates, and the
corporate successors and assigns of any of the foregoing on the one hand, and
the Company Stockholders on their own behalf and on behalf of their affiliates,
and the corporate successors and assigns of any of the foregoing on the other
hand, hereby further unconditionally releases the other from any and all
claims, demands and causes of action that any of them may now or in the future
ever have against each other for recovery under CERCLA or under any other
Environmental Laws.
(h) Upon making any payment to an Indemnitee for any
indemnification claim pursuant to this Section 9.2, the Indemnitor shall be
subrogated, to the extent of such payment, to any rights that the Indemnitee
may have against any other parties with respect to the subject matter
underlying such indemnification claim.
(i) As used in this Agreement:
(i) "Losses" shall mean any and all losses,
liabilities, damages, penalties, obligations, awards, fines, deficiencies,
interest, claims (including third party claims, whether or not meritorious),
costs and expenses whatsoever (including reasonable attorneys', consultants'
and other professional fees and disbursements of every kind, nature and
description) resulting from, arising out of or incident to (y) any matter for
which indemnification is provided under this Agreement, or (z) the enforcement
by an indemnified party of its rights to indemnification under this Agreement.
Notwithstanding the foregoing definition, Losses shall not include amounts
recoverable solely as lost profits or other consequential damages (other than
those required to be paid to a third party); provided, however, that CVC and
the Companies and their affiliates shall in all events be entitled to recover,
and Losses shall include in each such case, amounts representing the difference
in the value between (a) the
48
<PAGE> 57
Companies as they were represented to exist (after giving effect to any
adjustments to the Recapitalization Distribution pursuant to Section 1.5) and
(b) the Companies as they actually existed on the Closing Date.
(ii) "Assumed Liabilities" shall mean any liabilities,
claims, commitments, demands or obligations of any of the Companies other than
(a) the Retained Liabilities and (b) matters subject to indemnification under
Section 9.2(a)(v).
(iii) "Retained Liabilities" shall mean all
liabilities, claims, commitments, demands or obligations of any of the
Companies existing, or arising out of any fact or set of operative facts
existing, on or prior to the Closing Date to the extent any such liabilities,
claims, commitments, demands or obligations arise out of or relate to (A) the
operation by any of the Companies or any predecessor of any of the Companies of
any business other than the business of IKS and the IKS Subsidiaries as
described in the Confidential Offering Memorandum of IKS dated March 1996
furnished by Schroder Wertheim & Co. to CVC or (B) the ownership by the Holding
Company or any predecessor of the Holding Company of any assets other than the
stock of IKS, including but not limited to any matter set forth on Schedule
2.2.
(j) Notwithstanding anything to the contrary in this Section
9.2, no limitation or condition of liability provided in this Article IX
(including, without limitation, the time limitations set forth in Section 9.1
and the monetary limitations and conditions set forth in Section 9.2(a)) shall
apply to the breach of any of the representations and warranties contained
herein if such representation or warranty was made with actual knowledge that
it contained an untrue statement of a material fact or omitted to state a
material fact necessary to make the statements or facts therein not misleading.
ARTICLE X
MISCELLANEOUS
10.1. Interpretive Provisions. (a) Whenever used in this Agreement,
(i) "to Company Stockholders' knowledge" or "to the knowledge of Company
Stockholders" shall mean the actual knowledge of Company Stockholders' Agent
and the Management Stockholders, after due inquiry, and "to CVC's knowledge" or
"to the knowledge of CVC" shall mean the actual knowledge of the executive
officers of CVC, after due inquiry, (ii) "including" (or any variation thereof)
means including without limitation; (iii) "person" includes any individual,
corporation, partnership, association,
49
<PAGE> 58
governmental authority, trust or other entity or organization; and (iv) any
reference to gender shall include all genders.
(b) For purposes of this Agreement, the Companies shall be
deemed to be affiliates of Company Stockholders prior to the Closing and
affiliates of CVC after the Closing.
(c) Any matter disclosed by Company Stockholders to CVC and
the Holding Company in any Schedule included in the Disclosure Schedules shall
be deemed to be disclosed with respect to any other schedule so long as the
relevance of the matter to such other schedule is readily apparent from the
disclosure of the matter that appears in the Schedule where it is disclosed.
10.2. Entire Agreement. This Agreement (including the Disclosure
Schedules and the Exhibits hereto) constitutes the sole understanding of the
parties with respect to the subject matter hereof.
10.3. Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto; provided however, that this
Agreement may not be assigned by any Company Stockholder without the prior
written consent of CVC or be assigned by CVC without the prior written consent
of Company Stockholders, except that (i) CVC may, at its election, assign this
Agreement to any direct or indirect wholly owned subsidiary so long as (a) the
representations and warranties of CVC made herein are equally true of such
assignee and (b) such assignment does not have any adverse consequences to
Company Stockholders (including, without limitation, any adverse tax
consequences or any adverse effect on the ability of CVC to consummate on a
timely basis the transactions contemplated hereby), and (c) such assignee shall
execute a counterpart of this Agreement agreeing to be bound by the provisions
hereof as "CVC," and agreeing to be jointly and severally liable with the
assignor and any other assignee for all of the obligations of the assignor
hereunder; and (ii) CVC or any such assignee may make a collateral assignment
of its rights (but not its obligations) under this Agreement to any
institutional lender providing financing to CVC or any Company after the
Closing; provided, however, in no event shall any such assignment of this
Agreement or any of the rights or obligations of a party hereunder relieve the
assignor of its obligations under this Agreement.
10.4. Headings. The headings of the Articles, Sections, and
paragraphs of this Agreement are inserted for convenience only and shall not be
deemed to constitute part of this Agreement or to affect the construction
hereof.
50
<PAGE> 59
10.5. Modification and Waiver. No amendment, modification, or
alteration of the terms or provisions of this Agreement shall be binding unless
the same shall be in writing and duly executed by the parties hereto, except
that any of the terms or provisions of this Agreement may be waived in writing
at any time by the party that is entitled to the benefits of such waived terms
or provisions. No waiver of any of the provisions of this Agreement shall be
deemed to or shall constitute a waiver of any other provision hereof (whether
or not similar). No delay on the part of any party in exercising any right,
power, or privilege hereunder shall operate as a waiver thereof. At any time
prior to Closing, Company Stockholders shall have the right to amend any of the
Disclosure Schedules to this Agreement to reflect any matter that occurs or is
discovered by Company Stockholders subsequent to the date of this Agreement.
10.6. Expenses. Except as otherwise provided herein, Company
Stockholders and CVC each shall pay all costs and expenses incurred by them or
it or on their or its behalf in connection with this Agreement and the
transactions contemplated hereby, including, without limiting the generality of
the foregoing, fees and expenses of their or its own financial consultants,
accountants and counsel; provided, however, that the fees and expenses of
Thompson Hine & Flory P.L.L., as counsel to the Company Stockholders, shall be
paid by IKS; provided, further, however, that such fees and expenses shall be
accrued as a liability on the Closing Balance Sheet. In the event the Closing
does not occur other than as a result of a material breach of this Agreement by
the Holding Company or Company Stockholders, CVC shall pay the costs and
expenses incurred by the Companies in connection with the procurement of the
Financing, including the costs and expenses of Ernst & Young, LLP in relation
thereto.
10.7. Notices. Any notice, request, instruction, or other document to
be given hereunder by any party hereto to any other party shall be in writing
and shall be given (and will be deemed to have been duly given upon receipt) by
delivery in person, by electronic facsimile transmission, cable, telegram,
telex, or other standard forms of written telecommunications, by overnight
courier or by registered or certified mail, postage prepaid,
if to Company Stockholders to:
c/o Mr. Diether Klingelnberg, as Agent
Lichtenbuscher Str. 47
B-4732 Eynatten
Belgium
Telecopy: 32-87-85-39-28
51
<PAGE> 60
with a copy to:
Thompson Hine & Flory P.L.L.
312 Walnut Street, Suite 1400
Cincinnati, Ohio 45202
Attention: Michael R. Oestreicher, Esq.
Telecopy: (513) 241-4771
if to CVC to:
Citicorp Venture Capital Ltd.
399 Park Avenue, 14th Floor
New York, New York 10043
Attention: Michael A. Delaney and James A. Urry
Telecopy: (212) 888-2940
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia PA 19103-2793
Attention: G. Daniel O'Donnell, Esq.
Telecopy: (215) 994-2222
or at such other address for a party as shall be specified by like notice.
10.8. Governing Law; Consent to Jurisdiction. This Agreement shall be
construed in accordance with and governed by the laws of the State of New York
applicable to agreements made and to be performed wholly within that
jurisdiction. Each party hereto, for itself and its successors and assigns,
irrevocably agrees that any suit, action or proceeding arising out of or
relating to this Agreement shall be instituted only in the United States
District Court for the Southern District of New York, United States of America
or in the absence of jurisdiction, the Supreme Court of New York located in New
York City and generally and unconditionally accepts and irrevocably submits to
the exclusive jurisdiction of the aforesaid courts and irrevocably agrees to be
bound by any final judgment rendered thereby from which no appeal has been
taken or is available in connection with this Agreement. Each party, for
itself and its successors and assigns, irrevocably waives any objection it may
have now or hereafter to the laying of the venue of any such suit, action or
proceeding, including, without
52
<PAGE> 61
limitation, any objection based on the grounds of forum non conveniens, in the
aforesaid courts. Each of the parties, for itself and its successors and
assigns, irrevocably agrees that all process in any such proceedings in any
such court may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to it at its
address set forth in Section 10.7 or at such other address of which the other
parties shall have been notified in accordance with the provisions of Section
10.7, such service being hereby acknowledged by the parties to be effective and
binding service in every respect. Nothing herein shall affect the right to
serve process in any other manner permitted by law.
10.9. Public Announcements. Neither Company Stockholders nor CVC
shall make any public statements, including, without limitation, any press
releases, with respect to this Agreement and the transactions contemplated
hereby without the prior written consent of the other party (which consent
shall not be unreasonably withheld) except as may be required by law. If a
public statement is required to be made by law, the parties shall consult with
each other in advance as to the contents and timing thereof.
10.10. No Third Party Beneficiaries. This Agreement is intended and
agreed to be solely for the benefit of the parties hereto, and no other party
shall be entitled to rely on this Agreement or accrue any benefit, claim, or
right of any kind whatsoever pursuant to, under, by, or through this Agreement.
10.11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
53
<PAGE> 62
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on its behalf as of the date first above written.
CITICORP VENTURE CAPITAL LTD.
By:
----------------------------
Name:
Title:
"Holding Company"
THE KLINGELNBERG CORPORATION
By:
----------------------------
Name:
Title:
"Company Stockholders"
Name and Signature
"TKC Stockholders":
- ------------------------
Diether Klingelnberg
- ------------------------
Arndt Klingelnberg
- ------------------------
William T. Holloran, Trustee under
Voting Trust Agreement dated 11/19/86
- ------------------------
Jan Klingelnberg, Beneficiary under
Voting Trust Agreement dated 11/19/86
"Management Stockholders":
- ------------------------
John E. Halloran
54
<PAGE> 63
- ------------------------
Edward J. Brent
- ------------------------
Amy K. Brent
- ------------------------
Thomas Meyer
- ------------------------
Hans Berg
55
<PAGE> 1
EXHIBIT 12.1
INTERNATIONAL KNIFE & SAW, INC.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, Nine Months Ended September,
------------------------------------------------------- -----------------------------------
Pro Forma Pro Forma Pro Forma
1991 1992 1993 1994 1995 1995 1995 1995 1996 1996
------ ------ ------ ------- ------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS
Income before taxes $4,253 $6,619 $5,145 $ 8,845 $ 8,854 $ 667 $6,092 $ (322) $7,202 $ 798
Add fixed charges (see below) 2,028 2,103 2,278 1,985 1,935 10,591 1,459 8,409 1,988 8,690
Other adjustments (a) (191) (191)
------ ------ ------ ------- ------- ------- ------ ------ ------ ------
Earnings as defined $6,281 $8,722 $7,423 $10,830 $10,789 $11,258 $7,551 $8,087 $8,999 $9,297
====== ====== ====== ======= ======= ======= ====== ====== ====== ======
FIXED CHARGES:
Interest expense $1,957 $2,007 $2,174 $ 1,906 $ 1,827 $10,483 $1,378 $8,328 $1,907 $8,609
Other adjustments (a) $ 71 96 104 79 108 108 81 81 81 81
------ ------ ------ ------- ------- ------- ------ ------ ------ ------
Fixed Charges as defined $2,028 $2,103 $2,278 $ 1,985 $ 1,935 $10,591 $1,459 $8,409 $1,988 $8,690
====== ====== ====== ======= ======= ======= ====== ====== ====== ======
Ratio of earnings to fixed charges 3.1 4.1 3.3 5.5 5.6 1.1 5.2 1.0 4.5 1.1
</TABLE>
(a) Other adjustments in the earnings computation represents minority interest
in loss of subsidiary. Other adjustments in the Fixed Charges computation
represents a portion of rental expense representative of an interest factor.
NOTE:
The ratio of earnings to fixed charges is calculated by dividing fixed charges
into the sum of income before taxes and fixed charges. Fixed charges consist of
interest expense and a portion of rental expense representative of an interest
factor.
<PAGE> 1
EXHIBIT 21.1
Subsidiaries
<TABLE>
<CAPTION>
Name Jurisdiction
---- ------------
<S> <C>
Hannaco Knives & Saws, Inc. Delaware
IKS Canadian Knife & Saw Ltd. Canada
IKS Klingelnberg GmbH Germany
IKS Klingelnberg Asia Pte. Ltd. Singapore
IKS Klingelnberg Far East GmbH Germany
Shanghai IKS Lida Mechanical Blade Co. Ltd. China
Shanghai IKS Mechanical Blade Co. Ltd. China
IKS Messerfabrik Geringswalde GmbH Germany
IKS Mexican Holdings S.A. de C.V. Mexico
International Knife and Saw de Mexico S.A. de C.V. Mexico
International Knife & Saw Trading Corporation U.S. Virgin Islands
P.T. Bevenmas Jaya Indonesia
</TABLE>
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated September 12, 1996, except for Note 17, as to which
the date is November 6, 1996, in the Registration Statement (Form S-4) and
related Prospectus of International Knife & Saw, Inc. for the registration of
$90,000,000 of its 11-3/8% Senior Subordinated Notes due 2006.
/s/ Ernst & Young LLP
Cincinnati, Ohio
December 5, 1996
<PAGE> 1
EXHIBIT 25
FORM T-1
=======================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
---------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2)
-----
---------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
</TABLE>
---------------
International Knife & Saw, Inc.
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
Delaware 57-069-7252
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
P.O. Box 752006 45275-2006
Cincinnati, OH (Zip Code)
(Address of principal executive offices)
</TABLE>
---------------
11-3/8% Senior Subordinated Notes
Due 2006
(Title of the indenture securities)
=======================================
<PAGE> 2
-2-
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
International Knife & Saw, Inc. currently is not in default under any of its
outstanding securities for which United States Trust Company of New York
is Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11,
12, 13, 14 and 15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by the State
of New York Banking Department to transact business as a
Trust Company, is incorporated by reference to Exhibit T-1.1
to Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE> 3
16. LIST OF EXHIBITS
(cont'd.)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to Form T-1
filed on September 15, 1995 with the Commission pursuant to the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the Trust
Indenture Act of 1939, as amended by the Trust Indenture Reform
Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee pursuant
to law or the requirements of its supervising or examining
authority.
NOTE
As of December 5, 1996, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U.S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
---------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 5th day
of December, 1996.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ Illegible
---------------------------------
<PAGE> 4
Exhibit T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of
1939, as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: s/ Gerard F. Ganey
-------------------------------
Senior Vice President
<PAGE> 5
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Cash and Due from Banks $ 38,257
Short-Term Investments 82,377
Securities Available for Sale 861,975
Loans 1,404,930
Less: Allowance for Credit Losses 13,048
----------
Net Loans 1,391,882
Premises and Equipment 60,012
Other Assets 133,673
----------
TOTAL ASSETS $2,568,176
==========
LIABILITIES
Deposits:
Non-Interest Bearing $ 466,849
Interest Bearing 1,433,894
----------
Total Deposits 1,900,743
Short-Term Credit Facilities 369,045
Accounts Payable and Accrued Liabilities 143,604
----------
TOTAL LIABILITIES $2,413,392
==========
STOCKHOLDERS' EQUITY
Common Stock 14,995
Capital Surplus 42,394
Retained Earnings 98,402
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes (1,007)
----------
TOTAL STOCKHOLDER'S EQUITY 154,784
----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $2,568,176
==========
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory
authority and is true to the best of my knowledge and belief.
Richard E. Brinkman, SVP & Controller
October 24, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> SEP-30-1996 DEC-31-1995
<CASH> 6,544,000 10,273,000
<SECURITIES> 0 0
<RECEIVABLES> 22,075,000 20,728,000
<ALLOWANCES> 1,428,000 2,084,000
<INVENTORY> 30,554,000 29,036,000
<CURRENT-ASSETS> 60,505,000 59,782,000
<PP&E> 54,467,000 47,042,000
<DEPRECIATION> 25,569,000 24,315,000
<TOTAL-ASSETS> 93,411,000 85,697,000
<CURRENT-LIABILITIES> 38,691,000 27,218,000
<BONDS> 21,604,000 27,356,000
0 0
0 0
<COMMON> 5,000 5,000
<OTHER-SE> 41,787,000 38,024,000
<TOTAL-LIABILITY-AND-EQUITY> 93,411,000 85,697,000
<SALES> 89,256,000 107,030,000
<TOTAL-REVENUES> 89,256,000 107,030,000
<CGS> 62,748,000 76,057,000
<TOTAL-COSTS> 62,748,000 76,057,000
<OTHER-EXPENSES> 0 589,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,907,000 1,827,000
<INCOME-PRETAX> 7,202,000 8,854,000
<INCOME-TAX> 2,350,000 3,606,000
<INCOME-CONTINUING> 4,852,000 5,248,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,852,000 5,248,000
<EPS-PRIMARY> 10.07 10.89
<EPS-DILUTED> 10.07 10.89
</TABLE>
<PAGE> 1
EXHIBIT 99.1
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF
EXISTING NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE EXPIRATION
DATE.
INTERNATIONAL KNIFE & SAW, INC.
LETTER OF TRANSMITTAL
11 3/8% SENIOR SUBORDINATED NOTES DUE 2006
TO: UNITED STATES TRUST COMPANY OF NEW YORK,
THE EXCHANGE AGENT
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Courier:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 844 770 Broadway
Cooper Station New York, New York 10003
New York, New York 10276-0844 Attn: Corporate Trust
By Hand: By Facsimile:
United States Trust Company of New York United States Trust Company of New York
111 Broadway (212) 420-6152
Lower Level Attn: Corporate Trust
Corporate Trust Winnow
New York, New York 10006 Confirm by telephone:
(800) 548-6525
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE NEW NOTES FOR THEIR EXISTING
NOTES PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW)
THEIR EXISTING NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
The undersigned acknowledges receipt of the Prospectus dated
, 1997 (the "Prospectus") of INTERNATIONAL KNIFE & SAW, INC. (the
"Company") and this Letter of Transmittal (the "Letter of Transmittal"), which
together constitute the Company's Offer to Exchange (the "Exchange Offer")
$1,000 principal amount of its 11 3/8% Senior Subordinated Notes due 2006 (the
"New Notes"), which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement of which
the Prospectus is a part, for each $1,000 principal amount of its outstanding 11
3/8% Senior Subordinated Notes due 2006 (the "Existing Notes"), of which
$90,000,000 principal amount is outstanding, upon the terms and conditions set
forth in the Prospectus. Other capitalized terms used but not defined herein
have the meaning given to them in the Prospectus.
<PAGE> 2
For each Existing Note accepted for exchange, the holder of such Existing
Note will receive a New Note having a principal amount equal to that of the
surrendered Existing Note. Interest on the New Notes will accrue from the last
interest payment date on which interest was paid on the Existing Notes
surrendered in exchange therefor or, if no interest has been paid on the
Existing Notes, from the date of original issue of the Existing Notes. Holders
of Existing Notes accepted for exchange will be deemed to have waived the right
to receive any other payments or accrued interest on the Existing Notes. The
Company reserves the right, at any time or from time to time, to extend the
Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest time and date to which the Exchange Offer is extended. The
Company shall notify holders of the Existing Notes of any extension by means of
a press release or other public announcement prior to 9:00 A.M., New York City
time, on the next business day after the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by Holders if: (i) certificates
representing Existing Notes are to be physically delivered to the Exchange Agent
herewith by Holders; (ii) tender of Existing Notes is to be made by book-entry
transfer to the Exchange Agent's account at The Depository Trust Company
("DTC"), pursuant to the procedures set forth in the Prospectus under "The
Exchange Offer -- Procedures for Tendering Existing Notes" by any financial
institution that is a participant in DTC and whose name appears on a security
position listing as the owner of Existing Notes or (iii) tender of Existing
Notes is to be made according to the guaranteed delivery procedures set forth in
the prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures."
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The term "Holder" with respect to the Exchange Offer means any person: (i)
in whose name Existing Notes are registered on the books of the Company or any
other person who has obtained a properly completed bond power from the
registered Holder; or (ii) whose Existing Notes are held of record by DTC who
desires to deliver such Existing Notes by book-entry transfer at DTC. The
undersigned has completed, executed and delivered this Letter of Transmittal to
indicate the action the undersigned desires to take with respect to the Exchange
Offer.
<PAGE> 3
The instructions included with this Letter of Transmittal must be followed.
Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Exchange Agent. See Instruction 10 herein.
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER
AND TENDER THEIR EXISTING NOTES MUST COMPLETE THIS
LETTER OF TRANSMITTAL IN ITS ENTIRETY.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
- --------------------------------------------------------------------------------
DESCRIPTION OF 11 3/8% SENIOR SUBORDINATED NOTES DUE 2006 (EXISTING NOTES)
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
AGGREGATE PRINCIPAL PRINCIPAL AMOUNT
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE AMOUNT REPRESENTED BY TENDERED (IF LESS THAN
(PLEASE FILL IN, IF BLANK) NUMBER(S)* CERTIFICATE(S) ALL)**
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by Holders tendering by book-entry transfer.
** Unless indicated in the column labeled "Principal Amount Tendered," any
tendering Holder of Existing Notes will be deemed to have tendered the
entire aggregate principal amount represented by the column labeled
"Aggregate Principal Amount Represented by Certificate(s)." If the space
provided above is inadequate, list the certificate numbers and principal
amounts on a separate signed schedule and affix the list to this Letter of
Transmittal.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 4
The minimum permitted tender is $1,000 in principal amount of Existing
Notes. All other tenders must be integral multiples of $1,000.
------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Existing Notes in a
principal amount not tendered or not accepted for exchange, or New Notes
issued in exchange for Existing Notes accepted for exchange, are to be
issued in the name of someone other than the undersigned, or if the
Existing Notes tendered by book-entry transfer that are not accepted for
exchange are to be credited to an account maintained by DTC.
Issue certificate(s) to:
Name:
---------------------------------------------------
Address:
-------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
(TAX IDENTIFICATION OR
SOCIAL SECURITY NO.)
------------------------------------------------------------
------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be accepted ONLY if certificates for Existing Notes in a principal
amount not tendered or not accepted for exchange, are to be sent to
someone other than the undersigned, or to the undersigned at an address
other than that shown above.
Mail to:
Name:
---------------------------------------------------
Address:
-------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
(TAX IDENTIFICATION OR
SOCIAL SECURITY NO.)
------------------------------------------------------------
<PAGE> 5
[ ] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER TO THE EXCHANGE AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
-----------------------------------------------------------------------------
DTC Book-Entry Account No.:
-----------------------------------------------------------------------------
Transaction Code No.:
-----------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s):
-----------------------------------------------------------------------------
Window Ticket Number (if any):
-----------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-----------------------------------------------------------------
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
<TABLE>
<S> <C>
Account Number: --------------------------- Transaction Code Number: ---------------------------
</TABLE>
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
-----------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------------
<PAGE> 6
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company the principal amount of Existing Notes indicated
above. Subject to and effective upon the acceptance for exchange of the
principal amount of Existing Notes tendered in accordance with this Letter of
Transmittal, the undersigned sells, assigns and transfers to, or upon the order
of, the Company all right, title and interest in and to the Existing Notes
tendered hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent its agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as the agent of the Company and as Trustee under the
indenture for the Existing Notes and New Notes) with respect to the tendered
Existing Notes with full power of substitution to (i) deliver certificates for
such Existing Notes to the Company, or transfer ownership of such Existing Notes
on the account books maintained by DTC and deliver all accompanying evidence of
transfer and authenticity to, or upon the order of, the Company and (ii) present
such Existing Notes for transfer on the books of the Company and receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Existing Notes, all in accordance with the terms and subject to the conditions
of the Exchange Offer. The power of attorney granted in this paragraph shall be
deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Existing Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim, when the same are acquired by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Existing Notes tendered hereby will have been acquired in the ordinary
course of business of the Holder receiving such New Notes, whether or not such
person is the Holder, that neither the Holder nor any such other person has any
arrangement or understanding with any person to participate in the distribution
of such New Notes and that neither the Holder nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company or
any of its subsidiaries.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "SEC") that the New Notes issued in exchange for the Existing
Notes pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holders' business and such holders have no
arrangements with any person to participate in the distribution of such New
Notes. If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Existing Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the assignment, transfer and purchase of the Existing
Notes tendered hereby. All authority conferred or agreed to be conferred by this
Letter of Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns, trustees in bankruptcy or other legal
representatives of the undersigned. This tender may be withdrawn only in
accordance with the procedures set forth in "The Exchange Offer -- Withdrawal
Rights" section of the Prospectus.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Existing Notes when, as and if the Company has given
oral or written notice thereof to the Exchange Agent.
<PAGE> 7
If any tendered Existing Notes are not accepted for exchange pursuant to
the Exchange Offer for any reason, certificates for any such unaccepted Existing
Notes will be returned (except as noted below with respect to tenders through
DTC), without expense, to the undersigned at the address shown below or at a
different address as may be indicated under Special Delivery Instructions" as
promptly as practicable after the Expiration Date.
The undersigned understands that tenders of Existing Notes pursuant to the
procedures described under the caption "The Exchange Offer -- Procedures for
Tendering Existing Notes" in the Prospectus and in the instructions hereto will
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Payment Instructions," please
issue the certificates representing the New Notes issued in exchange for the
Existing Notes accepted for exchange and return any Existing Notes not tendered
or not exchanged in the name(s) of the undersigned (or in either such event in
the case of the Existing Notes tendered through DTC, by credit to the
undersigned's account, at DTC). Similarly, unless otherwise indicated under
"Special Delivery Instructions," please send the certificates representing the
New Notes issued in exchange for the Existing Notes accepted for exchange and
any certificates for Existing Notes not tendered or not exchanged (and
accompanying documents, as appropriate) to the undersigned at the address shown
below the undersigned's signature(s), unless, in either event, tender is being
made through DTC. In the event that both "Special Payment Instructions" and
"Special Delivery Instructions" are completed, please issue the certificates
representing the New Notes issued in exchange for the Existing Notes accepted
for exchange and return any Existing Notes not tendered or not exchanged in the
name(s) of, and send said certificates to, the person(s) so indicated. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Payment Instructions" and "Special Delivery Instructions" to transfer
any Existing Notes from the name of the registered Holder(s) thereof if the
Company does not accept for exchange any of the Existing Notes so tendered.
Holders of Existing Notes who wish to tender their Existing Notes and (i)
whose Existing Notes are not immediately available or (ii) who cannot deliver
their Existing Notes, this Letter of Transmittal or any other documents required
hereby to the Exchange Agent, or cannot complete the procedure for book-entry
transfer, prior to the Expiration Date, may tender their Existing Notes
according to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." See
Instruction 1 regarding the completion of the Letter of Transmittal printed
below.
<PAGE> 8
PLEASE SIGN HERE WHETHER OR NOT
EXISTING NOTES ARE BEING PHYSICALLY TENDERED HEREBY
<TABLE>
<S> <C>
X ___________________________________________________ Date _____________________________
X ___________________________________________________ Date _____________________________
Signature(s) of Registered Holder(s)
Or Authorized Signatory
Area Code and Telephone Number: ___________________________________________
</TABLE>
The above lines must be signed by the registered Holder(s) of Existing
Notes as their name(s) appear(s) on the Existing Notes or, if the Existing Notes
are tendered by a participant in DTC, as such participant's name appears on a
security position listing as the owner of Existing Notes, or by person(s)
authorized to become registered Holder(s) by a properly completed bond power
from the registered Holder(s), a copy of which must be transmitted with this
Letter of Transmittal. If Existing Notes to which this Letter of Transmittal
relates are held of record by two or more joint Holders, then all such holders
must sign this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person must (i)
set forth his or her full title below and (ii) unless waived by the Company,
submit evidence satisfactory to the Company of such person's authority to act.
See Instruction 4 regarding the completion of this Letter of Transmittal printed
below.
Name(s): ______________________________________________________________________
(Please Print)
Capacity:______________________________________________________________________
Address: ______________________________________________________________________
(Include Zip Code)
Signature(s) Guaranteed by an Eligible Institution:
(If required by Instruction 4)
_______________________________________________________________________________
(Authorized Signature)
_______________________________________________________________________________
(Title)
_______________________________________________________________________________
(Name of Firm)
Dated: ______________________________, 1996
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND EXISTING NOTES; GUARANTEED DELIVERY
PROCEDURES. This Letter is to be completed by noteholders, either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The Exchange
Offer--Book-Entry Transfer" section of the Prospectus. Certificates for all
physically tendered Existing Notes, or Book-Entry Confirmation, as the case may
be, as well as a properly completed and duly executed Letter (or manually signed
facsimile hereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below. Existing Notes tendered hereby must be in
denominations of principal amount of maturity of $1,000 and any integral
multiple thereof.
Noteholders whose certificates for Existing Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Existing Notes pursuant to the guaranteed delivery procedures set
forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through an
Eligible Institution (as defined in Instruction 4 below), (ii) prior to the
Expiration Date, the Exchange Agent must receive from such Eligible Institution
a properly completed and duly executed Letter (or facsimile thereof) and Notice
of Guaranteed Delivery, substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Existing Notes and the amount of Existing Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Existing Notes, or a Book-Entry Confirmation, and any other
documents required by this Letter will be deposited by the Eligible Institution
with the Exchange Agent, and (iii) the certificates for all physically tendered
Existing Notes, in proper form for transfer, or Book-Entry Confirmation, as the
case may be, and all other documents required by this Letter, are received by
the Exchange Agent within five NYSE trading days after the date of execution of
the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Existing Notes and all other
required documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Existing Notes are sent by mail, it is suggested that the
mailing be made sufficiently in advance of the Expiration Date to permit the
delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
See "The Exchange Offer" section in the Prospectus.
2. TENDER BY HOLDER. Only a holder of Existing Notes may tender such
Existing Notes in the Exchange Offer. Any beneficial holder of Existing Notes
who is not the registered holder and who wishes to tender should arrange with
the registered holder to execute and deliver this Letter on his or her behalf or
must, prior to completing and executing this Letter and delivering his or her
Existing Notes, either make appropriate arrangements to register ownership of
the Existing Notes in such holder's name or obtain a properly completed bond
power form the registered holder.
3. PARTIAL TENDERS. Tenders of Existing Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Existing Notes is tendered, the tendering holder should fill in the principal
amount tendered in the fourth column of the box entitled "Description of 11 3/8%
Senior Subordinated Notes due 2006 (Existing Notes)" above. The entire principal
amount of Existing Notes delivered to the Exchange Agent will be deemed to have
been tendered unless otherwise indicated. If the entire principal amount of all
Existing Notes is not tendered, then Existing Notes for the principal amount of
Existing Notes not tendered and a certificate or certificates representing New
Notes issued in exchange for any Existing Notes accepted will be sent to the
Holder at his or her registered address, unless a different address is provided
in the appropriate box on this Letter promptly after the Existing Notes are
accepted for exchange.
4. SIGNATURES ON THIS LETTER; POWERS OF ATTORNEY AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter is signed by the registered holder of
the Existing Notes tendered hereby, the signature must correspond exactly with
the name as written on the face of the certificates without any change
whatsoever.
<PAGE> 10
If any tendered Existing Notes are owned of record by two or more joint
owners, all such owners must sign this Letter.
If any tendered Existing Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the
Existing Notes specified herein and tendered hereby, no endorsements of
certificates or separate powers of attorney are required. If, however, the New
Notes are to be issued, or any untendered Existing Notes are to be reissued, to
a person other than the registered holder, then endorsements of any certificates
transmitted hereby or separate powers of attorney are required. Signatures on
such certificate(s) must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names on the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or powers of attorney are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
Endorsements on certificates for Existing Notes or signatures on powers of
attorney required by this Instruction 4 must be guaranteed by a firm which is a
participant in a recognized signature guarantee medallion program ("Eligible
Institutions").
Signatures on this Letter must be guaranteed by an Eligible Institution
unless the Existing Notes are tendered (i) by a registered holder of Existing
Notes (which term, for purposes of the Exchange Offer, includes any participant
in the Book-Entry Transfer Facility system whose name appears on a security
position listing as the holder of such Existing Notes) who has not completed the
box entitled "Special Issuance Instructions" or "Special Delivery Instructions"
on this Letter, or (ii) for the account of an Eligible Institution.
5. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in the applicable box or boxes, the name and address to which New
Notes or substitute Existing Notes for principal amounts not tendered or not
accepted for exchange are to be issued or sent, if different from the name and
address of the person signing this Letter of Transmittal (or in the case of
tender of Existing Notes through DTC, if different from DTC). In the case of
issuance in a different name, the taxpayer identification or social security
number of the person named must also be indicated. Noteholders tendering
Existing Notes by book-entry transfer may request that Existing Notes not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such noteholder may designate hereon. If no such instructions are
given, such Existing Notes not exchanged will be returned to the name and
address of the person signing this Letter.
6. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
holder whose offered Existing Notes are accepted for exchange must provide the
Company (as payer) with his, her or its correct Taxpayer Identification Number
("TIN"), which, in the case of an exchanging holder who is an individual, is his
or her social security number. If the Company is not provided with the correct
TIN or an adequate basis for exemption, such holder may be subject to a $50
penalty imposed by the Internal Revenue Service (the "IRS"), and payments made
with respect to Existing Notes purchased pursuant to the Exchange Offer may be
subject to backup withholding at a 31% rate. If withholding results in an
overpayment of taxes, a refund may be obtained. Exempt holders (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and reporting requirements. See the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9."
<PAGE> 11
To prevent backup withholding, each exchanging holder must provide his, her
or its correct TIN by completing the Substitute Form W-9 enclosed herewith,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, (ii) the holder
has been notified by the IRS that he, she or it is subject to backup withholding
as a result of a failure to report all interest or dividends, or (iii) the IRS
has notified the holder that he, she or it is no longer subject to backup
withholding. In order to satisfy the Exchange Agent that a foreign individual
qualifies as an exempt recipient, such holder must submit a statement signed
under penalty of perjury attesting to such exempt status. Such statements may be
obtained from the Exchange Agent. If the Existing Notes are in more than one
name or are not in the name of the actual owner, consult the Substitute Form W-9
for information on which TIN to report. If you do not provide your TIN to the
Company within 60 days, backup withholding will begin and continue until you
furnish your TIN to the Company.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Existing Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes or Existing Notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or are to
be registered or issued in the name of, any person other than the registered
holder of the Existing Notes tendered hereby, or if tendered Existing Notes are
registered in the name of any person other than the person signing this Letter,
or if a transfer tax is imposed for any reason other than the exchange of
Existing Notes pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or on any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Existing Notes listed in this Letter.
8. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend,
waive or modify specified conditions in the Exchange Offer in the case of any
Existing Notes tendered.
9. NO CONDITIONAL TRANSFERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Existing Notes, by
execution of this Letter, shall waive any right to receive notice of the
acceptance of their Existing Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of
Existing Notes nor shall any of them incur any liability for failure to give any
such notice.
10. MUTILATED, LOST, STOLEN OR DESTROYED EXISTING NOTES. Any tendering
holder whose Existing Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated herein for further
instructions.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance for additional copies of the Prospectus, this Letter and the
Notice of Guaranteed Delivery may be directed to the Exchange Agent at the
address specified in the Prospectus.
(DO NOT WRITE IN THE SPACE BELOW)
<TABLE>
<CAPTION>
CERTIFICATE EXISTING NOTES EXISTING NOTES
SURRENDERED TENDERED ACCEPTED
- ------------------ ------------------ ------------------
<S> <C> <C>
- ------------------ ------------------ ------------------
- ------------------ ------------------ ------------------
- ------------------ ------------------ ------------------
</TABLE>
Delivery Prepared by
--------------- Checked By
--------------- Date
---------------
<PAGE> 12
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
PAYER'S NAME: INTERNATIONAL KNIFE & SAW, INC.
- ----------------------------------------------------------------------------------------------------------
Name (if joint names, list first and circle the name of the person or
SUBSTITUTE entity whose number you enter in Part 1 below. See instructions if your
FORM W-9 name has changed.)
DEPARTMENT OF THE TREASURY ---------------------------------------------------------------------------
INTERNAL REVENUE SERVICE Address
PAYER'S REQUEST FOR TIN ---------------------------------------------------------------------------
City, state and ZIP code
---------------------------------------------------------------------------
List account number(s) here (optional)
---------------------------------------------------------------------------
----------------------------------------------------------------------------
Part 1--PLEASE PROVIDE YOUR TAXPAYER Social security number
IDENTIFICATION NUMBER ("TIN") IN THE BOX AT or TIN
RIGHT AND CERTIFY BY SIGNING AND DATING ------------------------------
BELOW.
----------------------------------------------------------------------------
Part 2--Check the box if you are NOT subject to backup withholding under
the provisions of section 3408(a)(1)(C) of the Internal Revenue Code
because (1) you have not been notified that you are subject to backup
withholding as a result of failure to report all interest or dividends or
(2) the Internal Revenue Service has notified you that you are no longer
subject to backup withholding.
CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE
INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE.
----------------------------------------------------------------------------
Signature _________________ Date PART 3--AWAITING TIN [ ]
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER OR SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE> 13
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<C> <S> <C>
- ---------------------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF--
- ---------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner of
(joint account) the account or, if
combined funds, any
one of the
individuals(1)
3. Husband and wife The actual owner of
(joint account) the account or, if
joint funds, either
person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor The adult or, if
(joint account) the minor is the
only contributor,
the minor(1)
6. Account in the name of guardian The ward, minor, or
or committee for a designated incompetent
ward, minor, or incompetent person(3)
person
7. a. The usual revocable savings The grantor-
trust account (grantor is trustee(1)
also trustee)
b. So-called trust account that The actual owner(1)
is not a legal or valid
trust under State law
8. Sole proprietorship account The Owner(4)
- ---------------------------------------------------------
- ---------------------------------------------------------
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF--
- ---------------------------------------------------------
9. A valid trust, estate, or Legal entity (Do
pension trust not furnish the
identifying number
of the personal
representative or
trustee unless the
legal entity itself
is not designated
in the account
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held in the The partnership
name of the business
13. Association, club, or other The organization
tax-exempt organization
15. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State
or local government, school
district, or prison) that
receives agricultural program
payments
- ---------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 14
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. Or
a possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of
1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1941.
- Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid n
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and in
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give tax-payer identification numbers to payers
who must report for payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1994, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
11 3/8% SENIOR SUBORDINATED NOTES DUE 2006
INTERNATIONAL KNIFE & SAW, INC.
As set forth in the Prospectus dated , 1997 (the "Prospectus"), of
INTERNATIONAL KNIFE & SAW, INC., (the "Company") and in the accompanying Letter
of Transmittal and instructions thereto (the "Letter of Transmittal"), this form
or one substantially equivalent hereto must be used to accept the Company's
offer to exchange (the "Exchange Offer") all of its outstanding 11 3/8% Senior
Subordinated Notes due 2006 (the "Existing Notes") for its 11 3/8% Senior
Subordinated Notes due 2006, which have been registered under the Securities Act
of 1933, as amended, if certificates for the Existing Notes are not immediately
available or if the Existing Notes, the Letter of Transmittal or any other
documents required thereby cannot be delivered to the Exchange Agent, or the
procedure for book-entry transfer cannot be completed, prior to 5:00 P.M., New
York City time, on the Expiration Date (as defined in the Prospectus), this form
may be delivered by an Eligible Institution by hand or transmitted by facsimile
transmission, overnight courier or mail to the Exchange Agent as set forth
below. Capitalized terms used but not defined herein have the meaning given to
them in the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
1997, UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE"). TENDERS
OF EXISTING NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE
BUSINESS DAY PRIOR TO THE EXPIRATION DATE.
TO: UNITED STATES TRUST COMPANY OF NEW YORK, THE EXCHANGE AGENT
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Courier:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 844 770 Broadway
Cooper Station New York, New York 10003
New York, New York 10276-0844 Attention: Corporate Trust
By Hand: By Facsimile:
United States Trust Company of New York United States Trust Company of New York
111 Broadway (212) 420-6152
Lower Level Attention: Corporate Trust
Corporate Trust Window
New York, New York 10006 Confirm by telephone:
(800) 548-6565
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS
VIA A FACSIMILE, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID
DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal to be used to tender Existing Notes is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the Letter
of Transmittal.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to INTERNATIONAL KNIFE & SAW, INC., a
Delaware corporation (the "Company"), upon the terms and subject to the
conditions set forth in the Prospectus and the Letter of Transmittal (which
together constitute the "Exchange Offer"), receipt of which is hereby
acknowledged, (number of Existing Notes) Existing Notes pursuant to
the guaranteed delivery procedures set forth in Instruction 1 of the Letter of
Transmittal.
The undersigned understands that tenders of Existing Notes will be accepted
only in principal amounts equal to $1,000 or integral multiples thereof. The
undersigned understand that tenders of Existing Notes pursuant to the Exchange
Offer may not be withdrawn after 5:00 p.m., New York City time, on the business
day prior to the Expiration Date.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and other
legal representatives of the undersigned.
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW.
<TABLE>
<S> <C>
Certificate No(s). for Existing Notes (if
available) Name(s) of Record Holder(s)
- ------------------------------------------------- -------------------------------------------------
- ------------------------------------------------- -------------------------------------------------
PLEASE PRINT OR TYPE
Principal Amount of Existing Notes Address
-------------------------------------------------
- -------------------------------------------------
-------------------------------------------------
Area Code and
Tel. No.
-------------------------------------------------
Signature(s)
-------------------------------------------------
Dated:
-------------------------------------------------
If Existing Notes will be delivered by book-entry
transfer at the Depository Trust Company,
Depository Account No.
-------------------------------------------------
</TABLE>
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Existing Notes exactly as its (their) name(s) appear on
certificates for Existing Notes or on a security position listing as the owner
of Existing Notes, or by person(s) authorized to become registered holder(s) by
endorsements and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information:
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
- --------------------------------------------------------------------------------
Capacity:
- --------------------------------------------------------------------------------
Address(es):
- --------------------------------------------------------------------------------
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., or a commercial bank
or trust company having an office or correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), hereby (a)
represents that the above named person(s) "own(s)" the Existing Notes tendered
hereby within the meaning of Rule 14e-4 under the Exchange Act, (b) represents
that such tender of Existing Notes complies with Rule 14e-4 under the Exchange
Act and (c) guarantees that delivery to the Exchange Agent of certificates for
the Existing Notes tendered hereby, in proper form for transfer (or confirmation
of the book-entry transfer of such Existing Notes into the Exchange Agent's
Account at the Depository Trust Company, pursuant to the procedures for book-
entry transfer set forth in the Prospectus), with delivery of a properly
completed and duly executed Letter of Transmittal (or manually signed facsimile
thereof) with any required signatures and any other required documents, will he
received by the Exchange Agent at one of its addresses set forth above within
five business days after the Expiration Date.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL
AND Existing Notes TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME PERIOD
SET FORTH AND THAT FAILURE TO DO SO COULD RESULT IN FINANCIAL LOSS TO THE
UNDERSIGNED.
Name of Firm
- -------------------------------------------
--------------------------------------
Authorized Signature
Address
- -------------------------------------------------
Name
--------------------------------------
Please Print or Type
- ------------------------------------------------------------
Title
--------------------------------------
Zip Code
Area Code and Tel. No.
- ------------------------------- Date
--------------------------------------
Dated:
- ------------------, 1997
NOTE: DO NOT SEND EXISTING NOTES WITH THIS FORM; EXISTING NOTES SHOULD BE SENT
WITH YOUR LETTER OF TRANSMITTAL SO THAT THEY ARE RECEIVED BY THE EXCHANGE AGENT
WITHIN FIVE BUSINESS DAYS AFTER THE EXPIRATION DATE.
